Clearly stating risk management questions

Also see: Risk management introduction, Planning a risk analysis, What are risks and opportunities, The quality of a risk analysis

In order for a risk analysis to help the manager determine which options are to be preferred, the manager must provide a clear question stated in terms of a quantitative estimate. For example:

"What is the risk of AIDS?"

is insufficient. The manager would need to specify:

The risk to whom?

The population in general, or a sub-group?

In what units?

The measure of impact: is the analyst to evaluate a person living with AIDS the same as a person suffering symptoms, the same as a person who dies from the virus? Perhaps all three values are needed.

Over what period?

There has to be a unit of exposure: for example, per random person per year, or per lifetime. Perhaps the exposure is required per sexual contact with an AIDS sufferer, per new sexual partner, or birth (for transfer to children), etc.

How is the answer to be enumerated?

The choice of numerical representation can be very important. For example, the risk from some exposure or activity X in a country of 50 million population could be expressed as follows:

  1. 1 in a million chance of death per person per year

  2. 1 in a million chance of death per statistical person per year

  3. An expected 50 deaths per year

  4. 10^-6 risk of death per person per year

  5. 0.000 001 risk of death per person per year

  6. 0.000 1% risk of death per person per year

  7. Same risk as dying from Y (where Y is some recreational activity)

If these explanations of risk are presented to the population, they may engender quite different reactions. For example:

  1. 'Yes, but I'll be the "1". It's too risky'

  2. 'Not so risky'

  3. 'Completely unacceptable to condemn 50 people to death each year'

  4. 'What does 10^-6 mean? They're trying to blind us with science'

  5. 'That's a lot of zero. Not a problem'

  6. 'Doesn't look that small to me'

  7. 'How dare you impose a risk on me that I didn't ask for'

It is common practice and for analysts and managers to spend some time debating the questions that can be answered, and the process is iterative: the collection of available data will often lead to a change or refinement to the question, and the asking of additional questions.

 

 

ModelRisk

Monte Carlo simulation in Excel. Learn more

Tamara

Adding risk and uncertainty to your project schedule. Learn more

Navigation

FREE MONTE CARLO SIMULATION SOFTWARE

For Microsoft Excel

Download your free copy of ModelRisk Basic today. Professional quality risk modeling software and no catches

Download ModelRisk Basic now

FREE PROJECT RISK SOFTWARE

For Primavera & Microsoft Project

Download your free copy of Tamara Basic today. Professional quality project risk software and no catches.

Download Tamara Basic now
-->