1 Risk

 

1.1 History

The word risk, risk in the past

risk

The word risk could come from the Latin word resecum “that which cuts, reef” hence the maritime origin “steep rock” or could derive from the ancient Italian risicare, which means “to dare.”

Opportunities and threats are two sides of the same coin called risk. When the outcome is favorable we speak of an opportunity, when the outcome is unfavorable we speak of a threat.

About 5,200 years ago in the Euphrates region, a group called Asipu were consultants in risk analysis for making risky or uncertain decisions.

Every decision involves risk. Peter Barge

In Mesopotamia, around 3,900 years ago insurance began as one of the oldest risk management strategies. The risk premium for ship and cargo losses in basic contracts was formalized in the Hamurabi Code.

More than 2,400 years ago Pericles spoke about taking risks and evaluating them before carrying out an action. His compatriot Socrates defines eikos (possible, probable) as “likelihood of truth”.

Blaise Pascal and Pierre de Fermat laid the foundations of probability theory in the 1650s, which opened the door to quantitative risk assessment.

Pierre Simon de Laplace developed a risk analysis in 1792 with his calculations of the probability of death with and without smallpox vaccination.

Risk management is relatively recent. For example, the Basel II agreement on risk management requirementsexplicit or implicit need or expectation (see also ISO 9000, 3.1.2) in the banking sector dates from 2004. Some prescriptive (non-certifiable) standards on risk appeared at the beginning of the 21st century (see § 2.2).

The 2008 global financial crisis called into question the contribution of risk management. Some have said that risk management methods have failed to avert this crisis. But the analysis reveals that this failure is mainly due to:

The future cannot be predicted

But the risk that results from uncertainty can be managed. The ability to identify risk, analyze it, evaluate it, and then act accordingly is the basis of risk management.

A difficulty in risk management arises from the fact that the event concerned (the damage) takes place in the future. You have to imagine an event that may never take place.

Zero risk does not exist

For several decades, the majority of companies have become aware that the costs of implementing risk management are insignificant compared to the unfavorable consequences or even the insurance to take out.

The main objective of risk management is to ensure the survival of the company in all circumstances.

Risk management has been considered in the past by some managers as something superfluous. These people believed that the main goal was to avoid risk. Since then, many have understood that risk is inevitable and intrinsic to any activity but must be reduced to an acceptable level.

Risk cannot be eliminated

Risk management has become a necessity; even the ISO 9001 standard (quality management systemsset of processes allowing the achievement of the quality objectives (see also ISO 9000, 3.2.3) – requirementsexplicit or implicit need or expectation (see also ISO 9000, 3.1.2)) since the 2015 version has included the risk-based approach (risk-based thinking).

Top of the page

 

1.2 Scope

Principles, framework, process, tools

scope

The scope of this module applies to risk management in business. This concern:

The risk area includes:

This module does not specifically include accounting risks and extreme risks related to:

Example of a scope 

For a circus, the risks likely to cause problems during a performance include a power outage, a storm, the absence of several actors or technicians (illness or social conflict) or major transport problems for the public.

After identifying, analyzing and evaluating the risks that could disrupt the performance, top management must decide what actions to take to reduce the chances of cancellation.

Risk management is used in many areas:

Top of the page

 

1.3 Benefits

Risk management benefits, root causes of failures, cost

benefits

Expected benefits of risk management:

The biggest risk is not taking any!

Root causes of failures:

Applying risk management upstream costs 10 times less than managing a crisis

The cost of managing risk over the life of a product is shown in figure 1-1.

1-1

Figure 1-1. The cost and product cycle life

He who excuses himself, accuses himself

Common excuses for failure:

A list of risk management successes and failures can be found in annex 02. record

Top of the page