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Risk management
Risk management

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6 Understanding and expressing risk

You can see from the case studies that a clear understanding of risk is important. Kodak did not appreciate the size of the risks that digital photography posed to them; the owners of Piper Alpha either did not appreciate or ignored the operating and safety risks of cost-cutting; and Rolls-Royce did not factor the risk of rising costs into their fixed-price contracts. But how best to understand and express these risks? This question will be addressed throughout the course, but for now, consider the following question:

Which is riskier – handling explosives on a building site, or driving to work?

More people die in road accidents than from explosions, so is driving the riskier activity? There are many things to consider here. One important thing to think about in this example would be the accident rate per activity undertaken, which gives you a better understanding of how likely you are to suffer an accident doing either activity. This is an assessment of probability.

However, it still does not tell the whole story. Imagine if the accident rate per activity were exactly the same for both activities. Would you rather suffer an accident while driving or while handling explosives? Your answer to this question concerns the impact of the risk event. The impact of an accident while handling explosives is more likely to be serious (probably death) than an accident while driving, which could lead to many comparatively minor consequences. To fully understand the risks involved you need to understand both the probability and the impact of the risk. This will be revisited when discussing assessments later in the course.