Risk Management What Is Risk

Risk Management. What Is Risk . Essay, Research Paper

WHAT IS RISK .Table Of ContentsIntroduction Risk & probability Identifying Risk Procedure Of Modelling Risk Methods Subjective Assessment Of Risk Conclusion References INTRODUCTION ‘Risk : (i) the possibility of meeting danger or suffering the harm or loss ‘ (Oxford reference dictionary). This is the general definition of risk. The faulty perception of meeting danger or suffering harm or loss would lead to misjudged actions to be taken . When these actions are taken for large scale projects ,for instance concerning the future of a big company or public protection , it could have devastating effects . For a number of dangers there are a lot of statistical data ,such as car accidents ,but for other it is difficult to have an actual number . For example it is impossible to have an exact figure of the number of people died from smoking cigarettes . So the help of hard facts ,statistics and probabilities, is useful up to a point in taking decisions concerning risks , and subjective judgement is required . In this essay we will try to identify the relationship of risks with probabilities , the association of risks with particular events , modelling and methods used to asses risks in a system and finally the subjective perception of risk by individualsRISK & PROBABILITYProbability is in mathematical terms the mathematically expressed chance of an event taking place , normally as a fraction of (1) . Usually probabilities are conditional and have time limitations . For example the probability of a car accident happening varies between differently populated areas and different times of the day . When the same road is busier during rush-hour there is a higher probability of an accident happening . It is known from statistics that probabilities are usually approximated by frequencies , so the frequency of an event happening in the past is our guide to the prediction of the same event happening in the future . But it is not 100% certain that it will repeat it self as before .For example in an experiment tossing a coin one hundred times might give fifty times to tails and fifty times heads , giving us (.5) probability happening each way . But even if we have this information we cannot be certain that the next one hundred tosses of the coin will produce the same result .In the same sense the sun has a slight probability not to appear in the sky again although it had been doing so for several billions years . Therefore probability estimates are quite subjective .IDENTIFYING HAZARDSMost of the time we relate risks with the probability of a hazard taking place . ‘Hazard’ is an inherit capacity to cause damage – an intrinsic property .For example ‘Arsenic’ (a chemical substance) is hazardous ,which is a property and so is not probabilistic ,therefore not risky- risk is applied to events not properties . Hazards need to be quantified , observe their probability and therefore partially predicted. Hazards and therefore risk s can be under three categories , economic , safety and environmental . The economic hazards have been studied for many years by the profession most interested in them , the insurance industry . As a result they have been quantified at their greater part . In the same way safety risks have been studied especially through research on the price people are willing to pay for avoiding the risk of injury or death . Quantification of environmental risk is contend ‘any decision implies valuation and that if environmental valuation is not tried in the taking of an environmentally relevant decision , we do not know whether the decision was a sound one or not in terms of economic efficiency’(Barbe & Pearce,1991) PROCEDURE OF MODELLING RISKTo be able to asses a certain risk we need to identify the hazards involved , to assign probabilities to these hazards and finally to model the whole situation . So that we accumulate a total risk. After assessing that risk we can take the appropriate action to avoid any misjudgements which could lead to hazards . An example of this procedure is following . example : If we take under consideration the example of building a dam . (1) We have to identify and list of all possible hazards that could occur and considered serious . This could mean the systematic examination of all the components , structures and functions that are part of it . (2) Break down the sequence of events that might lead to these hazards . For instance ,the alarm signalling high tide might not go off when it has to and lead to an overflow . This could be due to a breakdown of the water level meter caused by a faulty screw . (3) Assign probabilities of malfunction to these different parts of the system ,that might lead to hazards , where statistical data exist . For example the failure rate of a certain screw could be found in records of its performance in other systems. (4) starting from the bottom of the system towards the end , we can derive a total risk probability by multiplying the probability risk of each component leading to hazard . At this point we can bring up some methods used to model and analyse the risks and failures in a system.METHODSIn the last three decades in particular ,there where many methods developed especially where the analysis of risk is used for decision analysis .This was in a big part of it due to the increase of available computer power and the constant development of computational procedures . So