Fundamentals of Risk Management


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Fundamentals of Risk Management

Achieving benefits
These reward enhancement options can be discussed at strategy meetings and some 
options may be adopted, including the introduction of bonus and incentive schemes for 
staff and management. Clearly, in light of the lessons learnt from the global financial 
crisis, these incentive schemes should be balanced and should not reward excessive 
risk taking.
This chapter has considered the principles of risk management that describe what 
risk management should be and what it should deliver. Although organizations may 
realize that there are benefits from implementing risk management, the successful 
implementation has to be undertaken as an initiative or project. Appendix C sets 
out a detailed consideration of the stages involved in successful enterprise-wide risk 
management.


Introduction to risk management 
64
There is a popular question amongst risk managers: ‘why do cars have brakes?’ The answer 
offered is that they enable the car to go faster. This implies that risk management should be 
viewed as the brakes on the activities of the organization. This is a wholly negative view that 
presents risk management in an unfavourable light.
Risk management is also an enabler of operations, tactics and strategy. Therefore, it is 
worth revisiting the above question. To continue the metaphor, risk management should,
in fact, be seen as all three pedals in a car. Risk management as the brakes mitigates 
operational hazards and helps the organization avoid disruption, thereby enhancing 
operational efficiency.
The clutch pedal is concerned with changing gear in a car in the same way as projects 
implement the tactics in an organization. Therefore, risk management is also the clutch pedal 
in that it helps assist with the successful management of tactical change and the reduction
of the associated uncertainty, so that the organization can achieve successful change.
Finally, the accelerator helps the car go faster and risk management fulfils this function
by helping the organization embrace strategic opportunities and seek rewards – thereby 
ensuring that the organization designs and successfully implements a strategy that delivers 
exactly what is required.
risk management is not just the brakes
There is a more detailed consideration of the barriers to and enablers for
implementation of risk management in Chapter 24. The most important point to 
make is that the support of senior management and (ideally) the sponsorship of a 
board member are essential. Also, an implementation plan to address the concerns
of employees and other stakeholders is needed. Although risk management is vital
to the success of an organization, many managers may need to be persuaded that the 
suggested implementation approach is correct.
It is important to note that not all activities and functions undertaken by managers 
should be claimed by the risk manager as being undertaken in the name of risk 
management. Not all activities in the organization will be driven by risk manage-
ment, even if all decisions, processes, procedures and activities have risks embedded 
within them.
Much of this book is concerned with risk management input in operations. It is 
likely that operations will be impacted by hazard risks and so the focus of risk
management in relation to operations is on hazard management. In order to achieve 
the maximum benefit from risk management input in operations, organizations
need instead, however, to focus on loss control. Loss control is a combination of loss 
prevention, damage limitation and cost containment. 
Projects should be completed on time, to budget and to specification, performance 
or quality. Inevitably, there will be a considerable amount of uncertainty associated with 



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