Fundamentals of Risk Management

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Introduction to risk management 
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The maturity of the risk management discipline is now such that the links with insurance 
are much less strong. Insurance is now seen as one of the risk control techniques, but 
it is only applicable to a portion of hazard risks. Risks related to finance, commercial, 
marketplace and reputational issues are recognized as being hugely important,
but outside the historical scope of insurance. The range of different approaches to 
risk management is illustrated by the definitions of risk management as set out in 
Table 4.1.
Providing a suitable definition of risk management is as difficult as providing a 
suitable and universally accepted definition of risk. Because it is commonly accepted 
that risk management should be concerned with the hazards, uncertainty and oppor-
tunities, a description and definition is required that reflects the broad scope of risk 
management activities. The following definition is offered by the author:
Risk management is the set of activities within an organization undertaken to deliver
the most favourable outcome and reduce the volatility or variability of that outcome.
The increasing importance of risk management can be explained by the list of issues 
set out in Table 4.2. Many of these issues demonstrate that the application of risk 
management has moved a long way from its origins in the insurance world. 
Nevertheless, the insurance origins of risk management remain vitally important and 
are still part of the approach to hazard management.
This chapter considers the nature of risk management and the established stages 
that build into the risk management process. Historically, the term risk management 
has been used to describe an approach that was applied only to hazard risks. The 
discipline is now developing in a way that will enable risk management to make a 
contribution to the improved management of control risks and opportunity risks.