A new framework of risk

How can the risk management fields unify their respective disciplines? Is it technically possible and practically feasible to integrate risk management functions? The enterprise-wide risk management movement grapples with such questions.

The solution lies in the concept of risk itself. By going back to the basics of risk, and uncovering all of its dimensions, the way to unify risk management will become apparent. A properly constructed model of risk will reveal the direction that risk management development should take. As the above definition of Gestalt indicates, merely examining the parts does not do justice to the whole. In this case, however, examining the structure of risk is a means to an end.

Mapping the DNA of risk will provide the blueprint for enterprise-wide risk management.

This chapter proposes a new definition of risk and offers a new model of risk that can be used as a foundation for enterprise-wide risk management. The model has been conceptualised so that it is all-inclusive, incorporates all viewpoints of risk, accurately reflects the full concept of risk and is valid for all schools of risk management.

Definition of risk

A new definition of risk is proposed below. This definition has been phrased in such a way that it captures the truth and the reality of risk, whilst sufficing as a definition for all viewpoints of risk:

This definition is a precursor to the enterprise-wide model of risk. The following comments on the definition introduce some important concepts, which are elaborated upon later in conjunction with the delineation of the enterprise-wide model.

The idea that “risk is human behaviour” reveals that risk is entirely a human phenomenon. The term “behaviour” is used in the widest sense and allows for related concepts such as action, intellectual processing and stasis. The presence of risk requires human participation. When the ocean waves crash against rocks and cause erosion, there is a sense of loss only if there is human interest or attachment to the event.