Risk assessment

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Risk assessment is a step in a risk management procedure. Risk assessment is the determination of quantitative or qualitative value of risk related to a concrete situation and a recognized threat (also called hazard). Quantitative risk assessment requires calculations of two components of risk (R):, the magnitude of the potential loss (L), and the probability (p) that the loss will occur. In all types of engineering of complex systems sophisticated risk assessments are often made within Safety engineering and Reliability engineering when it concerns threats to life, environment or machine functioning. The nuclear, aerospace, oil, rail and military industries have a long history of dealing with risk assessment. Also, medical, hospital, and food industries control risks and perform risk assessments on a continual basis. Methods for assessment of risk may differ between industries and whether it pertains to general financial decisions or environmental, ecological, or public health risk assessment.

Explanation

Risk assessment consists of an objective evaluation of risk in which assumptions and uncertainties are clearly considered and presented. Part of the difficulty in risk management is that measurement of both of the quantities in which risk assessment is concerned - potential loss and probability of occurrence - can be very difficult to measure. The chance of error in measuring these two concepts is large. Risk with a large potential loss and a low probability of occurring is often treated differently from one with a low potential loss and a high likelihood of occurring. In theory, both are of nearly equal priority, but in practice it can be very difficult to manage when faced with the scarcity of resources, especially time, in which to conduct the risk management process. Expressed mathematically,

Risk assessment from a financial point of view.

Financial decisions, such as insurance, express loss in terms of dollar amounts. When risk assessment is used for public health or environmental decisions, loss can be quantified in a common metric such as a country's currency or some numerical measure of a location's quality of life. For public health and environmental decisions, loss is simply a verbal description of the outcome, such as increased cancer incidence or incidence of birth defects. In that case, the "risk" is expressed as

If the risk estimate takes into account information on the number of individuals exposed, it is termed a "population risk" and is in units of expected increased cases per a time period. If the risk estimate does not take into account the number of individuals exposed, it is termed an "individual risk" and is in units of incidence rate per a time period. Population risks are of more use for cost/benefit analysis; individual risks are of more use for evaluating whether risks to individuals are "acceptable"....

Risk assessment in public health

In the context of public health, risk assessment is the process of quantifying the probability of a harmful effect to individuals or populations from certain human activities. In most countries the use of specific chemicals or the operations of specific facilities (e.g. power plants, manufacturing plants) is not allowed unless it can be shown that they do not increase the risk of death or illness above a specific threshold. For example, the American Food and Drug Administration (FDA) regulates food safety through risk assessment.^[1] The FDA required in 1973 that cancer-causing compounds must not be present in meat at concentrations that would cause a cancer risk greater than 1 in a million lifetimes. The US Environmental Protection Agency provides basic information about environmental risk assessments for the public via its risk assessment portal.^[2]

How the risk is determined

In the estimation of risks, three or more steps are involved that require the inputs of different disciplines:

1. Hazard Identification, aims to determine the qualitative nature of the potential adverse consequences of the contaminant (chemical, radiation, noise, etc.) and the strength of the evidence it can have that effect. This is done, for chemical hazards, by drawing from the results of the sciences of toxicology and epidemiology. For other kinds of hazard, engineering or other disciplines are involved.
2. Dose-Response Analysis, is determining the relationship between dose and the probability or the incidence of effect (dose-response assessment). The complexity of this step in many contexts derives mainly from the need to extrapolate results from experimental animals (e.g. mouse, rat) to humans, and/or from high to lower doses. In addition, the differences between individuals due to genetics or other factors mean that the hazard may be higher for particular groups, called susceptible populations. An alternative to dose-response estimation is to determine an effect unlikely to yield observable effects, that is, a no effect concentration. In developing such a dose, to account for the largely unknown effects of animal to human extrapolations, increased variability in humans, or missing data, a prudent approach is often adopted by including safety factors in the estimate of the "safe" dose, typically a factor of 10 for each unknown step.
3. Exposure Quantification, aims to determine the amount of a contaminant (dose) that individuals and populations will receive. This is done by examining the results of the discipline of exposure assessment. As different location, lifestyles and other factors likely influence the amount of contaminant that is received, a range or distribution of possible values is generated in this step. Particular care is taken to determine the exposure of the susceptible population(s).

