Risk management has been actively encouraged in public sector organisations since the mid 1990s, with most government having released a framework or guidelines based largely on the AS:NZS 4360:1999 - Risk Management standard to assist agencies undertake risk management as part of good corporate governance.
The federal public sector has been extremely active in the pursuit of good risk management. They have defined risk as:
'Risk arises out of uncertainty. It is the exposure to the possibility of such things as economic or financial loss or gain, physical damage, injury or delay, as a consequence of pursuing a particular course of action. The concept of risk has two elements, the likelihood of something happening and the consequences if it happens.'
Source: Managing Risk: Guidelines for Managing Risk in the Australian Public Service, MAB/MIAC Report No 22, October 1996
According to the relevant Australian standard, AS/NZS 4360:1999, the level of risk is a product of the likelihood of the risk occurring, and the consequences if it does occur. The risk management standard defines these terms as follows:
likelihood a qualitative description of probability and frequency of an event occurring
consequences the outcome of an event or situation expressed qualitatively or quantitatively being a loss, injury, disadvantage or gain
This gives rise to the risk equation of :
Risk = likelihood x consequences
An emerging approach to defining risk, which is particularly important to the public sector, is the Sandman equation. It suggests that risk actually has three components, with the following relationship:
Risk = hazard (likelihood x consequences) + outrage factor
