Mastering Risk Management

DEFINING RISK

Perhaps the first thing to decide is what we mean by risk. The word came into the English language in the seventeenth century from the Italian risco or rischio, meaning hazard or danger. Some element of that appeared in a definition given by the Royal Society in 1992, ‘the chance, in quantitative terms, of a defined hazard occurring’.2 This has the merit of introducing the concept of probability, but its accent on defined hazards implies that it concerns ‘known unknowns’.

Two other definitions of risk introduce a key element, the impact on objectives, which will be a running theme throughout this book. In the revised definition by COSO in 2017, it reads ‘Risk is the possibility that events will occur and affect the achievement ...