Risk Analysis in Engineering

A lecture on

Reliability Engineering and System Safety On how to define, understand and describe risk
Author: Terje Aven University of Stavanger, Norway

By: Ramin Shamshiri

1. Introduction 2. Risk definitions and descriptions 3. Examples I, II, III

4. Discussion
5. Conclusion and final remarks

1. Introduction
In Engineering, Risk is often linked to the expected loss.

Risk is: 1. A measure of the probability and severity of adverse effects 2. Risk is the combination of probability of an event and its consequences 3. Risk is equal to the triplet (si, pi, ci), Common in all definitions: Risk =(A,C,P) A: events, i.e., gas leakage or terrorist attack

si is the ith scenario, pi is the probability of that scenario ci is the consequence of the ith scenario, i=1,2,.., N

C: the consequences of A, i.e., the number of causalities due to leakages, terrorist attacks, etc P: the associated probabilities

Other definitions of risk with taking into account the uncertainties beyond the probabilities 4. Risk refers to uncertainty of outcome, of actions and events 5. Risk is a situation or event where something of human value (including humans themselves) is at stake and where the outcome is uncertain 6. Risk is an uncertain consequence of an event or an activity with respect to something that humans value 7. Risk is equal to the two-dimensional combination of events/ consequences and associated uncertainties 8. Risk is uncertainty about and severity of the consequences (or outcomes) of an activity with respect to something that humans value

2. Risk definitions and descriptions

i.
ii.

Frequency based perspective

Alternative perspective

Risk =( A,C,Pf )
Risk =( A,C,U )

Where Pf is a relative frequency-interpreted probability

Where U is the uncertainly about A and C

2.1. Risk description for the relative frequency case:

i.
ii.

According to the probability of frequency approach = (A, C, Pf, P(Pf), K) where K now is the
background knowledge that the estimate Pf* and the probability distribution P is based on.

According to the pure traditional statistical approach = (A, C, Pf, C(Pf), K) where C is a traditional
confidence interval for Pf :

2.2. Risk description for the alternative approach,

Risk description = ( A, C, U, P, K )

where P is a subjective probability expressing U based on the background knowledge K.

2.3. Comparison of the definitions (4-8) and the alternative approach According to (4) risk refers to uncertainty of outcome, of actions and events According to the definition (5), risk is a situation or event where something of human value (including humans themselves) is at stake and where the outcome is uncertain The same conclusion is made for the definition (6), which says that risk is an uncertain consequence of an event or an activity with respect to something that human value The definitions(7)and(8) are consistent with the(A,C,U) definition, although(8) introduces the term severity which refers to intensity, size, extension, scope and other potential measures of magnitude, and affects something that humans value(lives, the environment, money, etc).

EXAMPLE 1: Offshore Diving Activities

-Divers working in support of the exploration and production sector of the O&G industry - Risk: long-term effect
-health problems ( hearing problem, heart problem, brain/forgetfulness, etc) - How to manage the risk - safety management, apply caution and precaution

Example 2 : Security Example

1.Risk :

Exposure to the children in the kindergarten and other neighbours caused by possible robberies the residents feel that the NOKAS facility must be moved

2.Example of such factors are: Possible trends within the robbery environment. The scenario development in the case of an attack. 3. How to manage risk Extended risk description would have given a more informative decision basis and led to a stronger involvement of the politicians as the bureaucrats would not have been able to conclude.

EXAMPLE 3: MARKET PRICE RISK

Price is just a number, considered as historical data The estimation or probabilistic analysis maybe done to predict the price for the next year or future months Prediction prices might not 100% true Become a risk

RISK: PREDICTION PRICES MIGHT WRONG

The prices jump up or down, not 100% exactly as prediction Suddenly surprise occur (which might be affect/change something)

HOW TO MANAGE THE RISK:

Identify the uncertainties beyond the probabilistic analysis to give informative risk description to the decision-makers

IMPORTANT!! By doing PB can improve prediction result BUT may end up with over-interpretting By doing PB can analyse the possible factors which affect the prices BUT difficult to identify which is the most important factors PB can solve the numeric problem BUT cant solve hindsight problems
Prepared by: Raja Manisa bt Raja Mamat (GS32199)

 Probabilistic analysis requires strong simplifications and assumptions and as a result important factors could be ignored or hidden in the background knowledge The Frequentists and Bayesian schools of thought have collided over the definition of probability. And attempts to mend these two perspectives have led to the probability of frequency approach. relative frequency-interpreted probability is obvious when performing controlled experiment, but in complex situation is not obvious Anti-frequentists would conclude that the relative frequency-interpreted does not exist and in a way constructs uncertainties. How can we then estimate and assess uncertainties in a meaningful way? The different probabilities can be combined for decision-making purposes as if all uncertainties were of the same nature. Classical decision theorists believe that the distinction between aleatory and epistemic uncertainties is unnecessary.

 From the perspective of Pat-cornell , rationality can be viewed as more complex than the simple maximization of expected utility Indeed, we should consider uncertainty as a main component of a risk description, and also probability is a just tool used to express the uncertainties.
For conclusion: We believe a more open qualitative approach for revealing such uncertainties is better. It is common to define and describe risk using probabilities, and assigned probabilities depend on the background knowledge. ++

For problems with large uncertainties ,risk assessments could support decision-making ,but other principles, measures and instruments are also required.++ Alone in considering probabilities, important uncertainty aspects are easily truncated.it means that potential suprises could be left unconsidered.

 To put a whole view in the nutshell, we should mention that, the uncertainty issue in risk assessments is so challenging