Download - Atack of the Black Swan
Steven Lipton M.Ed. LEHP, CP-FSPresident , Biotest Services Inc. Vice President, Operations Quality, Scientific Device Laboratory Inc.
An Introduction to Risk Assessment
Objectives
Define risk Identify the risk within a process,
product or event. Indentify the three major risk levels Create a risk analysis chart Identify and evaluate actions
concerning potential Black Swans.
What is Risk
A relationship between Likeliness of an event Impact of that event
Impact
May be Positive or negative
WIN!!! LOSE!!!
Risk Management
Outside of finance, risk management generally deals with negative impacts.
A simple dice game
Roller rolls 5 times Roller Pays Bank $1 on rolls of 3,4,5 Bank Pays Roller $1 on rolls of 1,2,6
A simple dice game
Roller rolls 5 times Roller Pays Bank $1 on rolls of
5,6,7,8,9 Bank Pays Roller $1 on rolls of 2,3,
4,10,11,12
Possible impacts
Lose Low: $1 Moderate: $3 High: $5
Win Low: $1 Moderate: $3 High: $5
Probability
High - greater than 50% chance P(A)>0.50
Medium– 25% to 50% 0.25 ≤P(A) ≤ 0.50 Medium Low – 13% up to 25% 0.13 ≤
P(A) ≤ 0.25 Low - 13% P(A)<0.13
Risk Table
$ 5 loss
$3 Loss $1 Loss $1 Win $3 Win $5 Win
High Probability
Med Probability
Med Low
Low Probability
I Just don’t want to lose!!!!
Risk Table
$ 5 loss $3 Loss $1 Loss $0 Loss
High Probability
Med Probability
Med Low
Low Probability
Types of risk
Intolerable risk - IR Alarm or As Low as Reasonably
Practical (ALARP) - AL Broadly acceptable – BA
Risk Table
$ 5 loss $3 Loss $1 Loss $0 Loss
High Probability
Med Probability
Med Low
Low Probability
Risk Table
$ 5 loss $3 Loss $1 Loss $0 Loss
High Probability IR
Med Probability IR
Med LowIR
Low Probability IR
Risk Table
$ 5 loss $3 Loss $1 Loss $0 Loss
High Probability IR BA
Med Probability IR BA
Med LowIR BA
Low Probability IR BA
Risk Table
$ 5 loss $3 Loss $1 Loss $0 Loss
High Probability IR IR BA
Med Probability IR IR BA
Med LowIR BA
Low Probability IR BA
Risk Table
$ 5 loss $3 Loss $1 Loss $0 Loss
High Probability IR IR BA
Med Probability IR IR BA
Med LowIR BA
Low Probability IR BA BA
Risk Table
L5- $ 5 loss
L3 -$3 Loss
L1 -$1 Loss
L0 -$0 Loss
P4-High Probability IR IR AL BA
P3- Med Probability IR IR AL BA
P2- Med LowIR AL AL BA
P1- Low Probability IR AL BA BA
Risk Table
L5- $ 5 loss
L3 -$3 Loss
L1 -$1 Loss
L0 -$0 Loss
P4-High Probability IR IR AL BA
P3- Med Probability IR IR AL BA
P2- Med LowIR AL AL BA
P1- Low Probability IR AL BA BA
Risk Table
L5- $ 5 loss
L3 -$3 Loss
L1 -$1 Loss
L0 -$0 Loss
P4-High Probability IR IR AL BA
P3- Med Probability IR IR AL BA
P2- Med LowIR AL AL BA
P1- Low Probability AL AL BA BA
Risk assessment Form
(What can go wrong?)Hazard or Event
(If it goes wrong, what happens?)
Effect(Why did it go wrong?)
Root cause
Impact
Probability
Risk
(How could I stop it from going wrong?)
Control Measure
Residual
Impact
Probability
Risk
Play Dice Game Lose $5 5
Play Dice Game Lose $3 3
Play Dice Game Lose $1 1
Play Dice Game Lose $0 0
A simple dice game
Based on evidence for 1-die game, assume even odds.
