Tashkent institute of finance department «state finance» presentation on the discipline “Finance” on the Theme

Risk management stages

Theme 2.17. «Finance and risks»

Risk identification and risk assessment

Copyright © 2020 Ye. А. Akhunova

Risk identification consists in determining which types of risk the subject of analysis is most exposed to, whether it is a household, company or other economic entity. A household and a company often do not realize all the types of risk they face.

For example, if a person did not miss a single working day due to illness or because of an injury, then he is unlikely to think about the risk of disability. Maybe he will decide that it makes sense to insure against the event of disability, or maybe he won’t think about it.

On the other hand, there are types of risk from which a person is willingly insured against being not really exposed to them. For example, many lonely people, who have no one to care about, make insurance contributions to the pension fund, so that later, upon retirement, use the accumulated amount.

For effective risk identification, it is necessary to consider the risk problem as a whole, taking into account all the factors affecting it.

A risk assessment is a quantitative determination of the costs associated with the types of risk that were identified in the first stage of risk management.

As regards the risk of investing in financial assets, households and companies often need expert advice to clarify the degree of their exposure to a particular risk and quantify the relationship between risk and income from investing in different categories of assets, such as stocks or bonds. In such cases, they usually turn to professional investment advisors, mutual funds and other financial intermediaries or other financial services firms that help to make a correct risk assessment.