Delving Deeper into Risk Analysis and Risk Management

Risk underlined with red marker

Introduction

One of the most common definitions of the term “risk” is that it happens to be the combination of a certain hazard and the chances of the hazard occurring along with the threat level indicate risk. This sort of likelihood can be expressed in terms of a probability or a rate. For example, the risk of an accident occurring in case of an aircraft (hazard) may be expressed as one accident for every million flights (likelihood). Thus, it becomes possible to objectively define risk in such a way that two people may make use of the same data and draw separate conclusions of their own. It is not uncommon to express risk in various ways, so long as it is able to unite the factors of hazard with likelihood. Currently, individuals may use the variable methods offered by the realms of science, math, and engineering for the purpose of discussing and defining risks.

Understanding Risk Analysis

Risk may be defined in terms of the outcome of a specific hazard like, in the case of damage costs and the probability of this hazard taking place. Therefore, it is possible to arrive at the previously stated conclusion that risk is a product of hazard and probability. It is necessary to be aware of the values of the first two factors or at the least, have a rough estimation, if it is required to define risk.

Main Goals of Risk Analysis

The primary goals of the entire risk analysis process tend to include the following –

  • Identification of potentially dangerous situations
  • Application of suitable methods in order to estimate the chances of the occurrence of a specific hazard along with the uncertainty in that estimate
  • Offer alternative solutions in order to minimize the risk of engaging in one or more of the following actions:
    1. Removing any possibility for the occurrence of the hazard
    2. Lowering the chances for the occurrence of the hazard
    3. Limiting any kind of negative consequences that the hazard may have
  • Measuring the overall effectiveness of the proposed solutions
  • Providing details to base a decision involving the process of risk management
  • Chalk out any kind of uncertainty connected to risk analysis

Procedure for Carrying Out Risk Analysis

The process of risk analysis usually consists of four major steps, including –

  1. Identification of hazards
  2. Gauging the relationship that exists between the exposure to risks as well as the adverse effects
  3. Assessment of the exposure which involves evaluating the conditions that may lead to the exposure to the risk
  4. Characterization of the risk where it is necessary to describe the nature of the adverse effects along with their likelihood and the strength of the proof behind these characterizations. The latter step is often carried out with the aid of statistics and probability.

How does the Risk Estimation Process Work?

The method of risk estimation can be carried out in many different ways, out of which the most common ones, include the use of historical data, through modeling, by the breakdown of the system into its known subsystems with the aid of different techniques like fault trees or event trees, by analogy with situations that mirror the present one, through a method of comparison with similar actions, or through the use of a combination of various methods.

Article signup banner

Intent of Risk Assessment

The process of risk assessment for a specific issue tends to establish the foundation for coming to a decision regarding any actions in the future. This sort of a decision may involve the performance of any additional analyses, to carry out activities that limit the risk, or do absolutely nothing at all.

Process of Risk Management

The method of risk management tends to combine the process of risk analysis with decisions on how to best address the target risk. Risk management happens to be part of a bigger process of decision-making which takes into consideration the social as well as the technical aspects of the risk situation. Risk assessments are primarily performed with the intention of offering insight and information to those who tend to make decisions regarding how that risk needs to be handled. Factors such as values and judgment make their presence known in case of risk analysis in the context of what kind of techniques must be used in order to objectively describe and then evaluate the level of the risk. Judgment and values help to come to the solution that is most effective apart from being socially acceptable.

Interaction between Risk Analysis and Risk Management

The unified process of risk analysis and risk management may be aptly described with the help of six simple steps. The initial three steps tend to be connected to the method of risk analysis while the final three are associated with risk management.

  1. The first step involves the formation of the actual problem in the broad context. It becomes possible to do this by asking questions about the nature of the problem, who is in charge of handling the problem, the identity of the stakeholders, and establishing the relationships among the issues and relying on the stakeholders to come up with effective problem characterization and identification methods.
  2. The second step involves risk analysis performance. The risk needs to be evaluated for the purpose of determining the hazard and in the likelihood of the occurrence of the hazard; any sort of uncertainties must be included in the estimate.
  3. The next step deals with defining the options and determining what can be done regarding the issue of risks. Potential consequences need to be determined along with benefits and costs.
  4. Sound decisions need to be taken and it is necessary to understand the best solutions along with the way in which they might be implemented in feasible, socially acceptable and cost effective ways.
  5. The penultimate step involves the implementation of the decisions.
  6. The final step should be the evaluation of the actions taken.

Conclusion

Risk analysis tends to indicate the process of analyzing a certain loss from a specific hazard with the help of a combination of certified information regarding the state of the matter, integral knowledge about the underlying process, as well as a judgment concerning the details that is not understood very well or is not known clearly.

Other tools you might find interesting