Risk is a term that is regularly used and that is generally understood in context. As used in this discussion, which one of the following is one of the two elements within the definition of risk?

Risk is a term that is regularly used and that is generally understood in context. As used in this discussion, which one of the following is one of the two elements within the definition of risk?

• A. Uncertainty of outcome
• B. Likelihood of injury or damage to property
• C. Probability of financial loss
• D. Opportunity for profit

Answer: (A)

Risk is about the possibility that a loss may occur, which involves two parts: exposure to loss and uncertainty about whether that loss will happen. The defining piece here is the uncertainty of the outcome. If the outcome were certain, there would be no risk. The other ideas described—likelihood or probability of loss—are ways we measure risk, not the defining element itself, and an opportunity for profit isn’t about risk at all. For example, a property is exposed to potential fire damage, but whether a fire actually causes a loss is uncertain; that uncertainty is what constitutes risk.

Risk is about the possibility that a loss may occur, which involves two parts: exposure to loss and uncertainty about whether that loss will happen. The defining piece here is the uncertainty of the outcome. If the outcome were certain, there would be no risk. The other ideas described—likelihood or probability of loss—are ways we measure risk, not the defining element itself, and an opportunity for profit isn’t about risk at all. For example, a property is exposed to potential fire damage, but whether a fire actually causes a loss is uncertain; that uncertainty is what constitutes risk.