Finally, the results of the three steps above are then combined to produce an estimate of risk. Because of the different susceptibilities and exposures, this risk will vary within a population.

Small subpopulations

When risks apply mainly to small subpopulations, there is uncertainty at which point intervention is necessary. What if a risk is very low for everyone but 0.1% of the population? A difference exists whether this 0.1% is represented by *all infants younger than X days or *recreational users of a particular product. If the risk is higher for a particular sub-population because of abnormal exposure rather than susceptibility, there is a potential to consider strategies to further reduce the exposure of that subgroup. If an identifiable sub-population is more susceptible due to inherent genetic or other factors, there is a policy choice whether to set policies for protecting the general population that are protective of such groups (as is currently done for children when data exists, or is done under the Clean Air Act for populations such as asthmatics) or whether if the group is too small, or the costs to high. Sometimes, a more specific calculation can be applied whether it is more important to analyze each method specifically the changes of the risk assessment method in containing all problems that each of us people could replace.

Acceptable risk increase

The idea of not increasing lifetime risk by more than one in a million has become common place in public health discourse and policy. How consensus settled on this particular figure is unclear. In some respects this figure has the characteristics of a mythical number. In another sense the figure provides a numerical basis for what to consider a negligible increase in risk. Some current environmental decision making allows some discretion to deem individual risks potentially "acceptable" if below one in ten thousand increased lifetime risk. Low risk criteria such as these provide some protection for a case where individuals may be exposed to multiple chemicals (whether pollutants or food additives, or other chemicals). However, both of these benchmarks are clearly small relative to the typical one in four lifetime risk of death by cancer (due to all causes combined) in developed countries. On the other hand, adoption of a zero-risk policy could be motivated by the fact that the 1 in a million policy still would cause the death of hundreds or thousands of people in a large enough population. In practice however, a true zero-risk is possible only with the suppression of the risk-causing activity.

More stringent requirements (even 1 in a million) may not be technologically feasible at a given time or may be prohibitively expensive as to render the risk-causing activity unsustainable, resulting in the optimal degree of intervention being a balance between risks vs. benefit. For example, it might well be that the emissions from hospital incinerators result in a certain number of deaths per year. However, this risk must be balanced against the available alternatives. In some unusual cases, there are significant public health risks, as well as economic costs, associated with all options. For example, there are risks associated with no incineration (with the potential risk for spread of infectious diseases) or even no hospitals. Further investigation often identifies more options such as separating noninfectious from infectious wastes, or air pollution controls on a medical incinerator that provide a broad range of options of acceptable risk - though with varying practical implications and varying economic costs. Intelligent thought about a reasonably full set of options is essential. Thus, it is not unusual for there to be an iterative process between analysis, consideration of options, and follow up analysis.

Risk assessment in auditing

For audits performed by an outside audit firm, risk assessment is a very crucial stage before accepting an audit engagement. According to ISA315 Understanding the Entity and its Environment and Assessing the Risks of Material Misstatement, "the auditor should perform risk assessment procedures to obtain an understanding of the entity and its environment, including its internal control."<evidence relating to the auditor’s risk assessment of a material misstatement in the client’s financial statements. Then, the auditor obtains initial evidence regarding the classes of transactions at the client and the operating effectiveness of the client’s internal controls.In auditing, audit risk includes inherent risk, control risk and detection risk.

Risk assessments performed by internal auditors are entirely different. They are usually designed to facilitate the annual audit plan. Using various elements, such as changes in volume of business, management, technology, and the economy, coupled with the knowledge and experience of management regarding the particular area, plus the previous rating of the area and the time since the last audit, the audit department determines which areas have more risk and should be a priority within the audit plan. These risk assessment are different than those prepared by the department. Those should be evaluated as part of the internal audit risk assessment process, but should not be the sole basis. Only internal audit department generated risk assessments should used for audit planning purposes. Likewise, internal audit should not be preparing risk assessments for the various departments. They should prepare their own. They are responsible for establishing policies and procedures designed to mitigate the risks identified by the risk assessment. It is internal audit's responsibility to evaluate the effectiveness of the departmentally prepared risk assessments and make recommendations for improvement.

