Risk and Foreign Direct Investment - Index of

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Risk and Risk-generating Events
There are never likely to be enough major capital investment
decisions facing a company within a reasonable period of time
for it to be proved statistically that decisions taken on the
basis of an analysis of the risks are better than those taken
without any such analysis.
It should be recognised that the use of risk evaluation in
business is in essence an ‘act of faith’.
(Hull 1980: 135)
This chapter starts by indicating how necessary it is to bring together the
disparate approaches to risk in a genuinely integrated manner which
assimilates all risk factors and the different disciplinary approaches to risk.
It defines what risk is and shows the universality of that risk with careful
distinctions made between incidence, impact and response. The analysis
shows how such risk-generating events might be classified. One method of
classification is by the different levels at which risk arises and has to be
controlled. The analysis then turns to the response to risk by considering
the appetite for risk, or degree of risk aversion, of those confronting risk.
Part of such an analysis is consideration of the nature of risk exposure for
organisations and individuals, notably different stakeholder groups. In
conclusion, the chapter analyses the connection between risk and return
which is considered a positive one by financial theorists but paradoxically
has appeared in the empirical data to be negative; successful organisations
are able to increase returns and reduce risk simultaneously.
There are six sections in the chapter:
• The first section argues the need to take an integrated approach in
dealing with the various risk factors.
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