Fundamentals of Risk Management

FIgURE 
12.2
Inherent, current and target levels of risk
Impact
Current
Target
Likelihood
Control 2
Control 1
Inherent

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Risk assessment
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The problem with describing the current level as the residual level is that there
is an implication that the level of risk is static and that the organization cannot
take any further risk mitigation action. Use of the phrase ‘current level’ gives a
much more dynamic feel to the risk management process and so the phrase is used 
throughout this book. However, the level of risk that is of interest to risk managers 
is the target level. This is illustrated in Figure 12.2 by the introduction of Control 2, 
which is intended to reduce the impact of the risk, so that the target level of risk is 
within the bottom left-hand quadrant of the risk matrix, or the tolerate/comfort 
zone.
When seeking to establish the target level of risk, a concept that is often used by 
health and safety practitioners is seeking to reduce the risk to the level that is ‘as low 
as reasonably practicable’ (ALARP). ALARP is one of the fundamental principles
of risk management for health and safety risks. It is not necessary to manage risk
to the point where it is eliminated, but to the point where the cost of additional
controls would exceed the benefits. The ALARP concept is illustrated in the text
box below.
The requirement for risks to be ALARP is fundamental and in simple terms it is a requirement 
to take all measures to reduce risk where doing so is reasonable. In most cases this is
not done through an explicit comparison of costs and benefits, but rather by applying 
established relevant good practice and standards. The development of relevant good 
practice and standards includes ALARP considerations, so in many cases meeting
those standards is sufficient. In other cases, either where standards and relevant good 
practice are less evident, or not fully applicable, measures must be implemented to
the point where the costs of any additional measures (in terms of money, time or trouble) 
would be grossly disproportionate to the further risk reduction (or safety benefit) that would 
be achieved.
as low as reasonably practicable (aLarP)
An organization will need to agree definitions for likelihood and impact. Both
likelihood and impact can be described in terms of low, medium, high and very high. 
Many organizations will need to be more specific than these generic descriptions, 
depending on the type of risk and the size, nature and complexity of the organization. 
Because impact is used to describe the range of consequences, it is more important 
for an organization to describe low, medium, high and very high in terms of impact. 
There should be consistency between the definitions used for impact and the bench-
mark test of significance described in Table 12.1.

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