What is Risk Assessment; how do we already use it; and how do we misuse it?
If our goal is to achieve progress, one of the ways we can determine that progress has been made is by a reduction in the quantity and severity of problems we face. Another way, would be to determine the quantity and magnitude of new capabilities we gain. However, new capabilities often bring new problems of their own, if we are not careful. The discipline of risk assessment and mitigation or control, if we take the time to apply it properly, can address the reduction of our current problems and the mitigation of potential future problems caused by our new capabilities.
That is all well and good. If we are facing the problem of getting punched in the face, it is easy enough to determine that getting punched in the face once or not at all is preferable than getting punched in the face three times. But, what if we are judging the difference in risk between a chemical additive to our water that would prevent a certain type of potentially fatal disease, but also carries a small risk of cancer after long term exposure? Juggling the probabilities and the severities of these problems is what risk assessment is all about. It helps people or organizations address a variety problems with various magnitudes and likelihoods, when they only have a limited amount of resources available to try to control those risks.
We can plot the risks we face in a risk matrix like the one shown here. This type of chart allows us to visualize our risks and the relation between severity and likelihood. The worse the event (injury in a vehicle accident), the less tolerant of occurences we are, while we can be more tolerant of events that are much less severe (vehicle breakdown). But, we cannot afford to address only likelihood or severity disregarding the other.
So, what do we do when faced with the potential of disastrous consequences? Do we ignore them, due to the small probability of them actually happening? Or, do we throw all of our time, effort, and money at them to make the risk as small as possible?
Just considering the example of car insurance, an individual will pay several hundred dollars per year (let’s say $1000) to avoid having to suffer monetary damages of around $25,000. If she survives 25 years without encountering that bad event, she has lost the same amount of money as if she had suffered the event. Yet, the entire time, there was the potential, especially at the beginning, for the financial costs of the event to be much higher relative to the insurance costs, and that made the decision a good one then.
There are many public policy implications of this kind of data. How do we decide how high to build the levees, or how strong to build the building on the fault line? How do we evaluate pollutants in our environment, or the size and capabilities of our military? The use of objective data-centered methods in many of these areas is unfortunately not always evident or fully realized.
People, in general, can be notoriously bad at statistics, especially when there is the prospect of pain involved. Yet, when thinking about it, we know that we choose to face some risks: injuries during exercise or work, death during travel, illnesses from our food, and so on. We do not pour all of our available money into renting or buying the safest vehicle we can, or guarding every sharp corner in our homes. While some are not, many of the choices we make are not bad ones. Risk is a part of our lives, yet something we must address to truly advance.
Risk assessment is something that will factor into many of the articles on true-progress.com. As it can be used for such a wide variety of problems, the benefits of the ensights of this kind of analysis are far reaching.