Introduction

The body of knowledge on risk is extensive. It includes diverse functions such as insurance, decision-making, probabilistic risk analysis, risk control and loss prevention, finance, accounting, internal audit practices, the science of failure, business strategy, psychology, risk-taking, the social sciences and corporate failure studies. Risk is a wide concept that permeates almost every aspect of human existence.

This chapter provides an overview of the various risk management schools of thought. It serves as a foundation and reference point for the universalistic model of risk outlined in Part Two. The material here gives a more in-depth view of the building blocks of each type of risk management and builds on the discussions in the previous chapters.

In order to facilitate a manageable discussion of the viewpoints of these schools of thought, we believe that they can be categorised into the following four groups without losing the meaning and context of the original source:

In order to give a consistent structure to the evaluation of each school of thought, the following categories will be used to describe the “building blocks” of each of the four schools:

1. Risk orientation

2. Risk context

3. Risk processes

• • Measurement

• • Analysis

• • Systems

• • Standards

• • Regulatory influences

• • Impact of risk

• • Information

• • Management

• • Cost and value

• • Degree of integration

Pure risk

Overview

The pure risk school of thought includes the practices of insurance and risk finance, loss prevention and risk control. Specialised bodies deal with subsets of risk control, such as security, fraud prevention, human safety, environmental management, legal risks, fire engineering, engineering reliability and safety, emergency preparedness and crisis management, and occupational health and hygiene. There are also specialists focusing on the science of risk analysis in this school.

Risk orientation

Pure risks are bound by a common principle: that they are concerned only with risks that can manifest themselves in the form of a loss of some kind. The possibility of gain from a risk event is excluded. Authors Valsamakis, Vivian and Du Toit (1992) define pure risk as “the possibility of either loss or no loss”. A fundamental principle of this school is that a party cannot benefit from a pure risk event. Examples of pure risks include fire, crime, accidents and pollution.