Knowledge in Risk Assessment and Management

Terje Aven, Enrico Zio, Terje Aven, Enrico Zio

• Publisher: Wiley
• Year: 2017
• ISBN:
  9781119317937
• Edition: 1
• Topic: Business
• Subtopic: Financial Risk Management
• Index: Business

Exciting new developments in risk assessment and management

Risk assessment and management is fundamentally founded on the knowledge available on the system or process under consideration. While this may be self-evident to the laymen, thought leaders within the risk community have come to recognize and emphasize the need to explicitly incorporate knowledge (K) in a systematic, rigorous, and transparent framework for describing and modeling risk.

Featuring contributions by an international team of researchers and respected practitioners in the field, this book explores the latest developments in the ongoing effort to use risk assessment as a means for characterizing knowledge and/or lack of knowledge about a system or process of interest. By offering a fresh perspective on risk assessment and management, the book represents a significant contribution to the development of a sturdier foundation for the practice of risk assessment and for risk-informed decision making.

How should K be described and evaluated in risk assessment? How can it be reflected and taken into account in formulating risk management strategies? With the help of numerous case studies and real-world examples, this book answers these and other critical questions at the heart of modern risk assessment, while identifying many practical challenges associated with this explicit framework.

This book, written by international scholars and leaders in the field, and edited to make coverage both conceptually advanced and highly accessible:

• Offers a systematic, rigorous and transparent perspective and framework on risk assessment and management, explicitly strengthening the links between knowledge and risk
• Clearly and concisely introduces the key risk concepts at the foundation of risk assessment and management
• Features numerous cases and real-world examples, many of which focused on various engineering applications across an array of industries

Knowledge of Risk Assessment and Management is a must-read for risk assessment and management professionals, as well as graduate students, researchers and educators in the field. It is also of interest to policy makers and business people who are eager to gain a better understanding of the foundations and boundaries of risk assessment, and how its outcomes should be used for decision-making.

Part I
Fundamental Ideas, Principles and Approaches

1
Risk Assessment with Broad Uncertainty and Knowledge Characterisation: An Illustrating Case Study

Terje Aven and Roger Flage

University of Stavanger, Norway

This chapter presents a risk assessment of a master’s degree programme in risk management. The assessment is to support decision‐making on how to best develop the programme in the coming years. The aim of the chapter is to perform this case study to show how a risk assessment can be conducted and used when risk perspectives are adopted that highlight knowledge and uncertainty characterisations that go beyond the standard approach based on consequence and probability estimation. Such perspectives have been given considerable attention recently, and real‐life examples have been sought, showing the practical implications of these perspectives. The example is simple and allows for clarifying discussions of critical aspects of the analysis process, including risk conceptualisation and measurement, treatment of uncertainties, characterisation of the knowledge available, accounting for potential surprises, as well as vulnerability, robustness and resilience considerations. It is concluded that with integration of the new ideas from the early planning stages, the risk assessment is not more difficult to run than with the traditional approach; the decision process is, however, in our view substantially improved because the decision makers are better informed on many of the aspects important for the decisions to be made.

1.1 Introduction

The Petroleum Safety Authority Norway (PSA‐N), which is an independent government regulator with responsibility for safety, emergency preparedness and the working environment in the Norwegian petroleum industry, has recently introduced a new definition of risk, which states that risk represents the consequences of an activity along with the associated uncertainty (PSA‐N 2015). The previous definition was based on a traditional consequence and probability perspective in line with the triplet of Kaplan and Garrick (1981), covering scenarios, consequences and probabilities. Work has been initiated in the industry to understand the practical meaning and implications of this new definition from PSA‐N.

The Society for Risk Analysis (SRA) has just issued a new glossary on key risk concepts (SRA 2015), which allows for several definitions of risk. However, in all the definitions referred to, events/consequences and uncertainty are key components, and the issues about practical meaning and implications are also relevant. As a third example, we would like to mention the ISO 31000 standard on risk management (ISO 2009), which has also built the definition of risk on uncertainty and not probability. In the standard, risk is defined as the effect of uncertainty on objectives.

When it comes to the risk description in a risk assessment, it is necessary to use a measure of the uncertainties, and the question is then what the alternatives are and what measure should be used. Uncertainties are related to knowledge and, hence, describing uncertainties is about describing not only the knowledge itself but also the quality of this knowledge.

Considerable theoretical work has been conducted on this topic, aimed at clarifying the understanding of the key concepts and providing recommendations on how to best describe risk; see for example Aven (2012) and Flage et al. (2014).

Experience from practical risk assessment work has shown that many people struggle to see the difference between the old consequence–probability‐based risk perspective and the new ideas; for example, what is the difference between uncertainty and probability? Also, there is a concern that the new way of thinking will lead to more complicated assessments, emphasising uncertainties too much, with the result that communication between analysts and decision makers will be made unnecessarily difficult.

To meet these challenges, there is a need for work that can contribute to clarifying the difference between the traditional perspectives and the new ones, pointing to the differences and demonstrating what these new ideas add to current practice.

In our view, the best way of doing so is to present and discuss simple, easily understandable examples (case studies), which make it possible to highlight the ideas without being disturbed by a lot of technical details. The present chapter aims to do precisely this. We present parts of a risk assessment, including the planning and use stages, of a master’s degree programme in risk management, in which the assessment is based on the new ideas about risk. The assessment is to be used to support decision‐making at the university, and in this chapter we discuss the main process stages and findings, highlighting issues linked to differences in risk perspectives and what the new way of thinking adds to current practice. In an appendix, we present an overview of the key features of the new perspectives that were required to adapt the existing theoretical work to a more practical context. The case study considered has a qualitative analysis focus.

The remainder of the chapter is organised as follows. Firstly, in Section 1.2, we present the case study in more detail. Then, in Sections 1.3 and 1.4, we look into the planning of the risk assessment and the execution of the assessment, respectively. Section 1.5 covers the use of the assessment, having a focus on risk management and related decision‐making. Section 1.6 di...

Table of contents

• Cover
• Title Page
• Table of Contents
• List of Contributors
• Preface
• Acknowledgements
• Part I: Fundamental Ideas, Principles and Approaches
• Part II: Risk Assessment and Decision Making
• Part III: Applications
• Index
• End User License Agreement