Risk, Classification and Risk Management

Risk
Danger is a concept that denotes a potential negative impact to an asset or some characteristic of value that may arise from some present process or future event. In everyday usage, "risk" is often used synonymously with the probability of a loss. In professional risk assessments, risk combines the probability of an event occurring with the impact that event would have and with its different circumstances.
Risk does not always only refer to the avoidance of negative outcomes. In game theory and finance, risk is only a measure of the variance of possible outcomes. Insurance is a classic example of an investment that reduces risk — the buyer pays a guaranteed amount, and is protected from a potential large loss. Gambling is a risk increasing investment, wherein money on hand is risked for a possible large return, but also the possibility of losing it all. By this definition, purchasing a lottery ticket is an extremely risky investment (a high chance of no return, but a small chance of a huge return), while putting money in a bank at a defined rate of interest is a risk-averse course of action (a guaranteed return of a small gain).
Definitions of risk
There are many definitions of risk depending on the specific application and situational contexts. Generally, risk is related to the expected losses which can be caused by a risky event and to the probability of this event. The harsher the loss and the more likely the event, the worse the risk. Measuring risk is often difficult; rare failures can be hard to estimate, and loss of human life is generally considered irreplaceable.
The engineering definition of risk is:
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Financial risk is often defined as the unexpected variability or volatility of returns, and thus includes both potential worse than expected as well as better than expected returns....

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