Risk Management Major Components

Risk

Risk can be de?ned as "a measure of the anticipated difference between

expectation and reality".

3

This difference exists because the future is

unknown.

Another de?nition of risk expresses it as the chance of exposure to the

adverse consequences of future events.

4

The two de?nitions imply three

aspects of a situation, which contribute towards risk – choice, conse-

quence and likelihood. Both consequences and likelihood must be under-

stood to obtain a true appreciation of the risks and opportunities

involved in any choice.

Risks exist from the outset of an activity. They generally arise because

either there is a lack of certainty about the activity being undertaken or

that hazards exist within it. Thus, the nature of risks are identi?able in

terms of:

control

information

resources (money, time, skills and equipment).

How effectively a risk is managed depends greatly on whether the organ-

isation can identify what hazards exist, the circumstances that may arise,

the areas of uncertainty that lie within the activity, and whether it can

exert control over these causes.

6

When not properly managed, risk often