Risk Analysis. Assessing Uncertainties beyond Expected Values and Probabilities. Terje Aven. University of Stavanger, Norway

Size: px

Start display at page:

Download "Risk Analysis. Assessing Uncertainties beyond Expected Values and Probabilities. Terje Aven. University of Stavanger, Norway"

Linda Marshall
5 years ago
Views:

3 Risk Analysis

5 Risk Analysis Assessing Uncertainties beyond Expected Values and Probabilities Terje Aven University of Stavanger, Norway

6 Copyright 2008 John Wiley & Sons Ltd, The Atrium, Southern Gate, Chichester, West Sussex PO19 8SQ, England Telephone (+44) (for orders and customer service enquiries): Visit our Home Page on or All Rights Reserved. No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning or otherwise, except under the terms of the Copyright, Designs and Patents Act 1988 or under the terms of a licence issued by the Copyright Licensing Agency Ltd, 90 Tottenham Court Road, London W1T 4LP, UK, without the permission in writing of the Publisher. Requests to the Publisher should be addressed to the Permissions Department, John Wiley & Sons Ltd, The Atrium, Southern Gate, Chichester, West Sussex PO19 8SQ, England, or ed to permreq@wiley.co.uk, or faxed to (+44) This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is sold on the understanding that the Publisher is not engaged in rendering professional services. If professional advice or other expert assistance is required, the services of a competent professional should be sought. Other Wiley Editorial Offices John Wiley & Sons Inc., 111 River Street, Hoboken, NJ 07030, USA Jossey-Bass, 989 Market Street, San Francisco, CA , USA Wiley-VCH Verlag GmbH, Boschstr. 12, D Weinheim, Germany John Wiley & Sons Australia Ltd, 42 McDougall Street, Milton, Queensland 4064, Australia John Wiley & Sons (Asia) Pte Ltd, 2 Clementi Loop #02-01, Jin Xing Distripark, Singapore John Wiley & Sons Canada Ltd, 6045 Freemont Blvd, Mississauga, ONT, L5R 4J3 Wiley also publishes its books in a variety of electronic formats. Some content that appears in print may not be available in electronic books. British Library Cataloguing in Publication Data A catalogue record for this book is available from the British Library ISBN Typeset in 10/12pt Times by Laserwords Private Limited, Chennai, India Printed and bound in Great Britain by TJ International, Padstow, Cornwall

7 Contents Preface ix Part I Theory and methods 1 1 What is a risk analysis? Why risk analysis? Risk management Decision-making under uncertainty Examples: decision situations Risk analysis for a tunnel Risk analysis for an offshore installation Risk analysis related to a cash depot What is risk? Vulnerability How to describe risk quantitatively Description of risk in a financial context Description of risk in a safety context The risk analysis process: planning Problem definition Selection of analysis method Checklist-based approach Risk-based approach The risk analysis process: risk assessment Identification of initiating events Cause analysis Consequence analysis Probabilities and uncertainties Risk picture: Risk presentation Sensitivity and robustness analyses Risk evaluation

8 vi CONTENTS 5 The risk analysis process: risk treatment Comparisons of alternatives How to assess measures? Management review and judgement Risk analysis methods Coarse risk analysis Job safety analysis Failure modes and effects analysis Strengths and weaknesses of an FMEA Hazard and operability studies SWIFT Fault tree analysis Qualitative analysis Quantitative analysis Eventtreeanalysis Barrier block diagrams Bayesiannetworks Monte Carlo simulation Part II Examples of applications 85 7 Safety measures for a road tunnel Planning Problem definition Selection of analysis method Risk assessment Identification of initiating events Cause analysis Consequence analysis Riskpicture Risk treatment Comparison of alternatives Management review and decision Risk analysis process for an offshore installation Planning Problem definition Selection of analysis method Risk analysis Hazard identification Cause analysis Consequence analysis

