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PRINCIPLES OF
RISK ASSESSMENT |
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Risk is concerned with the future.
- What are the chances it will rain?
- What is the danger posed by natural disasters?
- Will you get cancer if you smoke?
Risk is concerned with choices
- Should I take an umbrella?
- Should I build my house to withstand earthquakes? How big of an earthquake?
- Should I quit smoking?
For an event, action or object to be considered a risk there must be:
- A loss associated with it.
- Uncertainty or chance involved.
- Some choice involved.
Risk analysis is composed of four distinct activities:
- Risk identification
- Risk projection
- Risk assessment
- Risk management
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Risks can be categorized as:
- Natural risks
- Man-made risks
- A combination of natural and man-made risks
Natural risks are those risks which are associated with normal earth processes. These processes could involve the atmosphere, oceans, earth's crust, biological, or astronomical events. Examples include:
- Atmosphere
- Hurricanes
- Tornadoes
- Hail
- Lightning
- Wind
- Ocean
- Rising sea levels
- Tsunamis (tidal waves)
- Beach erosion
- Polution
- Earth's crust
- Earthquakes
- Volcanic eruptions
- Erosion
- Mudflows
- Biological
- AIDS
- Med fly
- Animal attacks
Some risks are entirely man-made. Examples are:
- Business or financial investments
- Social interactions
- Driving a car
These risks exist because of man's interaction or juxtaposition with nature. Some obvious examples include:
- Economic losses due to natural disasters.
- A hurricane destroys a fishing ground
- Ash from a volcanic eruption buries a crop
- Loss of life from natural disasters.
- Large earthquake destroys a city
- Tornado sweeps through a populated area
- Health risks from living in the natural world.
- AIDS, Malaria, and Ebola virus
- Cancer from radon gas
- Polution of natural habitats
- Extinctions due to loss of habitat
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Attempts to rate each risk in two ways:
- Likelihood that the risk is real.
- Consequences of the problems associated with the risk, should it occur.
Four risk projection activities:
- Establishing a scale that reflects the perceived likelihood of a risk.
- Boolean (if "this" happens, then "that" will occur.., or if this doesn't happen, then the "other event" will occur, and the result will be ...)
- Qualitative
- Quantitative
- Determining the consequences of a risk.
- Establishing the impact of the risk on the people, environment, or investment.
- Noting the overall accuracy of the risk projection (how well can you estimate the likelihood of actual risk?).
Risks are weighted by perceived impact and then prioritized. Three factors affect impact:
- The nature of the risk indicates the problems that are likely if it occurs.
- The scope of a risk combines its severity with its overall
distribution.
- The timing of a risk determines when and for how long the
impact will be felt.
The importance of risk impact and probability is linked to their effect on human concerns.
IF risk_factor = high_impact AND
probability_of_occurence = low
THEN human_concern = low to moderate
IF risk_factor = high_impact AND
probability_of_occurence = moderate to high
THEN human_concern = significant
IF risk_factor = low_impact AND
probability_of_occurence = high
THEN human_concern = low to moderate
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During risk assessment the following actions should be taken:
- Examination of the accuracy of the estimates made during risk estimation.
- Ranking or prioritizing the risks that have been uncovered.
- Examine ways to control and/or avert likely risks.
At a certain level of risk, or a combination of risks, a project will have to be terminated. Here are some guidelines:
Any project has a single point, called the break point, at which time the decision to proceed or terminate are equally acceptable. Any risk above the break point will be too much to proceed. Of course, risk below the break point means that the project can go ahead.
- Define the risk break point levels for the project.
- Break points are stated as a probability of a loss of life, property, or money, or the probability
of success for each individual risk or for the system (all the risks) as a whole.
- A value for the break point should be agreed upon where it is decided that a project should not continue.
- The system risk break point can be:
- an sum of the individual risks, or
- one or more prioritized "high impact" risks
- Predict the set of break points that would be enough to indicate project termination.
- Try to predict how combinations of risks will affect a break point level.
Comparing the evaluated risk against its risk break point has three possible outcomes:
- Acceptable
- the evaluated risk is less than the break point.
- Impossible
- the evaluated risk is much greater than the break point.
- Infeasible
- the evaluated risk is greater than, but almost equal to, the break point.
- If the system risk is acceptable then
- proceed to evaluate individual risks
- If the system risk is too much then
- determine if the project should continue.
- if the project continues
- replan to avert the identified risks
- repeat risk analysis.
- If the system risk is infeasible then
- determine if the project should continue.
- if the project continues
- replan to avert the identified risks OR
- continue with the plan but apply risk aversion strategies.
- After system-wide evaluation, the individual risks should be completed and evaluated in the same way as the system risk.
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