WAIT!!! There are really only 11 possibilities, not 12! P for dealer is (5/11)- 45%/throw, P for player is (6/11) 54%
A simple dice game
Lose 5 – 1.8% P1 Lose 3 – 11.6% P1 Lose 1 – 27.1% P3 Lose 0 – 59.5%P5
Risk assessment Form
(What can go wrong?)Hazard or Event
(If it goes wrong, what happens?)
Effect(Why did it go wrong?)
Root cause
Impact
Probability
Risk
(How could I stop it from going wrong?)
Control Measure
Residual
Impact
Probability
Risk
Play Dice Game Lose $5 5 1 A
Play Dice Game Lose $3 3 1 A
Play Dice Game Lose $1 1 3 A
Play Dice Game Lose $0 0 5 B
A simple dice game
Roller rolls 5 times Roller Pays Bank $1 on rolls of
5,6,7,8,9 Bank Pays Roller $1 on rolls of 2,3,
4,10,11,12 Now Play the
game!!!
Class Results
Class Class %
Lose 5
Lose 3
Lose 1
Win 1
Win 3
Win 5
Lose 0
Total
Probability
Some events are more likely to happen than others
Simulation Results
Simulation
Lose 5 24%
Lose 3 40%
Lose 1 26%
Win 1 9%
Win 3 1%
Win 5 0 (0.08)
Lose 0 10%
Total
A sucker bet
($5) ($3) ($1) $0 0
5
10
15
20
25
30
35
40
Original Risk Assessment
(What can go wrong?)Hazard or Event
(If it goes wrong, what happens?)
Effect(Why did it go wrong?)
Root cause
Impact
Probability
Risk
(How could I stop it from going wrong?)
Control Measure
Residual
Impact
Probability
Risk
Play Dice Game Lose $5 5 1 A
Play Dice Game Lose $3 3 1 A
Play Dice Game Lose $1 1 3 A
Play Dice Game Lose $0 0 5 B
Revised Risk for Probability
(What can go wrong?)Hazard or Event
(If it goes wrong, what happens?)
Effect(Why did it go wrong?)
Root cause
Impact
Probability
Risk
(How could I stop it from going wrong?)
Control Measure
Residual
Impact
Probability
Risk
Play Dice Game Lose $5 5 2 A
Play Dice Game Lose $3 3 3 I
Play Dice Game Lose $1 1 3 A
Play Dice Game Lose $0 0 2 B
Risk Table
L5- $ 5 loss
L3 -$3 Loss
L1 -$1 Loss
L0 -$0 Loss
P4-High Probability IR IR AL BA
P3- Med Probability IR IR AL BA
P2- Med LowIR AL AL BA
P1- Low Probability AL AL BA BA
The Black Swan
The Black Swan
Nicholas Nassim Taleb (2006) A reference to Europeans who only
saw white swans and thus thought all swans were white – until they got to Australia.
A black swan event is a High impact, Low probability event.
After a Black Swan event, the event looks like it was inevitable with a simple, obvious explanation.
Changing the rules
If roller wearing anything white, the payoffs to bank and roller switch.
What happens?
Control Measures
Control measures change the impact or the probability of an outcome, and thus change the risk.
Control Measures
Control measures are found by determining the root cause, and finding a way to prevent minimize or eliminate that root cause
Revised Probabilities & Risk
(What can go wrong?)Hazard or Event
(If it goes wrong, what happens?)
Effect(Why did it go wrong?)
Root cause
Impact
Probability
Risk
(How could I stop it from going wrong?)
Control Measure
Residual
Impact
Probability
Risk
Play Dice Game Lose $5 5 2 A Wear white 0 2 B
Play Dice Game Lose $3 3 3 I Wear white 0 3 B
Play Dice Game Lose $1 1 3 A Wear white 0 3 B
Play Dice Game Lose $0 0 2 B Wear white 1 2 B
Revised Probabilities & Risk
(What can go wrong?)Hazard or Event
(If it goes wrong, what happens?)
