Risk Analysis: Assessing Uncertainties Beyond Expected Values and Probabilities

# Hardcover: 204 pages
# Publisher: Wiley (June 3, 2008)
# Language: English
# ISBN-10: 0470517360
# ISBN-13: 978-0470517369

Product Description
Everyday we face decisions that carry an element of risk and uncertainty. The ability to analyze, predict, and prepare for the level of risk entailed by these decisions is, therefore, one of the most constant and vital skills needed for analysts, scientists and managers.

Risk analysis can be defined as a systematic use of information to identify hazards, threats and opportunities, as well as their causes and consequences, and then express risk. In order to successfully develop such a systematic use of information, those analyzing the risk need to understand the fundamental concepts of risk analysis and be proficient in a variety of methods and techniques. Risk Analysis adopts a practical, predictive approach and guides the reader through a number of applications.

Risk Analysis:

    * Provides an accessible and concise guide to performing risk analysis in a wide variety of fields, with minimal prior knowledge required.
    * Adopts a broad perspective on risk, with focus on predictions and highlighting uncertainties beyond expected values and probabilities, allowing a more flexible approach than traditional statistical analysis.
    * Acknowledges that expected values and probabilities could produce poor predictions -   surprises may occur. 
    * Emphasizes the planning and use of risk analyses, rather than just the risk analysis methods and techniques, including the statistical analysis tools.
    * Features many real-life case studies from a variety of applications and practical industry problems, including areas such as security, business and economy, transport, oil & gas and ICT (Information and Communication Technology).
    * Forms an ideal companion volume to Aven’s previous Wiley text Foundations of Risk Analysis.

Professor Aven’s previous book Foundations of Risk Analysis presented and discussed several risk analysis approaches and recommended a predictive approach. This new text expands upon this predictive approach, exploring further the risk analysis principles, concepts, methods and models in an applied format. This book provides a useful and practical guide to decision-making, aimed at professionals within the risk analysis and risk management field.

From the Back Cover
Everyday we face decisions that carry an element of risk and uncertainty. The ability to analyze, predict, and prepare for the level of risk entailed by these decisions is, therefore, one of the most constant and vital skills needed for analysts, scientists and managers.

Risk analysis can be defined as a systematic use of information to identify hazards, threats and opportunities, as well as their causes and consequences, and then express risk. In order to successfully develop such a systematic use of information, those analyzing the risk need to understand the fundamental concepts of risk analysis and be proficient in a variety of methods and techniques. Risk Analysis adopts a practical, predictive approach and guides the reader through a number of applications.

    * Provides an accessible and concise guide to performing risk analysis in a wide variety of fields, with minimal prior knowledge required.
    * Adopts a broad perspective on risk, with focus on predictions and highlighting uncertainties beyond expected values and probabilities, allowing a more flexible approach than traditional statistical analysis.
    * Acknowledges that expected values and probabilities could produce poor predictions -   surprises may occur. 
    * Emphasizes the planning and use of risk analyses, rather than just the risk analysis methods and techniques, including the statistical analysis tools.
    * Features many real-life case studies from a variety of applications and practical industry problems, including areas such as security, business and economy, transport, oil & gas and ICT (Information and Communication Technology).
    * Forms an ideal companion volume to Aven’s previous Wiley text Foundations of Risk Analysis.

Professor Aven’s previous book Foundations of Risk Analysis presented and discussed several risk analysis approaches and recommended a predictive approach. This new text expands upon this predictive approach, exploring further the risk analysis principles, concepts, methods and models in an applied format. This book provides a useful and practical guide to decision-making, aimed at professionals within the risk analysis and risk management field.

