Fundamentals of Risk Management

14

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01
Approaches to 
defining risk
Definitions of risk
The Oxford English Dictionary definition of risk is as follows: ‘a chance or possibility 
of danger, loss, injury or other adverse consequences’, and the definition of at risk is 
‘exposed to danger’. In this context, risk is used to signify negative consequences. 
However, taking a risk can also result in a positive outcome. A third possibility is 
that risk is related to uncertainty of outcome.
Take the example of owning a motor car. For most people, owning a car is an
opportunity to become more mobile and gain the related benefits. However, there are 
uncertainties in owning a car that are related to maintenance and repair costs. Finally, 
motor cars can be involved in accidents, so there are obvious negative outcomes 
that can occur. It is also important to remember the legal obligations associated
with car ownership and the rules that must be obeyed when the car is being driven 
on a road.
Definitions of risk can be found from many sources, and some key definitions are 
set out in Table 1.1. An alternative definition is also provided to illustrate the broad 
nature of risks that can affect organizations. The Institute of Risk Management (IRM) 
defines risk as the combination of the probability of an event and its consequence. 
Consequences can range from positive to negative. This is a widely applicable and 
practical definition that can be easily applied.
The international guide to risk-related definitions is ISO Guide 73, and it defines 
risk as the ‘effect of uncertainty on objectives’. This definition appears to assume a 
certain level of knowledge about risk management and it is not easy to apply to
everyday life. The meaning and application of this definition will become clearer as 
the reader progresses through this book.
An earlier version of Guide 73 (2002) also notes that an effect may be positive, 
negative, or a deviation from the expected. These three types of events can be related 
to risks as opportunity, hazard or uncertainty, and this relates to the example of 
motor car ownership outlined above. The guide notes that risk is often described by 
an event, a change in circumstances, a consequence, or a combination of these and 
how they may affect the achievement of objectives.