Effect(Why did it go wrong?)
Root cause
Impact
Probability
Risk
(How could I stop it from going wrong?)
Control Measure
Residual
Impact
Probability
Risk
Play Dice Game Lose $5 Biased Game 5 2 A Wear white 0 2 B
Play Dice Game Lose $3 Biased Game 3 3 I Wear white 0 3 B
Play Dice Game Lose $1 Biased Game 1 3 A Wear white 0 3 B
Play Dice Game Win $1 Biased Game 0 1 B Wear white 1 1 B
Play Dice Game Win $3 Biased Game 0 1 B Wear white 3 1 A
Play Dice Game Win $5 Biased Game 0 1 B Wear white 5 1 A
Stopping Black swans
Be creative Expert advice is anchored to the
means, not the extremes Examine for false impacts and
probabilities Examine for false risk Examine for hidden risk Apply control measures once found
Stopping Black Swans
You can’t stop all Black Swans When you do stop one, virtually
no one will know. (Jonah’s Dilemma)
Risk assessment charts
Brainstorm all possible events Brainstorm all possible outcomes Place on form and calculate risk Identify root causes If there is a control measure for the
root cause, note it. If there is a significant residual risk,
see if that is another event/outcome.
Brainstorming
Write down all possibilities for the topic without any editing or rejections
Organize the results
Brainstorming
Write down all possibilities for the topic without any editing or rejections
Organize the results
A Short Risk Analysis
Step 1: Decide in your groups a case Food borne outbreak Terrorist event Natural disaster Epidemic
Step 2: Brain storm all events that could happen during a topic.
Step 3: Events and Effect
(What can go wrong?)Hazard or Event
(If it goes wrong, what happens?)
Effect(Why did it go wrong?)
Root cause
Impact
Probability
Risk
(How could I stop it from going wrong?)
Control Measure
Residual
Impact
Probability
Risk
Define Impact
Impact Description & Criterion of Impact
I1 No harm
I2 Injury not requiring Medical treatment
I3 Injury requiring medical treatment
I4 Single death per time period
I5 Multiple deaths per time period
Probability Description & Criterion of Probability
P1 >50%
P2 Between 50% and 25%
P3 Between 25% and 12.5%
P4 Between 12.5% and 6.25
P5 Less than 6.25%
Set up risk table
Impact
Probabilit
y
I1 I2 I3 I4 I5
P1 BA AL AL NR NR
P2 BA AL AL NR NR
P3 BA AL AL NR NR
P4 BA BA AL AL NR
P5 BA BA AL AL NR
Step 7: Calculate your risk
(What can go wrong?)Hazard or Event
(If it goes wrong, what happens?)
Effect(Why did it go wrong?)
Root cause
Impact
Probability
Risk
(How could I stop it from going wrong?)
Control Measure
Residual
Impact
Probability
Risk
Step 8: Find the root cause
(What can go wrong?)Hazard or Event
(If it goes wrong, what happens?)
Effect(Why did it go wrong?)
Root cause
Impact
Probability
Risk
(How could I stop it from going wrong?)
Control Measure
Residual
Impact
Probability
Risk
Step 9: Control measure
(What can go wrong?)Hazard or Event
(If it goes wrong, what happens?)
Effect(Why did it go wrong?)
Root cause
Impact
Probability
Risk
(How could I stop it from going wrong?)
Control Measure
Residual
Impact
Probability
Risk
Step 3: Calculate residual risk
(What can go wrong?)Hazard or Event
(If it goes wrong, what happens?)
Effect(Why did it go wrong?)
Root cause
Impact
Probability
Risk
(How could I stop it from going wrong?)
Control Measure
Residual
Impact
Probability
Risk
Questions?
Steven Lipton Biotest Services 411 East Jarvis Ave Des Plaines IL
60018
[email protected] [email protected] Twitter: @Biotest http://www.biotestservices.com/risk.
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