Fundamentals of Risk Management

Defining the upside of risk 
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Consider two simple examples where the global financial crisis has resulted in benefit or 
upside of risk for organizations. 
An international restaurant brand has discovered that landlords in city centre locations 
are looking for tenants. This has enabled the restaurant business to relocate into busier parts 
of a city centre at reduced rents, whilst also increasing trade and profits.
With the reduction in industrial activity resulting from the global financial crisis, an 
electricity generating company has been able to decommission old, costly generating 
facilities, and thereby reduce the overall cost per unit of producing electricity. This has 
increased profit per unit and enabled the company to revise strategic plans for future 
additional generating capacity to reduce generating costs over the long term.
embracing opportunities
Upside in operations
It is a fundamental requirement for organizations that they have effective and efficient 
operations. Efficient operations should make best use of the resources of the organ-
ization and should operate without unplanned disruption. Undertaking efficient 
operations that use minimum resources and produce maximum output will deliver 
the greatest benefit to the organization. Operations also need to be effective in that 
they represent the best way of conducting the operations. For example, it is possible 
to have an efficient journey by car or bus across a busy city. However, the effective 
way to travel in many large cities is by means of the metro or underground system.
Risk management evaluation of operations can enable the organization to deliver 
the most effective and efficient activities, operations and processes. By delivering the 
most effective and efficient operations, a commercial organization can achieve advan-
tages over a competitor and undertake work for a lower cost and still make a profit.
For public services, the delivery of effective and efficient operations is equally 
important. Most public services have targets for delivery of those services that can 
be complex and challenging. Failure to anticipate and manage risks appropriately 
can undermine the delivery of public services. The contribution of risk management 
will also help achieve sustained improvements in service by bringing flexibility 
and resilience to the way in which services are delivered. This contribution by risk 
management may be considered to be part of delivering the upside of risk.
In a competitive marketplace, achieving the upside of risk will often be to the 
detriment of competitors, suppliers or other third parties. However, seeking the 
upside of risk taking requires awareness of a possible unexpected downside. Deciding 
not to do something because it appears to have become more hazardous may actually 
have been successful and the correct project was selected. A negative difference will 
need to be mitigated and a positive difference will be embraced, as this is one example 
of the upside of risk.

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