Part I Theory and methods 1
1 What is a risk analysis? 3
1.1 Why risk analysis? . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.2 Risk management . . . . . . . . . . . . . . . . . . . . . . . . . . 6
1.2.1 Decision-making under uncertainty . . . . . . . . . . . . 8
1.3 Examples: decision situations . . . . . . . . . . . . . . . . . . . . 13
1.3.1 Risk analysis for a tunnel . . . . . . . . . . . . . . . . . . 13
1.3.2 Risk analysis for an offshore installation . . . . . . . . . 14
1.3.3 Risk analysis related to a cash depot . . . . . . . . . . . . 14
2 What is risk? 17
2.1 Vulnerability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
2.2 How to describe risk quantitatively . . . . . . . . . . . . . . . . . 22
2.2.1 Description of risk in a financial context . . . . . . . . . 24
2.2.2 Description of risk in a safety context . . . . . . . . . . . 25
3 The risk analysis process: planning 29
3.1 Problem definition . . . . . . . . . . . . . . . . . . . . . . . . . . 29
3.2 Selection of analysis method . . . . . . . . . . . . . . . . . . . . 34
3.2.1 Checklist-based approach . . . . . . . . . . . . . . . . . . 35
3.2.2 Risk-based approach . . . . . . . . . . . . . . . . . . . . 36
4 The risk analysis process: risk assessment 39
4.1 Identification of initiating events . . . . . . . . . . . . . . . . . . 39
4.2 Cause analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
4.3 Consequence analysis . . . . . . . . . . . . . . . . . . . . . . . . 41
4.4 Probabilities and uncertainties . . . . . . . . . . . . . . . . . . . 43
4.5 Risk picture: Risk presentation . . . . . . . . . . . . . . . . . . . 44
4.5.1 Sensitivity and robustness analyses . . . . . . . . . . . . 48
4.5.2 Risk evaluation . . . . . . . . . . . . . . . . . . . . . . . 49
vi CONTENTS
5 The risk analysis process: risk treatment 51
5.1 Comparisons of alternatives . . . . . . . . . . . . . . . . . . . . . 51
5.1.1 How to assess measures? . . . . . . . . . . . . . . . . . . 53
5.2 Management review and judgement . . . . . . . . . . . . . . . . 55
6 Risk analysis methods 57
6.1 Coarse risk analysis . . . . . . . . . . . . . . . . . . . . . . . . . 57
6.2 Job safety analysis . . . . . . . . . . . . . . . . . . . . . . . . . . 62
6.3 Failure modes and effects analysis . . . . . . . . . . . . . . . . . 64
6.3.1 Strengths and weaknesses of an FMEA . . . . . . . . . . 69
6.4 Hazard and operability studies . . . . . . . . . . . . . . . . . . . 70
6.5 SWIFT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
6.6 Fault tree analysis . . . . . . . . . . . . . . . . . . . . . . . . . . 72
6.6.1 Qualitative analysis . . . . . . . . . . . . . . . . . . . . . 74
6.6.2 Quantitative analysis . . . . . . . . . . . . . . . . . . . . 76
6.7 Event tree analysis . . . . . . . . . . . . . . . . . . . . . . . . . 78
6.7.1 Barrier block diagrams . . . . . . . . . . . . . . . . . . . 80
6.8 Bayesian networks . . . . . . . . . . . . . . . . . . . . . . . . . . 80
6.9 Monte Carlo simulation . . . . . . . . . . . . . . . . . . . . . . . 83
Part II Examples of applications 85
7 Safety measures for a road tunnel 87
7.1 Planning . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87
7.1.1 Problem definition . . . . . . . . . . . . . . . . . . . . . 87
7.1.2 Selection of analysis method . . . . . . . . . . . . . . . . 88
7.2 Risk assessment . . . . . . . . . . . . . . . . . . . . . . . . . . . 88
7.2.1 Identification of initiating events . . . . . . . . . . . . . . 88
7.2.2 Cause analysis . . . . . . . . . . . . . . . . . . . . . . . . 90
7.2.3 Consequence analysis . . . . . . . . . . . . . . . . . . . . 90
7.2.4 Risk picture . . . . . . . . . . . . . . . . . . . . . . . . . 94
7.3 Risk treatment . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95
7.3.1 Comparison of alternatives . . . . . . . . . . . . . . . . . 95
7.3.2 Management review and decision . . . . . . . . . . . . . 95
8 Risk analysis process for an offshore installation 97
8.1 Planning . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97
8.1.1 Problem definition . . . . . . . . . . . . . . . . . . . . . 97
8.1.2 Selection of analysis method . . . . . . . . . . . . . . . . 98
8.2 Risk analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98
8.2.1 Hazard identification . . . . . . . . . . . . . . . . . . . . 98
8.2.2 Cause analysis . . . . . . . . . . . . . . . . . . . . . . . . 98
8.2.3 Consequence analysis . . . . . . . . . . . . . . . . . . . . 100
CONTENTS vii
8.3 Risk picture and comparison of alternatives . . . . . . . . . . . . 103
8.4 Management review and judgement . . . . . . . . . . . . . . . . 104
9 Production assurance 105
9.1 Planning . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105
9.2 Risk analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105
9.2.1 Identification of failures . . . . . . . . . . . . . . . . . . 105
