Evolution of Risk Management
Through
improved communication, media attention, pressure groups and the outcome of
numerous catastrophes (1980: North Sea oil platform Alexander Keilland
collapsed, 1986: series of explosions on Piper Alpha oil rig to name a few in
the UKCS oil & gas industry) the management of risk has become the subject
of growing concern to individuals, organisations, government and society at
large since the 1980’s (Ansell, 1992, Sadgrove 1996) and still continues to
grow. Original focus of risk management was driven with particular reference to
financial, economic and political instability aspects in addition to human
health and safety at work.
Risk
management is a subject area which now attracts contributions from a wide
spectrum of disciplines: economists, engineers, environmentalists,
epidemiologists, mathematicians, psychologists, management and political
scientists, all of which have different interpretations, concepts and measures
of risk (Frosdick, 1997). To this end no unified risk management approach
exists, only broad generic techniques.
Specialist
knowledge and experience is not available on the spectrum of risks considered.
Risk
management in today’s business communities is a formal process that enables
proactive identification, assessment, response and management of risk. In
combination with robust processes, companies must create the environment,
culture and management discipline to allow risk management to be accepted and
exercised as a routine work practice (Waring, 1998). Risk management governs the
“selection of risks a business should take and those which should be
avoided or mitigated, followed by appropriate action to either avoid or reduce
those risks” (Arnold 2002, p1024). Risk management is applied in the
business context to support decision making under uncertainty, to build a robust
and deliverable business approach to maximise business success and minimise
unnecessary business exposure.
Benefits
& Limitations
Benefits
of risk management are plentiful however most importantly it is seen as an
investment or means to reduce costs and business exposure and not an expense.
Successful implementation allows the creation of a risk aware organisation
capable of minimising threats and maximising opportunities to achieve business
success (Gordon, 1997: 1, Mills 2001, HSE, 2002, Teale 2001).
Benefits :
 | Allows
better control of uncertainty since all eventualities are proactively
considered. |
| Assists
in risk prioritisation and drives focus on major risk exposures and
drivers of change. |
| Provides
greater confidence in project/business undertakings. |
| Helps
to clarify business goals and objectives to increase business success. |
| Enables
informed decision making to be more systematic and less subjective. |
| Optimises
resources to achieve maximum effect. |
| Enables
more realistic cost and time exercises. |
| Enhances team communication and motivation. |
Limitations :
| Traditionally many risk management
processes based on intra-company developed tools encapsulate strong
sources of knowledge from specific projects and industry perspective
but are weak on the analysis and impact of the remote environment (Haner,
1981). |
| “The
whole analytical exercise of risk management might be considered
to be objective. However, it must be realised that because of the
large body of assumptions, estimates, judgements and opinions
involved, much of the input information is often subjective”
(Bland, 1985, p1) |
| Risk is by nature subjective. What
degree of confidence can be placed in the assessment of risk to
represent realism? How reliable and representative are the risk impact
outcomes? |
| All uncertainties may not have been
appropriately considered within analysis. |
| Limitations to organisational ability to deal with the risk identified outside of its control. |
| Useful Links |
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Links to Company Brochures |