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BUS404: Risk Management

Unit 1: The Nature of Risk: Losses and Opportunities   Risk management has become a focal point in business practices and societal decision-making in the twenty-first century.  The focus on risk management has become particularly important with the recent crisis of the global financial systems that arose with the failures in predicting, preventing, and containing risk.  As a focused field of study, risk management draws on core knowledge from law, engineering, finance, economics, medicine, psychology, accounting, mathematics, statistics, and other fields to create a holistic and sustainable decision-making framework.  This unit introduces the fundamentals of risk management, including the definition of risk and roles of risk in decision-making.  You will also learn to distinguish between different classifications of risks and attitudes toward risk.

Unit 1 Time Advisory
This unit should take you approximately 5 hours to complete.
       Subunit 1.1: 1 hour
       Subunit 1.2: 1 hour
       Subunit 1.3: 1 hour
       Subunit 1.4: 1 hour
       Subunit 1.5: 1 hour

Unit1 Learning Outcomes
Upon successful completion of this unit, the student will be able to: 
- Explain the concept of risk. - Differentiate between risk and uncertainty. - Define risk as a consequence of uncertainty and within a continuum of decision-making roles. - Describe the three major types of risk attitudes. - Discuss how attitudes toward risk affect decision-making.

1.1 The Notion and Definition of Risk   - Reading: Risk Management for Enterprises and Individuals: “Chapter 1: The Nature of Risk: Losses and Opportunities:” “Section 1.2: The Notion and Definition of Risk” Link: Risk Management for Enterprises and Individuals:“Chapter 1: The Nature of Risk: Losses and Opportunities:” “Section 1.2: The Notion and Definition of Risk” (HTML)
 
Instructions: Please click on the link above, and read Section 1.2 of the textbook.  Also, complete the Discussion questions at the end of the reading.  This reading defines risk as a consequence of uncertainty.  Pay attention to the Venn diagram in Figure 1.3, which illustrates risk-reward outcomes.  Please note that this reading also covers the topics outlined in sub-subunits 1.1.1 through 1.1.3.
 
Reading, note-taking, and answering the Discussion questions should take approximately 1 hour to complete.

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1.1.1 Risk as a Consequence of Uncertainty   Note: This topic is covered by the reading assigned below subunit 1.1.  In particular, focus on the text below the heading “Risk as a Consequence of Uncertainty.”

1.1.2 The Role of Risk in Decision Making   Note: This topic is covered by the reading assigned below subunit 1.1.   In particular, focus on the text below the heading “The Role of Risk in Decision-Making” as well as review Figure 1.3.

1.1.3 Definitions of Risk   Note: This topic is covered by the reading assigned beneath subunit 1.1.  Focus on the text below the heading “Definition of Risk.”

1.2 Attitudes Toward Risk   - Reading: Risk Management for Enterprises and Individuals: “Chapter 1: The Nature of Risk: Losses and Opportunities:” “Section 1.3: Attitudes toward Risks” Link:Risk Management for Enterprises and Individuals: “Chapter 1: The Nature of Risk: Losses and Opportunities:” “Section 1.3: Attitudes toward Risks” (HTML)
 
Instructions: Please click on the link above, and read Section 1.3 in its entirety for an introduction to 3 major types of risk attitudes: risk averse, risk seeker, and risk neutral.  Also, complete the Discussion questions at the end of the reading.  Remember to take notes as you read. 
 
Reading, note-taking, and answering the Discussion questions should take approximately 1 hour to complete.

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1.3 Types of Risks   - Reading: Risk Management for Enterprises and Individuals:“Chapter 1: The Nature of Risk: Losses and Opportunities:” “Section 1.4: Types of Risks” Link: Risk Management for Enterprises and Individuals: “Chapter 1: The Nature of Risk: Losses and Opportunities:” “Section 1.4: Types of Risks” (HTML)
 
Instructions: Please click on the link above, and read Section 1.4 in its entirety for an introduction to pure risks, speculative risks, diversifiable and non-diversifiable risks, and enterprise risks.  Also, complete the Discussion questions at the end of the reading.  Note that this reading also covers the topics outlined in sub-subunits 1.3.1 through 1.3.3.
 
Reading, note-taking, and answering the Discussion questions should take approximately 1 hour to complete.
 
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1.3.1 Pure versus Speculative Risk Exposures   Note: This subunit is covered by the reading assigned beneath subunit 1.3.  Focus on the section titled “Pure Versus Speculative Exposures.”  Also, pay attention to Table 1.2, which provides examples of pure risks and speculative risks.

1.3.2 Diversifiable and Nondiversifiable Risks   Note: This subunit is covered by the reading assigned beneath subunit 1.3.  Focus on the section titled “Diversifiable and Non-Diversifiable Risks.”

1.3.3 Enterprise Risks   Note: This subunit is covered by the reading assigned beneath subunit 1.3.  Focus on the section titled “Enterprise Risks.”  Study Figure 1.6, and make sure you understand the concepts addressed in this figure before moving on to the next subunit.

1.4 Where We Have Been – Key Takeaways   - Reading: Risk Management for Enterprises and Individuals: “Chapter 1: The Nature of Risk: Losses and Opportunities:” “Section 1.5: Perils and Hazards” Link: Risk Management for Enterprises and Individuals:“Chapter 1: The Nature of Risk: Losses and Opportunities:” “Section 1.5: Perils and Hazards” (HTML)
 
Instructions: Please click on the link above, and read Section 1.5 in its entirety.  Also, complete the Discussion questions at the end of the reading.  Study the discussion on moral hazards carefully; in this reading, you will learn the difference between perils and hazards.
 
Reading, note-taking, and answering the Discussion questions should take approximately 1 hour to complete.

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Unit 1 Assessments   - Assessment: Pearson Education: George E. Rejda's Principles of Risk Management and Insurance: “Chapter 1: Introduction:” “Self-Assessment Quiz” The Saylor Foundation does not yet have materials for this portion of the course. If you are interested in contributing your content to fill this gap or aware of a resource that could be used here, please submit it here.

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  • Assessment: The Saylor Foundation’s “Assessment for Unit 1” Link: The Saylor Foundation’s “Assessment for Unit 1” (PDF) and “Unit 1 Answer Key” (PDF).
     
    Instructions: Complete this assessment after you finish the readings of Unit 1. Write down your answers before checking with the Answer Key.