Risk is a commonly used term and its usually liked with bad impacts on our objectives. The Oxford English Dictionary define risk as “ a chance or possibility of danger, loss, injury or other adverse consequences”. There is no agreeable technical definition of risk as it went through many developments. The first stage was the management of threats only then the term is extended to cover the threats and the opportunities which face the organisations. The latest stage which is the management of the threats, opportunities, uncertainties and its sources. Of uncertainty (Ward and Chapmen, 2003). Therefore, Dowie argues to banned use the term “risk” in the risk management because of its misleading.
The definition will be used in this paper is the Australia/New Zealand standard definition which is "The chance of something happening that will have an impact on objectives" (Australia/New Zealand Standard, 1999). The reasons of using this definition are the simplicities and the coverage of the negative and positive effects on objectives.
Risk management has been done for thousands of years (Bernstein, 1996). The Risk management term was first introduced in the 1950s by the insurance industry. The first text book published about risk management in 1963 titled Risk management and the Business Enterprise by Robert I. Mehr and Bob Hedges (D’Arcy and Brogan, 2001).
Risk management is a integrated process and risk manger need to assist the company’s business process are constant with its strategies, and the what is the relation between risk management and the investment and performance choices (Nocco and Stulz, 2006). Organisations should develop a risk management long term strategies depending on the business environment and shareholders and executive management risk tolerance (Froot, Scharfstein and Stein, 1993). Risk management should have its philosophy and responsibility which reflect and go with the organization philosophy (Rejda, 2005). Risk management policy can be centralized or decentralized which based on their philosophy (Clarke and Varma, 1999).
Risk management is developing field and there are many opinions about what does Risk management includes and how it should be done. Many terminologies introduce to describe the organisations wide use of risk management such as ‘Total Risk Management’, ‘ Holistic Risk Management’, ‘Integration Risk Management’ and ‘Enterprise Risk Management’. All these terms mean almost the same things which reflect the helicopter view for the all risks faces by the firms (Ward, 2005). Association of Insurance and Risk Managers in Commerce used the term “Integrated Risk Management” and they define it as “ when risk management integrated (or embedded) into all of the functions and processes within the organisation” (AIRMIC, 1999). While Mottershead and Godfrey used the term ‘Enterprise Wide Risk Management’ as a technique “that looks at risk across the whole organisation rather than through the traditional functions and...