3 Risk measurement and risk management

Probability is a way of expressing, in mathematical terms, the likelihood that a particular event will happen. Risk assessments are generally concerned with the probability of something bad happening (the risk that a component will fail, for example), but probability can equally well apply to positive events or outcomes.

Before looking at the rest of this material, you need to take note of two important warnings. First, the fact that a component in a particular machine has lasted for 15 000 hours of use doesn’t mean that the equivalent component in a similar machine won’t fail after only 5000 hours of use. Or, in the words of the financial services industry:

Second, it is equally true that the fact that a component fails long before the end of its expected life doesn’t mean that a replacement component won’t also fail prematurely. Or, in the words of Ecclesiastes in the Christian and Jewish scriptures:

In other words, it is important to be aware of the worst-case scenario: a component failure indicates the possibility of other failures in the future, yet a lack of failure does not mean similar components will not fail.