9 CONTENTS vii 8.3 Risk picture and comparison of alternatives Management review and judgement Production assurance Planning Risk analysis Identification of failures Cause analysis Consequence analysis Risk picture and comparison of alternatives Management review and judgement. Decision Risk analysis process for a cash depot Planning Problem definition Selection of analysis method Risk analysis Identification of hazards and threats Cause analysis Consequence analysis Risk picture Risk-reducing measures Relocation of the NOKAS facility Erection of a wall Management review and judgment. Decision Discussion Risk analysis process for municipalities Planning Problem definition Selection of analysis method Risk assessment Hazard and threat identification Cause and consequence analysis. Risk picture Risk treatment Risk analysis process for the entire enterprise Planning Problem definition Selection of analysis method Risk analysis Price risk Operational risk Health, Environment and Safety (HES) Reputation risk

10 viii CONTENTS 12.3 Overall risk picture Risk treatment Discussion Risk analysis as a decision support tool Risk is more than the calculated probabilities and expected values Risk analysis has both strengths and weaknesses Precision of a risk analysis: uncertainty and sensitivity analysis Terminology Risk acceptance criteria (tolerability limits) Reflection on approaches, methods and results Limitations of the causal chain approach Risk perspectives Scientific basis The implications of the limitations of risk assessment Critical systems and activities Conclusions A Probability calculus and statistics 167 A.1 The meaning of a probability A.2 Probability calculus A.3 Probability distributions: expected value A.3.1 Binomial distribution A.4 Statistics (Bayesian statistics) B Introduction to reliability analysis 173 B.1 Reliability of systems composed of components B.2 Production system B.3 Safety system C Approach for selecting risk analysis methods 177 C.1 Expected consequences C.2 Uncertainty factors C.3 Frame conditions C.4 Selection of a specific method D Terminology 183 D.1 Risk management: relationships between key terms Bibliography 187 Index 193

11 Preface This book is about risk analysis basic ideas, principles and methods. Both theory and practice are covered. A number of books exist presenting the many risk analysis methods and tools, such as fault tree analysis, event tree analysis and Bayesian networks. In this book we go one step back and discuss the role of the analyses in risk management. How such analyses should be planned, executed and used, such that they meet the professional standards for risk analyses and at the same time are useful in a practical decision-making context. In the book we review the common risk analysis methods, but the emphasis is placed on the context and applications. By using examples from different areas, we highlight the various elements that are part of the planning, execution and use of the risk analysis method. What are the main challenges we face? What type of methods should we choose? How can we avoid scientific mistakes? The examples used are taken from, among others, the transport sector, the petroleum industry and ICT (Information and Communication Technology). For each example we define a decision-making problem, and show how the analyses can be used to provide adequate decision support. The book covers both safety (accidental events) and security (intentional acts). The book is based on the recommended approach to risk analysis described and discussed in Aven (2003, 2007a, 2008). The basic idea is that risk analysis should produce a broad risk picture, highlighting uncertainties beyond expected values and probabilities. The aim of the risk analysis is to predict unknown physical quantities, such as the explosion pressure, the number of fatalities, costs and so on, and assess uncertainties. A probability is not a perfect tool for expressing the uncertainties. We have to acknowledge that the assigned probabilities are subjective probabilities conditional on a specific background knowledge. The assigned probabilities could produce poor predictions. The main component of risk is uncertainty, not probability. Surprises relative to the assigned probabilities may occur and by just addressing probabilities such surprises may be overlooked. It has been a goal to provide a simplified presentation of the material, without diminishing the requirement for precision and accuracy. In the book, technicalities are reduced to a minimum, instead ideas and principles are highlighted. Reading the book requires no special background, but for certain parts it would be beneficial to have a knowledge of basic probability theory and statistics. It has, however, been a goal to reduce the dependency on extensive prior knowledge of probability theory and statistics. The key statistical concepts are introduced and discussed thoroughly in the book. Appendix A summarises some basic probability theory and