Risk assessment and human health

There are many resources that provide health risk information. The National Library of Medicine provides risk assessment and regulation information tools for a varied audience.^[3] These include TOXNET (databases on hazardous chemicals, environmental health, and toxic releases),^[4] the Household Products Database (potential health effects of chemicals in over 10,000 common household products),^[5] and TOXMAP (maps of US Environmental Agency Superfund and Toxics Release Inventory data). The United States Environmental Protection Agency provides basic information about environmental risk assessments for the public.^[6]

Risk assessment in information security

IT risk assessment can be performed by a qualitative or quantitative approach, following different methodologies.

Risk assessment in project management

In project management, risk assessment is an integral part of the risk management plan, studying the probability, the impact, and the effect of every known risk on the project, as well as the corrective action to take should that risk occur.^[7]

Risk assessment for megaprojects

Megaprojects (sometimes also called "major programs") are extremely large-scale investment projects, typically costing more than US$1 billion per project. Megaprojects include bridges, tunnels, highways, railways, airports, seaports, power plants, dams, wastewater projects, coastal flood protection, oil and natural gas extraction projects, public buildings, information technology systems, aerospace projects, and defence systems. Megaprojects have been shown to be particularly risky in terms of finance, safety, and social and environmental impacts. Risk assessment is therefore particularly pertinent for megaprojects and special methods and special education have been developed for such risk assessment.^[8][9]

Quantitative risk assessment

Quantitative risk assessments include a calculation of the single loss expectancy (SLE) of an asset. The single loss expectancy can be defined as the loss of value to asset based on a single security incident. The team then calculates the Annualized Rate of Occurrence (ARO) of the threat to the asset. The ARO is an estimate based on the data of how often a threat would be successful in exploiting a vulnerability. From this information, the Annualized Loss Expectancy (ALE) can be calculated. The annualized loss expectancy is a calculation of the single loss expectancy multiplied by the annual rate of occurrence, or how much an organization could estimate to lose from an asset based on the risks, threats, and vulnerabilities. It then becomes possible from a financial perspective to justify expenditures to implement countermeasures to protect the asset.

Risk assessment in software evolution

Studies have shown that early parts of the system development cycle such as requirements and design specifications are especially prone to error. This effect is particularly notorious in projects involving multiple stakeholders with different points of view. Evolutionary software processes offer an iterative approach to requirement engineering to alleviate the problems of uncertainty, ambiguity and inconsistency inherent in software developments.

Criticisms of quantitative risk assessment

Barry Commoner, Brian Wynne and other critics have expressed concerns that risk assessment tends to be overly quantitative and reductive. For example, they argue that risk assessments ignore qualitative differences among risks. Some charge that assessments may drop out important non-quantifiable or inaccessible information, such as variations among the classes of people exposed to hazards. Furthermore, Commoner and O'Brien claim that quantitative approaches divert attention from precautionary or preventative measures.^[10] Others, like Nassim Nicholas Taleb consider risk managers little more than "blind users" of statistical tools and methods.^[11]

Risk assessment in shipping industry

As from July 2010 shipping companies implemented risk assessment prosedures in order to asses the risk in key shipboard operations. These procedures were implemented as part of the amended ISM code^[12]. The risk assessment should be performed before perfuming a key operation. If the risk is assessed to be high then additional measures must be implemented in order to reduce the risk. Shared knowledge from audits and some examples can be found in the following link.

See also

• Benefit risk
• Cost risk
• Digital Continuity
• Edwards v. National Coal Board
• Extreme risk
• Flood risk assessment
• Form 696
• Green Globe
• Hazard (risk)
• Hazard Identification
• Health Impact Assessment
• Information assurance
• List of auditing topics
• ISO 28000
• ISO 31000
• Megaprojects and Risk
• Network Theory in Risk Assessment
• Optimism bias
• Probabilistic risk assessment
• Probit model
• Reference class forecasting
• Risk
• Risk aversion
• Risk management
• Risk management tools
• RiskAoA
• Security risk
• Strategic misrepresentation

