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Implementing Enterprise Risk Management by James Lam

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CHAPTER 1Fundamental Concepts and Current State

INTRODUCTION

In October 1517, Ferdinand Magellan requested an investment of 8,751,125 silver maravedis from Charles I, King of Spain. His goal: to discover a westerly route to Asia, thereby permitting circumnavigation of the globe. The undertaking was extremely risky. As it turned out, only about 8 percent of the crew and just one of his four ships completed the voyage around the world. Magellan himself would die in the Philippines without reaching home.

What would motivate someone to undertake this kind of risk? After all, Magellan stood to gain only if he succeeded. But those long-term rewards, both tangible and intangible, were substantial: not only a percentage of the expedition's revenues, but also a 10-year monopoly of the discovered route, and numerous benefits extending from discovered lands and future voyages. What's more, he'd earn great favor with a future Holy Roman Emperor, not to mention fame and the personal satisfaction of exploration and discovery.

But I doubt that even all of these upsides put together would have convinced Magellan to embark on the voyage if he knew that it would cost him his life. As risky as the journey was, most risks that could arise likely appeared manageable. Magellan already had a great deal of naval experience and had previously traveled to the East Indies. He raised sufficient funding and availed himself of the best geographic information of the day.1

All in all, Magellan's preparations ...

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