new ideas about how to conceptualise, asses and manage risk new ideas about how to conceptualise,...
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New ideas about how to
conceptualise, asses and
manage risk
Terje Aven
University of Stavanger, Norway
13 March 2014
Risk Management
Network
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Kahneman
asserts that we
have a basic lack
of ability to treat
small risks: we
either ignore
them completely
or give them too
much weight. The
main thesis put
forward is that
we grossly over-
estimate small
risks.
Kahneman’s
book
«Thinking
fast and
slow»
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I visited Israel several times during a period in
which suicide bombings in buses were relatively
common—though of course quite rare in
absolute terms. There were altogether 23
bombings between December 2001 and
September 2004, which had caused a total of
236 fatalities. The number of daily bus riders in
Israel was approximately 1.3 million at that time.
For any traveler, the risks were tiny, but that was
not how the public felt about it. People avoided
buses as much as they could, and many
travelers spent their time on the bus anxiously
scanning their neighbors for packages or bulky
clothes that might hide a bomb.
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I did not have much occasion to travel on buses, as I was
driving a rented car, but I was chagrined to discover that my
behavior was also affected. I found that I did not like to stop
next to a bus at a red light, and I drove away more quickly
than usual when the light changed. I was ashamed of myself,
because of course I knew better. I knew that the risk
was truly negligible, and that any effect at all on my actions
would assign an inordinately high “decision weight” to a
minuscule probability. In fact, I was more likely to be injured
in a driving accident than by stopping near a bus. But my
avoidance of buses was not motivated by a rational concern for
survival. What drove me was the experience of the moment:
being next to a bus made me think of bombs, and these
thoughts were unpleasant.
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Risk
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• What is Risk ?
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• Value-at-risk - VaR
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• Uncertainty
• variance or volatility
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• The Knightian classification where
risk is restricted to known
distributions also has a strong
position in the economic literature,
and this classification is often
referred to when economists
present and discuss the risk
concept.
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• Risk = expected
consequences ?
Risk
P X C
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x
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Industry safety contexts
• Events/scenarios A, consequences C,
probabilities P
Risk
(C,P)
(A,C,P)
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• Risk is a measure of the probability and severity of
adverse effects (Lowrance 1976)
• Risk is the combination of probability and extent of
consequences (SEVESO, Ale 2002).
• Risk is defined as the triplet (s,p,c), where s is the
scenario, p probability and c consequence of the
scenario (Kaplan and Garrick 1981)
(A,C,P)
A: Event, C: Consequences of A,
P: probability
(C,P)
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• The perspective is too narrow !
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John offers you a game: throwing
a die
• ”1,2,3,4,5”: 6
• ”6”: -24
What is your risk?
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Risk
(C,P):
• 6 5/6
• -24 1/6
Is based on an important
assumption – the die is fair
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Assumption 1: …
Assumption 2: …
Assumption 3: …
Assumption 4: …
…
Assumption 50: The platform jacket structure will withstand
a ship collision energy of 14 MJ
Assumption 51: There will be no hot work on the platform
Assumption 52: The work permit system is adhered to
Assumption 53: The reliability of the blowdown system is p
Assumption 54: There will be N crane lifts per year
…
Assumption 100: …
…
“Background knowledge”
Model: A very crude gas dispersion model is applied
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Main problems with the probability
based approach
19
4
Surprises occur
1
Assumptions can
conceal important
aspects of risk and
uncertainties
3
The probabilities
can be the same
but the
knowledge they
are built on
strong or weak
2
Presume
existence of
probability
models
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Probability-
based
Historical data
Knowledge
dimension +
+
Surprises
Risk perspective
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Risk
C: Consequences
U: Uncertainty
(C,U)
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Risk
(A,C,U)
A: Event, C: Consequences
U: Uncertainty
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Risk description
(A,C,U)
Q: Measure of uncertainty (e.g. P)
K: Background knowledge
C’: Specific consequences
(C,U)
C’
Q
K
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Black Swan
A surprising, extreme event
relative to present
knowledge/beliefs
Aven (2013) On the
meaning of a black swan
in a risk context. Safety
Science, 57, 44-51
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A surprise for
some
Not a
surprise
for others Unknown
knowns
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Was this a Black
Swan ?
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Black Swan
I. Outlier as it lies outside the realm of regular
expectations, because nothing in the past can
convincingly point to its possibility.
II. Extreme impact.
III. In spite of its outlier status, human nature makes us
concoct explanations for its occurrence after the fact,
making it explainable and predictable.
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Was this a Black
Swan?
