Confusion over Risk Terminology

Often people in the sporting, venues and events industries confuse risk management terminology. Some commonly confused terms include:

* safety with risk – risks associated with personal injury (safety risks) often get confused with risks which are threats to achieving objectives in terms of likelihood and consequence.

* hazards with risks – hazards are typically the cause of a risk. In safety they may be a form of latent energy source causing injury. They get confused with the chance (likelihood) of a particular consequence occurring.

* risk management with risk assessment – the whole process of establishing the process, risk identification, analysis, selection of controls, monitoring, consultation and communication can get confused with the assessment phase of risk management which includes only risk identification, analysis and selection of controls

* risk assessment with risk analysis –risk assessment is the identification, assessment and selection of controls being confused with only the phase that establishes the likelihood and consequence of risk and compares the result against an acceptability criteria

* inherent risks with residual risk – inherent risks reflect the level of risk before controls are finally implemented. They get confused with the level of risk after controls are implemented. Technically, there can be three levels of risk:

1. inherent risk – the level of risk with no controls
2. gross residual risk – the level of risk with current controls
3. net residual risk – the level of risk once additional controls are implemented

* preventative controls with preparedness controls – preventative controls tend to prevent a risk from occurring, while preparedness controls tend to mitigate a risk’s impact

* most foreseeable risks with worst case scenario risks – most foreseeable risks are that are more likely to occur and that usually have lower consequences, rather than worst case risks which are, by their nature, rare events with catastrophic consequences

From our experience many of these terms get used interchangeably by different people within the same organisation. When there is no consistent agreed terminology, the subsequent confusion can detract from efforts to implement risk management across the company and negatively influence the risk culture. To address this, some organisations develop a Risk Management Framework. Such a document helps to define terms, methods, processes, policies, structures, roles and responsibilities. By doing so, this clarifies to the entire organisation how risk is to be managed and communicated effectively across the business.

~ Reliance Risk,Event Risk Management specialists

Risks to Events and Venues from the Current Economic Crisis

So how will the current financial crisis impact upon venues and major events industry in Australia? Clearly the current situation represents one of the most significant emerging risks to these industries experienced in recent times.

Revenues
Firstly, the falling exchange rate will make it less attractive for major US and European artists to tour Australia if our currency continues its current rapid slide. Sponsors of major events and public venues will become more selective in terms of their marketing spend and this will flow on to a reduction in revenues for sponsored entities. If the economic downturn continues towards a global recession, unemployment will increase and the public will have less disposable income to spend on discretionary items such as concert and major event tickets.

Expenses
As the credit crisis worsens across the financial sector, more of the insurance industry is likely to be affected. The loss of one of America’s largest insurers, AIG, shows the potential that the crisis presents to the insurance sector. As insurer profits diminish, insurance premiums will likely increase, given the current point in the insurance cycle.

Risk-Based Approach
The instinct for sports, venues and event organisers may be to batten down the hatches and cut costs. It is in fact, a time to review the organisation’s risk profile and manage risk effectively. Your organisation may have to take on more risk in a market that is shrinking. That is, assessing and mitigating the organisation’s financial exposures and liabilities while maximising opportunities presented by the changing economy. All this while maintaining compliance standards and continuing to differentiate your organisation’s brand and reputation from competitors. A tough ask but an important one!

In this environment, all businesses must fight harder to win every dollar and make a more concerted effort to keep every dollar that they have. Prudent risk management practices are the key.

For more information on Risk please visit Reliance Risk