Methods of risk assessment

The economy is always characterized by uncertainty, manifested in varying degrees. This is due to the factors of the entire system of the economy that business entities can not provide with sufficient probability to adapt to them.

The person's ability to adapt to uncertainty is called a risk appetite. And the risk itself is a market situation, provoked by uncertainty, because of which it is impossible for anything (events, ways of behavior of business entities) to anticipate and forecast accurately, with a high degree of probability.

The economic life of the society has a very wide range of risks. For simplicity, they are grouped according to the conditions of occurrence.

1. Production risks depend on technological features and natural conditions. They are also determined by those factors that affect the level of costs of the firm.

2. Commercial risks arise in the process of selling services and goods. They are related to the volume of purchases, the change in prices, the costs after the robbery or damage to the goods, and so on.

3. Financial risks arise in the sphere of relations of firms with financial institutions (for example, with banks).

4. Interest risks are associated with possible costs due to a change in asset prices.

5. Credit risks are associated with the repayment of a loan late or generally with its non-return.

The main methods of risk assessment have significant differences. This is due to the purpose with which they are used. Thus, statistical methods of risk assessment are most often used for mass phenomena. They are based on the theory of large numbers. These methods of risk assessment are based on information taken over a long period of time, on events that can adversely affect the fate of economic entities. If such events occurred earlier, then it is calculated, with what frequency they occurred. Also, statistical methods for assessing risks are based on calculating the probability that some events will occur that can have negative consequences.

Qualitative methods of risk assessment are applied in those cases that occur much less frequently and can not be determined statistically. They are carried out on the basis of knowledge and experience of experts. Therefore, these methods of risk assessment are also called the method of peer review.

The level of risk depends on the value (probability of occurrence of undesirable events), which is expected of him, and on the possible outcome options. For example, to calculate the probability that a loan will not be returned to 2% of debtors, they use the information for twenty years. But in a small time interval the number of those who did not return it varies from 0% to 20%. The higher such variability of the oscillations of a possible result, the higher the degree of risk, and vice versa.

Differences in the ways people behave in a market situation depend on their inherent different propensity to risk. Experience shows that most people are not risk-averse. As a rule, entrepreneurs make up 5-7 percent of the total population. And this amount is enough to provide the society with the necessary services and goods. This suggests that the ability to entrepreneurship is just as limited a resource of the economy as the rest. Among entrepreneurs themselves, you can also find inclined and not prone to risk. This is explained not only by the mental state, but also by the economic law of the descending marginal utility.

The same people who are not at all inclined to risk will look for ways to avoid it or at least limit it. Risk they will agree only in the case when the average level of profit will be attractive to such an extent that it can cover the costs of risk.