Fundamentals of Risk Management


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Fundamentals of Risk Management

Defining the
upside of risk
Upside of risk
Defining the upside of risk is one of the greatest challenges for risk management.
The overall contribution of risk management is to help deliver mandatory obligations
assurance, enhanced decision making, as well as effective and efficient core processes 
(MADE2). However, there is a desire amongst risk management practitioners to 
identify a more dynamic range of benefits that can be delivered by successful risk 
management. Often, these are the unexpected or greater than expected benefits of 
managing risk.
A range of interpretations of the phrase ‘upside of risk’ is possible, and some of 
these are offered in Table 14.1. There is a belief amongst risk management practi-
tioners that risk management makes a significant contribution to the operation of 
the organization, and this contribution is often described as the upside of risk. In 
simple terms, the upside of risk is achieved when the benefits obtained from taking 
the risk are greater than any benefit that would have resulted from not taking it. In 
other words, the organization has received an overall benefit from undertaking the 
activities that resulted in exposure to the risk or set of risks involved.
For example, a manufacturing company that produces waste by-products that 
create a disposal problem may achieve the upside of risk by selling the unwanted by- 
product or by identifying a means of adding value to the waste product and selling 
it as another product stream. This is an example of identifying a difficulty for the 
business and, in solving that difficulty, acquiring additional benefits that had not 
been foreseen and were not otherwise available.
In simple terms, the upside of risk may just be the reward for taking the risk in the 
first place. Climbing a challenging mountain may be a significant risk, but the upside 
of taking that risk is when the climber has safely reached the summit and gains that 
reward. Another approach is to say that risk management is concerned with achiev-
ing the best possible outcomes and reducing uncertainty or volatility. If this is accepted 
as a definition of risk management, the upside of risk is simply achieving what the 
organization set out to achieve, by taking the risks that were embedded in the strategy, 
tactics and/or operations that were involved.

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