12 x PREFACE statistical analysis. This makes the book more self-contained, and it gives the book the required sharpness with respect to relevant concepts and tools. We have also included a brief appendix covering basic reliability analysis, so that the reader can obtain the necessary background for calculating the reliability of a safety system. This book is primarily about planning, execution and use of risk analyses, and it provides clear recommendations and guidance in this context. However, it is not a recipe-book, telling you which risk analysis methods should be used in different situations. What is covered is the general thinking process related to the planning, execution and use of risk analyses. Examples are provided to illustrate this process. The book is based on and relates to the research literature in the field of risk, risk analysis and risk management. Some of the premises for the approach taken in the book as well as some areas of scientific dispute are looked into in a special Discussion chapter (Chapter 13). The issues addressed include the risk concept, the use of risk acceptance criteria and the definition of safety critical systems. The target audience for the book is primarily professionals within the risk analysis and risk management fields, but others, in particular managers and decisionmakers, can also benefit from the book. All those working with risk-related problems need to understand the fundamental principles of risk analysis. This book is based on a Norwegian book on risk analysis (Aven et al. 2008), with co-authors Willy Røed and Hermann S. Wiencke. The present version is, however, more advanced and includes topics that are not included in Aven et al. (2008). The terminology used in the book is summarised in Appendix D. It is to a large extent in line with the ISO standard on risk management terminology, ISO (2002). Our approach means a humble attitude to risk and the possession of the truth, and hopefully it will be more attractive also to social scientists and others, who have strongly criticised the prevalent thinking of risk analysis and evaluation in the engineering environment. Our way of thinking, to a large extent, integrates technical and economic risk analyses and the social scientist perspectives on risk. As a main component of risk is uncertainty about the world, risk perception has a role to play to guide decision-makers. Professional risk analysts do not have the exclusive right to describe risk. Acknowledgements A number of individuals have provided helpful comments and suggestions to this book. In particular, I would like to acknowledge my co-authors of Aven et al. (2008), Willy Røed and Hermann S. Wiencke. Chapters 7 and 11 are mainly due to Willy and Hermann; thanks to both. I am also grateful to Eirik B. Abrahamsen and Roger Flage for the great deal of time and effort they spent reading and preparing comments. For financial support, thanks to the University of Stavanger, and the Research Council of Norway. I also acknowledge the editing and production staff at John Wiley & Sons for their careful work. Stavanger Terje Aven

13 Part I Theory and methods The first part of the book deals with theory and methods. We are concerned about questions such as: What is a risk analysis? How should we describe risk? How should we plan, execute and use the risk analysis? What type of methods can we apply for different situations? Risk Analysis: Assessing Uncertainties beyond Expected Values and Probabilities 2008 John Wiley & Sons, Ltd T. Aven

15 1 What is a risk analysis? The objective of a risk analysis is to describe risk, i.e. to present an informative risk picture. Figure 1.1 illustrates important building blocks of such a risk picture. Located at the centre of the figure is the initiating event (the hazard, the threat, the opportunity), which we denote A. In the example, the event is that a person (John) contracts a specific disease. An important task in the risk analysis is to identify such initiating events. In our example, we may be concerned about various diseases that could affect the person. The left side of the figure illustrates the causal picture that may lead to the event A. The right side describes the possible consequences of A. On the left side are barriers that are introduced to prevent the event A from occurring; these are the probability reducing or preventive barriers. Examples of such barriers are medical check-ups/examinations, vaccinations and limiting the exposure to contamination sources. On the right side are barriers to prevent the disease (event A) from bringing about serious consequences; the consequence reducing barriers. Examples of such barriers are medication and surgery. The occurrence of A and performance of the various barriers are influenced by a number of factors the so-called risk-influencing or performance-influencing factors. Examples are: The quality of the medical check-ups; the effectiveness of the vaccine, drug or surgery; what is known about the disease and what causes it; lifestyle, nutrition and inheritance and genes. Figure1.1isoftenreferredtoasabow-tie diagram. We will refer to it many times later in the book when the risk picture is being discussed. We refer to the event A as an initiating event. When the consequences are obviously negative, the term undesirable event is used. We also use words such as hazards and threats. We say there is a fire hazard or that we are faced with a terrorist threat. We can also use the term initiating event in connection with an opportunity. An example is the opportunity that arises if a competitor goes bankrupt or his reputation is damaged. The risk analysis shall identify the relevant initiating events and develop the causal and consequence picture. How this is done depends on which method is Risk Analysis: Assessing Uncertainties beyond Expected Values and Probabilities 2008 John Wiley & Sons, Ltd T. Aven

A Foreign Exchange Primer

A Foreign Exchange Primer For other titles in the Wiley Trading series please see www.wiley.com/finance A FOREIGN EXCHANGE PRIMER Second Edition Shani Shamah A John Wiley and Sons, Ltd., Publication Copyright