Risk is an inherent part of any business, investment, or transaction. It is important to understand the characteristics of risk and how they can affect the decisions you make. Risk can be categorized into four distinct characteristics: uncertainty, exposure, potential gain, and potential loss.
Uncertainty
Uncertainty is a characteristic of risk that refers to the level of unknown or unpredictable outcomes associated with a decision. It can range from a low level of uncertainty, where the outcome of a decision is known, to a high level of uncertainty, where the outcome is unknown.Exposure
Exposure is the degree to which a decision is exposed to potential losses or gains. A high level of exposure means that there is a greater potential for both losses and gains. On the other hand, a low level of exposure means that the potential for losses or gains is limited.Potential Gain
Potential gain is the potential for a decision to produce a positive result. It can range from a low potential gain, where the chances of success are minimal, to a high potential gain, where the chances of success are greater.Potential Loss
Potential loss is the potential for a decision to produce a negative result. It can range from a low potential loss, where the chances of failure are minimal, to a high potential loss, where the chances of failure are greater.Comparison
| Category | Uncertainty | Exposure | Potential Gain | Potential Loss |
|---|---|---|---|---|
| Definition | Level of unknown or unpredictable outcomes | Degree of potential losses or gains | Potential for a positive result | Potential for a negative result |
| Range | Low - High | Low - High | Low - High | Low - High |