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Explore the various dimensions of risk, from financial to human factors, and learn how to manage uncertainties effectively. Discover sources of risk like market, production, and institutional risks, and strategies to mitigate them for better outcomes. Enhance your risk literacy to make informed decisions in diverse scenarios.
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What is Risk? risk /risk/ Noun a special case of uncertainty where the outcomes and probabilities are known. In popular usage, risk is generally understood to mean future events for which the outcomes are uncertain.
Risk & Outcomes Risk does not always imply a negative outcome Uncertain future events may result in good, bad our neutral outcomes
Ability to Manage Risk Few people are trained to evaluate risk in any formal way “…Most world societies lack risk literacy and citizens are generally not risk savvy…” Information provided by trusted advisors is often inaccurate or incomplete
Risk Savvy With risk, simple rules can often clarify the choices open to us Risk savvy can be defined as being astute or wise in risk decision making
Sources of Risk • Five distinct sources of agricultural enterprise risk • Market risk • Production risk • Institutional risk • Human risk • Financial risk.
Marketing & Price Risk • Include the prices of inputs or outputs that change after you commit to a plan of action • Sources of market risk include: total national production, government programs, demand (including quality issues), and seasonal effects
Production Risk • Might be described as uncontrollable events such as weather, pests or disease that make yields, quality, or outputs unpredictable. • Sources would include: weather, pests, disease, genetic variations, and timing of operations.
Institutional Risk • Include government or other institutional rules, regulations and policies which effect profitability through costs or returns • Sources include: • Changes in social attitudes • Changing regulation about land use and environmental quality • Lawsuits for accidents or misuse of chemicals.
Financial Risk • The extra risk that is attached to borrowing outside capital to make the business function. • May be thought of as the added variability resulting from debt financing. • Sources include • Losing a lease; production • Prices or casualty losses • Unstable financial partners • Anything that would negatively affect cash flow • Ability to meet debt obligations
Human Risk • Arises from the character, health or behavior of the people involved in your business. • Risks include: health issues, divorce, the possibility of losing a key employee, or the moral or the mental state of the work force.