References

Footnotes

General references

• Jean-Lou, C. M.; Dorne, George E. N. Kass, Luisa R. Bordajandi, Billy Amzal, Ulla Bertelsen, Anna F. Castoldi, Claudia Heppner, Mari Eskola, Stefan Fabiansson, Pietro Ferrari, Elena Scaravelli, Eugenia Dogliotti, Peter Fuerst, Alan R. Boobis and Philippe Verger (2011). "Chaper 2. Human Risk Assessment of Heavy Metals: Principles and Applications". In Astrid Sigel, Helmut Sigel, Roland K O Sigel. Metal Ions in Toxicology. RSC Publishing. pp. 27–60. doi:10.1039/9781849732116-00027. 
• Mumtaz, Moiz M.; Hansen, Hugh; Pohl, Hana R. (2011). "Chapter 3. Mixtures and Their Risk Assessment in Toxicology". In Astrid Sigel, Helmut Sigel, Roland K O Sigel. Metal Ions in Toxicology. RSC Publishing. pp. 61–80. doi:10.1039/9781849732116-00061. 
• Committee on Risk Assessment of Hazardous Air Pollutants, Board on Environmental Studies and Toxicology, Commission on Life Sciences, National Research Council (1994), Science and judgment in risk assessment, Washington, D.C: National Academy Press, ISBN 0-309-04894-X, http://books.google.com/books?id=k9mKUyfHakcC&printsec=frontcover&dq=Science+and+judgment+in+risk+assessment#v=onepage&q&f=false, retrieved 27 September 2010 
• Barry Commoner. “Comparing apples to oranges: Risk of cost/benefit analysis” from Contemporary moral controversies in technology, A. P. Iannone, ed., pp. 64–65.
• Flyvbjerg, Bent, "From Nobel Prize to Project Management: Getting Risks Right." Project Management Journal, vol. 37, no. 3, August 2006, pp. 5-15.
• Hallenbeck, William H. Quantitative risk assessment for environmental and occupational health. Chelsea, Mich.: Lewis Publishers, 1986
• Harremoës, Poul, ed. Late lessons from early warnings: the precautionary principle 1896–2000.
• John M. Lachin. Biostatistical methods: the assessment of relative risks.
• Lerche, Ian; Glaesser, Walter (2006), Environmental risk assessment : quantitative measures, anthropogenic influences, human impact., Berlin: Springer, ISBN 3-540-26249-0, http://books.google.com/books?id=qB54qgpA_fEC&printsec=frontcover&dq=Environmental+risk+assessment#v=onepage&q&f=false, retrieved 27 September 2010 
• Kluger, Jeffrey (November 26, 2006), "How Americans Are Living Dangerously", Time, http://www.time.com/time/magazine/article/0,9171,1562978,00.html, retrieved 27 September 2010  Also published as December 4 cover title: "Why We Worry About the Wrong Things: The Psychology of Risk" 
• Library of Congress. Congressional Research Service. & United States. Congress. House. Committee on Science and Technology. Subcommittee on Science, Research, and Technology (1983), A Review of risk assessment methodologies, Washington: U.S: report / prepared by the Congressional Research Service, Library of Congress for the Subcommittee on Science, Research, and Technology; transmitted to the Committee on Science and Technology, U.S. House of Representatives, Ninety-eighth Congress, first session 
• Deborah G. Mayo. “Sociological versus metascientific views of technological risk assessment” in Shrader-Frechette and Westra.
• Nyholm, J, 2009 "Persistency, bioaccumulation and toxicity assessment of selected brominated flame retardants"
• O’Brien, Mary (2002), Making better environmental decisions: an alternative to risk assessment, Cambridge, Massachusetts: MIT Press, ISBN 0-262-15051-4, http://books.google.com/books?id=LtCOEN9HWIcC&printsec=frontcover&dq=Making+better+environmental#v=onepage&q&f=false, retrieved 27 September 2010  Paperback ISBN 0-262-65053-3 
• Shrader-Frechette, Kristin; Westra, Laura, eds. (1997), Technology and values, Lanham, Maryland: Rowman & Littlefield, ISBN 0-8476-8631-0, http://books.google.com/books?id=y5BfvU6uMQMC&printsec=frontcover&dq=Technology+and+values#v=onepage&q&f=false, retrieved 27 September 2010 

External links

• Risk Assessment Worksheet and Management Plan A comprehensive guide to risk assessment in project management, includes template - By John Filicetti