Fundamentals of Risk Management

Hazard risk zones
Although the 4Ts of hazard response can be illustrated on a simple risk matrix, such 
as Figure 16.1, the options are not that clear cut. It can be seen that the tolerate and 
terminate options meet at the centre of the risk matrix. It is not sensible to suggest 
that a small increase in risk likelihood and potential impact would completely change 
the approach of the organization to that particular risk.
Figure 16.3 provides a slightly more realistic analysis by providing a diagram that 
builds on Figure 16.1. Figure 16.3 illustrates that there are three zones on the risk 
matrix, as the cautious and concerned areas combine into a central zone. The comfort 
zone is predominantly for low-likelihood/low-impact events. As can be seen, there is 

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a level of potential impact that will always be within the comfort zone. Likewise, 
there is a level of risk likelihood that is always considered to be so low that it will 
not happen.
However, as risk likelihood and potential impact increase, a point is reached 
where judgement is required as to whether the risk should be tolerated. Judgement is 
required within the cautious zone and actions will usually be taken to treat and/or 
transfer the risks within that zone. The line that separates the cautious zone from the 
concerned zone represents the risk appetite of the organization. The cautious zone 
and the concerned zone together illustrate the acceptable variability of the level of 
risk and can be considered to be the tolerance of the organization to acceptable 
variability or volatility in the level of that particular risk.
As the risk likelihood and potential impact further increases, a critical line is 
reached. When the risk gets above the critical line, the organization will be concerned 
about tolerating those risks and will wish to terminate exposure to them. In certain 
circumstances, the organization will not be able to terminate these risks, either
because they may represent a business imperative or because they are associated with 
a high-risk/high-reward strategy that the board has adopted.