Dynamic risk

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Dynamic risk is a risk that results from changes in the economic, social, political, economic or technological environment. It depends on external variables such as competitiveness or economics, and internal variables such as consumer requirements and specific organization decisions. This type of risks usually applies to a larger group of people and the difficulty of anticipation is associated with a lower incidence. An example of such risk may be technological changes related to the launch of a better quality product at a lower price, which will result in a decrease in sales among previous industry leaders "Dynamic risks are the results of adjustments to misallocation of resources, and thus bring gains to the society to the long run"[1]. To fully present the characteristics of dynamic risk, it was compared with the static risk in Table 1. Speaking of dynamic risks, it is important to present static risks due to their opposite nature.

Comparison of dynamic and static risk

Dynamic risk[2] Static risk[3]
mainly speculative risks maily pure risks
"dynamic risk could affect a great number of persons and they would believe to be less predictable than static risks, because they don’t occur with any extent of regularity"[4] "unlike dynamic, static risks are predictable and would occur with some regularity"[5]in addition they affect individuals or small groups of people.
depending on external and internal factors "static risks would be those risks that would be not dependable on the evaluation of the competitive environment in which the organization operates, , but would rest merely on the internal factors of the entity"[6]
"these type of risks would not be insurable since they would involve a speculative process behind"[7] insurable
"normally benefit society over the long run, since they are the results of adjustment to the misallocation of resources"[8] they are usually harmful and do not benefit society

Dynamic risk assessment

Dynamic risk assessment is used to deal with uncertainties and unidentified threats in situations that are constantly changing. "The traditional risk assessment models, which assess risks based on their individual impact or likelihood have been widely applied by many organizations. The existing models, however, fail to recognize the interconnections among the risks which may reveal enhanced assessment dimensions and more pertinent risk mitigating actions. In response to this, the Dynamic Risk Assessment (DRA) has been developed (…)"[9].

Examples of using the dynamic risk model

The application of dynamic risk model has brought many benefits in various areas of life. An example would be research conducted in the field of medicine (diabetes). "Dynamic risk models, which incorporate disease-free survival and repeated measurements over time, might yield more accurate predictions of future health status compared to static models"[10]. Road infrastructure is another area in which the dynamic risk model has been successfully applied. An example would be research to improve safety on highways located nearby or within hydrotechnical dams.

The application of hazard analysis model, allowed among others[11]:

  • "to predict the dangers of simple and complex technical systems, using established and systematic methods;
  • to carry out the ranking of the component "machine" systems by hazard classes in the conditions of strong uncertainty;
  • to rank all types of the "Man-Machine-Environment system" according to hazard criteria and compliance with regulatory documentation".

Advantages of Dynamic risk

Dynamic risk can be advantageous as it can identify new opportunities, help in decision-making, and create a competitive edge. Here are some of the advantages of dynamic risk:

  • It can help organizations identify new opportunities that are not available in their current environment. This can enable them to take advantage of market changes and capitalize on new markets.
  • Dynamic risk can also help organizations to make better decisions by understanding the risks associated with specific decisions. This helps in understanding the full implications of the decision and making sure that the organization is taking the right course of action.
  • Dynamic risk can also create a competitive edge as it can be used to anticipate changes in the market and prepare for them. This can help organizations stay ahead of the competition and increase their market share.
  • Finally, dynamic risk can help in creating a culture of innovation within the organization. By understanding the risks associated with specific decisions, organizations can create an environment where new ideas are accepted and explored. This can help create a culture of innovation and creativity within the organization.

Limitations of Dynamic risk

  • Dynamic risk is difficult to predict as it depends on a variety of external factors that may be difficult to measure or anticipate.
  • The effects of dynamic risk can be difficult to manage, as the external factors that contribute to the risk can be unpredictable and changes can occur quickly.
  • Dynamic risk may also increase over time, as changes in the environment can result in new threats or opportunities that may be difficult to anticipate.
  • Dynamic risk can also be costly to manage, as organizations may need to invest in new processes, systems, or personnel to respond to changing conditions.

Other approaches related to Dynamic risk

  • The other approaches related to Dynamic risk are:
  • Vulnerability Analysis - This is an assessment of the potential effects of dynamic risks on an organization or system. It helps identify and prioritize areas of risk and develop appropriate strategies to mitigate them.
  • Risk Perception - This is the ability to identify and assess the level of risk associated with a given situation. This helps organizations to determine the amount of resources and effort to be dedicated to managing dynamic risks.
  • Risk Management - Risk management is the process of identifying, assessing, and controlling dynamic risks. It involves identifying risks, assessing their impacts, and developing strategies to manage them.
  • Risk Mitigation - This is the process of minimizing the impact of dynamic risks by implementing strategies to reduce their impact. These strategies can include preventive measures, such as implementing procedural or structural changes, or curative measures, such as providing additional resources or training.

In summary, Dynamic risk management involves assessing and managing the risks associated with changes in the economic, social, political, economic or technological environment. It requires an understanding of vulnerability analysis, risk perception, risk management, and risk mitigation in order to effectively manage dynamic risks.

Footnotes

  1. Sethi J., Bhatia N. 2012
  2. Cienfuegos Spikin I. 2013 p.98
  3. Cienfuegos Spikin I. 2013 p.98
  4. Cienfuegos Spikin I. 2013 p.98
  5. Cienfuegos Spikin I. 2013 p. 98
  6. Cienfuegos Spikin I. 2013 p.98
  7. Cienfuegos Spikin I. 2013 p.98
  8. Cienfuegos Spikin I. 2013 p.98
  9. Kristamuljana A., van Loon RA B., Bolt J.,Terblanché A. 2018
  10. Parast L., Mathews M., Friedberg M.W. 2019
  11. Rozhok A., Tatarinov V. 2019


Dynamic riskrecommended articles
Technological riskCompetitive riskBusiness risk managementStrategic foresightTechnological portfolioAccident managementMacro environment analysisScenarios of processes in environmentCompetitive disadvantage

References

Author: Aleksandra Wróbel