9.2.2 Cause analysis . . . . . . . . . . . . . . . . . . . . . . . . 106
9.2.3 Consequence analysis . . . . . . . . . . . . . . . . . . . . 106
9.3 Risk picture and comparison of alternatives . . . . . . . . . . . . 108
9.4 Management review and judgement. Decision . . . . . . . . . . . 109
10 Risk analysis process for a cash depot 111
10.1 Planning . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111
10.1.1 Problem definition . . . . . . . . . . . . . . . . . . . . . 111
10.1.2 Selection of analysis method . . . . . . . . . . . . . . . . 112
10.2 Risk analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 113
10.2.1 Identification of hazards and threats . . . . . . . . . . . . 113
10.2.2 Cause analysis . . . . . . . . . . . . . . . . . . . . . . . . 113
10.2.3 Consequence analysis . . . . . . . . . . . . . . . . . . . . 116
10.3 Risk picture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 118
10.4 Risk-reducing measures . . . . . . . . . . . . . . . . . . . . . . . 120
10.4.1 Relocation of the NOKAS facility . . . . . . . . . . . . . 120
10.4.2 Erection of a wall . . . . . . . . . . . . . . . . . . . . . . 121
10.5 Management review and judgment. Decision . . . . . . . . . . . 121
10.6 Discussion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 122
11 Risk analysis process for municipalities 123
11.1 Planning . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 123
11.1.1 Problem definition . . . . . . . . . . . . . . . . . . . . . 123
11.1.2 Selection of analysis method . . . . . . . . . . . . . . . . 124
11.2 Risk assessment . . . . . . . . . . . . . . . . . . . . . . . . . . . 124
11.2.1 Hazard and threat identification . . . . . . . . . . . . . . 124
11.2.2 Cause and consequence analysis. Risk picture . . . . . . . 125
11.3 Risk treatment . . . . . . . . . . . . . . . . . . . . . . . . . . . . 128
12 Risk analysis process for the entire enterprise 131
12.1 Planning . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 131
12.1.1 Problem definition . . . . . . . . . . . . . . . . . . . . . 131
12.1.2 Selection of analysis method . . . . . . . . . . . . . . . . 132
12.2 Risk analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 132
12.2.1 Price risk . . . . . . . . . . . . . . . . . . . . . . . . . . 132
12.2.2 Operational risk . . . . . . . . . . . . . . . . . . . . . . . 135
12.2.3 Health, Environment and Safety (HES) . . . . . . . . . . 137
12.2.4 Reputation risk . . . . . . . . . . . . . . . . . . . . . . . 138
viii CONTENTS
12.3 Overall risk picture . . . . . . . . . . . . . . . . . . . . . . . . . 140
12.4 Risk treatment . . . . . . . . . . . . . . . . . . . . . . . . . . . . 141
13 Discussion 143
13.1 Risk analysis as a decision support tool . . . . . . . . . . . . . . 143
13.2 Risk is more than the calculated probabilities and expected values 144
13.3 Risk analysis has both strengths and weaknesses . . . . . . . . . 145
13.3.1 Precision of a risk analysis: uncertainty and
sensitivity analysis . . . . . . . . . . . . . . . . . . . . . 145
13.3.2 Terminology . . . . . . . . . . . . . . . . . . . . . . . . . 147
13.3.3 Risk acceptance criteria (tolerability limits) . . . . . . . . 149
13.4 Reflection on approaches, methods and results . . . . . . . . . . 152
13.5 Limitations of the causal chain approach . . . . . . . . . . . . . . 152
13.6 Risk perspectives . . . . . . . . . . . . . . . . . . . . . . . . . . 154
13.7 Scientific basis . . . . . . . . . . . . . . . . . . . . . . . . . . . . 157
13.8 The implications of the limitations of risk assessment . . . . . . . 159
13.9 Critical systems and activities . . . . . . . . . . . . . . . . . . . 161
13.10 Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 166
A Probability calculus and statistics 167
A.1 The meaning of a probability . . . . . . . . . . . . . . . . . . . . 167
A.2 Probability calculus . . . . . . . . . . . . . . . . . . . . . . . . . 168
A.3 Probability distributions: expected value . . . . . . . . . . . . . . 170
A.3.1 Binomial distribution . . . . . . . . . . . . . . . . . . . . 171
A.4 Statistics (Bayesian statistics) . . . . . . . . . . . . . . . . . . . . 172
B Introduction to reliability analysis 173
B.1 Reliability of systems composed of components . . . . . . . . . . 173
B.2 Production system . . . . . . . . . . . . . . . . . . . . . . . . . . 175
B.3 Safety system . . . . . . . . . . . . . . . . . . . . . . . . . . . . 175
C Approach for selecting risk analysis methods 177
C.1 Expected consequences . . . . . . . . . . . . . . . . . . . . . . . 177
C.2 Uncertainty factors . . . . . . . . . . . . . . . . . . . . . . . . . 179
C.3 Frame conditions . . . . . . . . . . . . . . . . . . . . . . . . . . 179
C.4 Selection of a specific method . . . . . . . . . . . . . . . . . . . 180
D Terminology 183
D.1 Risk management: relationships between key terms . . . . . . . . 186
Bibliography 187
Index 193