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What is Risk Management

What is Risk?

"Risks" are the potentialities that stand between the ambitions and goals of an individual or organisation and those goals actually being realised.

There are risks that can help achieve goals, and risks that can thwart achievement of goals. However, risks are generally taken so as to achieve some advantage.

For example, people live in Wellington for positive reasons to do with work, lifestyle, climate etc, notwithstanding that about every 450 years or so, they will be subjected to sudden and very high ground accelerations due to rupture of the Wellington earthquake fault.

Similarly, they may invest money in a commercial venture, notwithstanding that they will be relying on the skills of largely unknown members of management and that competitors will be trying hard to minimise its success.

While there is Risk attached to every current action or situation, Risk is also an inevitable associate of change. Proposed actions will include potential benefits as well as potential costs.

The question of 'how risky' is an existing or proposed risk, is determined by evaluating the probability and the extent of the consequences of the risk.

To understand and place a dimension on risks, it is necessary to understand "what" and "how" something might happen but also:

• the likelihood of something happening (probability)
• the effects if it did (consequences).

So the degree or level of risk can be measured by according to the expression

Risk = Probability x Consequence