What are risks?

• Because large strategic decisions are made infrequently compared to everyday functional decisions, they carry a significantly high level of risk and uncertainty
• Risk management refers to the practice of identifying potential risks in advance, analysing them and taking precautionary steps to minimise a firm's exposure to the risk
• The process of assessing risk is difficult, as firms need to balance risks with a high probability of occurring but lower loss value against a risk with high loss but a lower probability of occurrence
• Risk management also faces difficulties in allocating resources, this is the idea of opportunity cost
• Resources spent on risk management could have been spent on more profitable activities