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Known events
Judged
acceptable
So small
probability
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Black swans
Unforeseen
(unanticipated)
events
Surprising events
Unthinkable
(unimaginabl
e) events
Extreme
consequences
a) Unknown
unknowns
b)
Unknown
knowns
c) Known but not
believed to occur
because of low
judged probability
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Was this a Black
Swan?
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The Deepwater Horizon accident
Erroneous assessments of pressure test results
Failure to identify formation fluid penetrating the well
despite log data showing that this was happening
The diverter system was unable to divert gas
The cutting valve (blind shear ram – BSR) in the
BOP failed to seal the well
http://www.ptil.no/nyheter/deepwater-horizon-ulykken-
vurderinger-og-anbefalinger-for-norsk-petroleumsvirksomhet-
article7889-24.html
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Disasters
• We experience combinations of conditions and events
which collectively result in a major accident
• We do not normally identify such combinations of
conditions and events in risk assessments – and, if
we did, they would typically be disregarded because of
negligible probability 33
A B C D
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Black swans
Unforeseen
(unanticipated)
events
Surprising events
Unthinkable
(unimaginabl
e) events
Extreme
consequences
a) Unknown
unknowns
b)
Unknown
knowns
c) Known but not
believed to occur
because of low
judged probability
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How to confront the black swans
Knowledge
Risk assessments
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36
Probabilities,
historical data,
risk matrices
Knowledge,
uncertainty,
surprises
Traditional
understanding
of risk
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Risk description
(A,C,U)
Q: Measure of uncertainty (e.g. P)
K: Background knowledge
C’: Specific consequences
(C,U)
C’
Q
K
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Risk description
(A,C,U)
Black swan: A occurs, not covered by A’
(C,U)
A’. C’
Q
K
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Risk description
(A,C,U)
Black swan: A’ known but judged so unlikely
that we believe it will not occur
A’ occurs
(C,U)
A’. C’
Q
K
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• How can we improve the way we
assess and manage risk and black
swans ?
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Probability
Consequence,
impact
Poor background knowledge
Strong background knowledge
Medium strong background knowledge
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– Anticipatory failure determination (AFD) based
on Theory of Inventive Problem Solving (TRIZ)
• If I wanted to create this particular failure, how
could I do it?
– Events with negligible assessed risks: Provide
arguments for the event to occur (red team)
Challenge analysis conducted
– Red teaming (devil’s advocate) (challenges
our mental models)
– Scenario analysis (starting from a future
imagined state – system thinking)
Improved risk assessments?
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How to confront the black swans
Risk management approaches
• Signals and warnings
• Sensitivity to operations (principle of collective
mindfulness linked to High Reliability Organizations)
• Adaptive risk management
• Robustness
• Resilience thinking
• Understand variation
• …
Cautionary and precautionary principles
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«Perfect
storms»
Different types of risk
problems
Increasing weight on the cautionary
and precautionary principles
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«Perfect
storms»
Different types of risk
problems
Increasing weight on the cautionary
and precautionary principles
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Formula Optimal/right
decision
Common thinking
Risk-based decision making
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Risk analysis
Cost-benefit analysis,
Risk acceptance criteria
…
Management
review and
judgment Decision
Analysis Management
Risk-informed decision
making
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Aven, T. (2012) The risk concept. Historical and recent development
trends. Reliability Engineering and System Safety, 99, 33–44.
Aven, T. Krohn, B.S. (2014) A new perspective on how to understand,
assess and manage risk and the unforeseen“. Reliability
Engineering & System Safety.
http://www.sciencedirect.com/science/article/pii/S0951832013002159
#
Aven (2014) Risk, surprises and black
swans. Routledge, in press.
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• Extra
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New risk
perspective
1
Risk
assessment
and
management
2
Mindfulness
(Collective)
2
Quality
improvements
1
Suitable
concepts and
principles
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More specific insights about
knowledge, uncertainties, variation
and surprises
Collective mindfulness
• Preoccupation with failure
• Reluctance to simplify
• Sensitivity to operations
• Commitment to resilience
• Deference to expertise
Organisational theory and
learning
2
New risk
perspective
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• ------ P =1 x 10-4
Risk description What is acceptable
risk
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• ------ P =1 x 10-4
Risk description What is acceptable
risk
Problems with this
approach?
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An effect is a deviation from the
expected (positive and/or negative).
Risk is the effect of uncertainty on
objectives
ISO Guide 73 / ISO 31000
Aven, T. (2011) On the new ISO guide
on risk management terminology.
Reliability Engineering and System
Safety, 96, 719-726