17 January 2022

Risk Management : introduction and definitions

Introduction

The understanding of risk, the methods of assessment and management, the descriptions of risk and even the definitions of risk differ in different practice areas (business, economics, environment, finance, information technology, health, insurance, safety, security etc).

Risk Modern definition

  • Risk is effect of uncertainty on objectives
    • The international standard definition of risk for common understanding in different applications is “effect of uncertainty on objectives”
    • An effect is a deviation from the expected – positive or negative.
    • Objectives can have different aspects (such as financial, health and safety, and environmental goals) and can apply at different levels (such as strategic, organization-wide, project, product and process).
    • Risk is often characterized by reference to potential events and consequences or a combination of these.
    • Risk is often expressed in terms of a combination of the consequences of an event (including changes in circumstances) and the associated likelihood of occurrence.
    • Uncertainty is the state, even partial, of deficiency of information related to, understanding or knowledge of, an event, its consequence, or likelihood.
  • This definition was developed by an international committee representing over 30 countries and is based on the input of several thousand subject matter experts.
    • It was first adopted in 2002.
    • Its complexity reflects the difficulty of satisfying fields that use the term risk in different ways.
    • Some restrict the term to negative impacts (“downside risks”), while others include positive impacts (“upside risks”).

Project risk definition

  • Project risk is defined as, “an uncertain event or condition that, if it occurs, has a positive or negative effect on a project’s objectives”.
  • Project risk management aims to increase the likelihood and impact of positive events and decrease the likelihood and impact of negative events in the project.

PMI definition

  • The PMBOK® Guide describes risk as an uncertain event or condition, that if it occurs, has a positive or negative effect on a project’s objective.
    • The key element of this definition is that the effect of the uncertainty, if it occurs, may be positive or negative on the objectives of the planned endeavour.

Risks vs problems

  • Risk is in the future.
  • Problem is in the present.
  • If a risk happen, it becomes a problem.

ISO31000 standard

  • Standard for risk management, ISO 31000, provides principles and generic guidelines on managing risks faced by organizations.

Risk Management definition

  • Risk Management refers to a systematic approach to managing risks, and sometimes to the profession that does this.
  • A general definition is that risk management consists of “coordinated activities to direct and control an organization with regard to risk”.
  • For organizations whose definition of risk includes “upside” as well as “downside” risks, risk management is “as much about identifying opportunities as avoiding or mitigating losses”.
  • It then involves “getting the right balance between innovation and change on the one hand, and avoidance of shocks and crises on the other”

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Created : 29/12/21

Updated : 08/01/2022

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