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risk notions
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[bearing limit] [contingency] [insurance] [option] [risk] [uncertainty] |
Bearing Limit
The amount of cost or uncertainty that a given component can be expected
to bear. (Uncertainty here may include risk, surprise, instability or variability.)
Any given party or component has a bearing
limit, which defines how much cost and risk it can bear. Above this
limit, the party cannot be expected to contain the costs and risks allocated
to it, and these may spill over the contractual boundaries to its partners
or neighbours. In the worst case, a party unable to bear its costs and
risks goes into liquidation, and the remaining costs and risks then have
to be picked up by another party.
In some cases, the bearing limit can be
determined fairly precisely. This is particularly true in cases that are
covered by various forms of indemnity insurance, since the bearing limit
can be taken to be equal to the level of insurance cover. In other cases,
the bearing limit is itself a matter for negotiation.
Within a hierarchical organization, there
is a bearing limit at each level of the management hierarchy. In other
words, there is a maximum level of responsibility that can be delegated
downwards. Above this limit, the responsibility remains with upper management.
(For example, if a trading bank loses half a billion dollars, this cannot
be blamed solely on a rogue trader with an authorization limit of 50 million
dollars. To pretend otherwise is either foolish or corrupt.)
Contingency
Within risk management, contingency refers to a specified response
to a specified event. (The term has other meanings within project management
and systems theory.)
Insurance
Option
Risk
Uncertainty
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This page last updated on July 15th, 2003
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