The concept of risk is essential to many problems in economics and business. Risk measurements play a pervasive role in economic, political, social, and technological issues. Risk preference refers to the preferability of an alternative under conditions of risk. Typically, it is a matter of perception or estimation.Despite the commonly accepted importance of risk, there is little consensus on its definition. Risk is usually perceived as the possibility of injury or loss attached to the choice of a given alternative of an action. Risk measure is a real-valued function numerically representing an individual decision maker's risk ordering on a given set of alternatives. Risk measuring allows quantifying the amount of perceived risk.
Read Why do business professionals choose ready-to-use KPIs? to find out the answers to these questions:
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Risk in inherent in all environments, be it internal or external in nature. One has to look after the aspect for effectively gauging the area and making sure that 'pro-active' approach is adopted.
Dangers are embedded in surroundings like anything. This makes it important that a strategy to gauge the 'surroundings' for their risk level is carried out. This will help in moving in a thoughtful manner. Also, one can sense the situations early than is otherwise possible, in the absence of this tool.
These advantages favor the usage of the 'quantified' management strategy. The actual use starts with study of the subject in sufficient detail and picking up the metrics that count.
One has to be cautious in selecting the indicators in case of 'risk gauging' as not everything that counts is countable and not everything that is countable counts. In other words, 'connection of the desired and needed aspects' is to be established. Without such a co-relation all efforts might go in vain.
Therefore, the key is to spot the truly useful parameters and allot realistic values to those to know about uncertainty of surroundings. Further, one can ensure that things are in place by maintaining the numbers within the prescribed range in the issue of 'risk degree'.
This is the actual scorecard with Risk Metrics Performance Indicators and performance indicators. The performance indicators include: expected loss (el), expected exposure (ee) rate, unexpected loss, risk-adjusted return on economic capital (raroc), value-at-risk (var), liquidity risk, price transitory variable, illiquidity, interest rate risk, currency risk, commodity risk, capitalization.
Download a trial version of Risk Metrics Evaluation Balanced Scorecard or purchase a full version online.
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