Why Do We Try to Manage Risk?

This chapter explores why different stakeholder groups in an organisation might wish to try to manage risk. The following five reasons for managing risk are examined in detail: improving expected outcomes, reducing the likelihood of extreme events, reducing variability in outcomes, demonstrating good corporate governance and compulsion. The chapter also explains some of the reasons why, despite all of these arguments for risk management, so many organisations still do little or nothing. The second half of the chapter summarises a significant body of empirical research into why organisations try to manage risk. The chapter concludes by reviewing to what extent the empirical evidence supports the theoretical arguments outlined in the first half of the chapter for managing risk.