Fundamentals of Risk Management

Loss control
Risk likelihood
Risk likelihood indicates how often a risk is expected to materialize. It can also be 
described as risk frequency. However, using the phrase risk frequency assumes that 
the risk occurs on a regular basis. The more general term risk likelihood is used 
throughout this book. Risk likelihood can be determined on an inherent basis for 
any particular risk, or can be determined at the current level of risk, paying regard 
to the control measures that are in place.
For hazard risks, previous history may be a good indication of how likely the risk 
is to occur. For a fleet of motor vehicles, there is certain to be a history of vehicle
accidents and breakdowns. Controls will be in place to reduce the likelihood of these 
events. A road haulage company should assess the likelihood of vehicle breakdowns 
on an inherent basis and also on the basis of current controls. There are, however, 
difficulties in assessing the inherent likelihood of vehicle accidents, because certain 
assumptions would have to be taken about what effect the removal of controls 
would have on the likelihood of accidents.
Even if an assessment of the breakdown likelihood at the inherent level cannot be 
undertaken, the company will still need to determine the importance of the vehicle 
maintenance programme in preventing vehicle breakdowns and whether the main-
tenance activities provide value for money. In relation to vehicle accidents, the
company may have driver-training procedures in place and, again, the effectiveness 
of these procedures can be determined by evaluating inherent and current levels of 
risk. Whether levels of risk are evaluated at inherent or at current level, there is no 
doubt that benchmarking the performance of the fleet against the average perfor-
mance of the industry will be a useful exercise.
An example of a control measure that has an effect on the magnitude of the risk 
but may have no effect on its likelihood is the use of seat belts in cars. In simple 
terms, the driver wears a seat belt to reduce the impact of an accident, because the 
seat belt has no effect on the likelihood of an accident occurring. The driver wears 
the seat belt as a control measure for when the accident happens.
A sports club will wish to reduce the chances of a key player being absent. The 
absence may be caused by inappropriate behaviour by a player, resulting in the need 
for sanctions against that person. Accordingly, the club may decide to introduce