• Risk

    Chapter 3 - Cotton marketing - Insurance in an uncertain world 


    A risk, according to the Chambers Dictionary, is a ‘hazard, danger, chance of loss or injury, degree of probability of loss, person, factor or thing likely to cause danger, to incur the chance of unfortunate consequences by doing something.’

    A combination of factors are associated with the term ‘risk’, including uncertainty, cause of loss and level of loss. The level of loss is a combination of frequency (how often the event may happen) and the severity (the financial impact of the event).

    Management of risk

    In all businesses it is important to manage the impact of risk according to the severity faced. This is in terms of both business profitability and reputational risk (with clients and financiers). An audit of the risks your organization faces enables you to understand which of these risks can and should be ‘transferred’, and to assess the resulting cost. This transfer of risk can be made through a number of methods including better cost control or collateral management, or more traditionally, through the purchase of insurance.

    Figure 3.3 below illustrates the process for effective risk management. Initially risks should be identified and analysed according to how severe they could be and at what frequency they might occur. Following this, a business must decide how to mitigate these risks, by either retaining and managing or transferring the risk. Whichever option is chosen, it is important to monitor and review the exposure to ensure the organization is not exposed to unnecessary risk. 

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    Cotton Exporter's Guide

    Brochure - African cotton promotion
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