A Practical Approach to Quantitative Risk Assessment -- Lin

  • View
    16

  • Download
    3

Embed Size (px)

DESCRIPTION

A Practical Approach to Quantitative Risk Assessment -- Lin

Text of A Practical Approach to Quantitative Risk Assessment -- Lin

  • A Practical Approach to Quantitative

    Risk Assessment

    Xun Guo Lin & Richard Jarrett

    Division of Mathematical and Information Sciences

    Canberra & MelbourneRisk Conference, Wellington, 2009

  • Quantitative Risk Assessment 2

    Darwin after Cyclone Tracy 1974

    Category 4 Cyclone with

    Max speed 240km/hr (66.7m/s)

    65 deaths

    640 injuries

    45,000 homeless

    A$4.2b loss

  • Quantitative Risk Assessment 3

    1989 Newcastle Earthquake

    5.6 magnitude

    13 deaths

    160 injuries

    1,000 homeless

    A$4.4b loss

  • Quantitative Risk Assessment 4

    1999 Sydney Hail Storm

    70,000 cars damaged

    50 injuries

    2,400 homes damages

    A$2.2b loss

  • Quantitative Risk Assessment 5

    Total Natural Disaster Loss in Australia

    (1967-1999) is A$37.8b (aggregated events A$10m)

    Annual cost of

    natural disasters:

    A$1.14 billionor $85 / yperson

    30%

    26%

    24%

    13%7%

    0%

    FLOOD

    SEVERE STORM

    CYCLONE

    EARTHQUAKEBUSHFIRE

    LANDSLIDE

    Australian Bureau of Transport Economics (2001)

    A$284mil/year

    A$266mil/year

  • Quantitative Risk Assessment 6

    Example of Terrorism Events

  • Quantitative Risk Assessment 7

    Examples of Maritime Threats to Australia

    Illegal ArrivalsIllegal Spills

  • Quantitative Risk Assessment 8

    Contents

    Framework of Quantitative Risk Assessment

    Consequence Score

    Likelihood Score

    Risk Score & Risk Matrix Approach

    Framework for Multiple Threats/Hazards

  • Quantitative Risk Assessment 9

    Framework of Quantitative Risk Assessment

    Based on Australia & New Zealand Standard on Risk

    Management (AS/NZS 4360), we can define

    RISK = Expected Cost = Consequence Likelihood

    where: the unit of Risk is in $ per time unit (eg year)

    Risk is respect to a particular threat or multiple

    threats with multiple consequences

    Development of a severity scoring system for consequence

    and likelihood with each level of change represents

    a 10-fold increase/decrease in values

    Risk Score = Overall Consequence Score + Likelihood Score

    Practical, Simple & Useful!

  • Quantitative Risk Assessment 10

    Example of Consequence Categories

    Death, injury or illness to humans

    Economic or business impact

    Social impact

    Environmental impact

    Symbolic effect

    External relationships

    Damage to business reputation and

    public image

  • Quantitative Risk Assessment 11

    Example of Consequence Scores

    Consequence

    Description

    Consequence

    in $

    Consequence

    Score

    Insignificant $1,000,000 6

    Minor $10,000,000 7

    Moderate $100,000,000 8

    Major $1 Billion 9

    Catastrophic $10 Billion 10

  • Quantitative Risk Assessment 12

    Scoring Consequences

    Seven categories of consequences, not all $-values!

    Great care taken to line up descriptions of similar severity across categories

    1 unit corresponds (roughly) to 10-fold step in cost or impact

    Examples for severity levels 9 and 10 with only six categories:

    Severity

    Death, injury

    or illness

    Economic

    /Business Environmental Symbolic External Reputational

    9:

    Major

    Multiple

    fatalities,

    remains

    collection

    compromised

    $3 million

    $3 billion

    Damage to a

    conservation

    value where

    recovery > 10

    years

    Serious

    damage to

    a nationally

    important

    symbol

    Suspended or

    grave

    damage to

    bilateral

    relations

    Government

    unable to

    effectively

    govern

    10:

    Catastrophic

    Mass

    fatalities,

    remains

    collection

    compromised

    $3 billion+

    Irreversible loss

    of a

    conservation

    value of a

    bioregion

    Destruction

    of

    nationally

    important

    symbol

    Open armed

    conflict,

    Military

    invasion

    Fall of

    Government

    outside the

    Constitutional

    Process

  • Quantitative Risk Assessment 13

    Overall Consequence Score

    Each identified risk gets scored 6-10 on each category and the scores are combined (how?)

    Hazard

    Death,

    injury or

    illness

    Economic

    /Business Social

    Environ

    mental Symbolic External

    Reputation

    /Public

    Image

    Overall

    Score

    (Example 1) 6 9 6 6 6 6 6 9.0026

    (Example 2) 6 9 6 9 9 6 6 9.4777

    Do this by summing 10x, and then taking logs!

    Log10(106+109+106+106+106+106+106) = Log10(1,006,000,000) = 9.0026

    Very different from the averaging, which is 6.43 for Ex 1

    Similar to taking maximum, but gives larger value if there is more than one 9

  • Quantitative Risk Assessment 14

    Overall Consequence Score Overall Cost

    Consequence ($) = 10 Overall Consequence Score

    In Ex 1, 109.0026 = $1,006,004,677

    In Ex 2, 109.4777 = $3,004,000,496

  • Quantitative Risk Assessment 15

    Example of Likelihood Scores

    (based on annual rates)

    Again, one step change in score will have a 10-fold

    increase/decrease in the probability of occurrence

    The formula to convert the Likelihood Score to probability is

    Rate of occurrence per year = 10Likelihood Score

    eg, a Likelihood Score of -2 will have probability

    10-2 = 1/100 = 0.01 (frequency per year)

    Likelihood Description Likelihood Score

    Occasional 1 event in 100 years -2

    Probable 1 event in 10 years -1

    Possible 1 event in 3 years -0.5

    Likely 1 event per year 0

    Very likely 3 events per year 0.5

    Highly likely 10 events per year 1

    Almost certain 30 events per year 1.5

  • Quantitative Risk Assessment 16

    Risk Scores and Risk Levels

    Risk Score = Overall Consequence Score +

    Likelihood Score

    In Ex 1, Overall Consequence Score = 9.0026

    Likelihood Score = -2

    Risk Score = 7.0026

    Risk = Expected cost = 107.0026 =$10,060,047

    We can also define Risk Levels, eg

    Negligible (1.00 to 2.00)

    Low (2.00 to 4.00)

    Moderate (4.00 to 6.00)

    High (6.00 to 8.00)

    Very High (8.00 to 11)

  • Quantitative Risk Assessment 17

    Risk Matrix Approach

    Likelihood

    Consequences

    IMPROBABLE

    (-4)

    REMOTE

    (-3)

    OCCASIONAL

    (-2)

    PROBABLE

    (-1)

    LIKELY

    (0)

    CATASTROPHIC

    (10)

    VERY

    HIGH

    MAJOR (9) HIGH

    MODERATE (8) MEDIUM

    MINOR (7) LOW

    Risk Level Risk Management Action Required

    Very High

    Unacceptable

    (reduce risk through countermeasures)

    High

    Undesirable

    (management decision required)

    Medium Acceptable with review by management

    Low Acceptable without review

  • Quantitative Risk Assessment 18

    Risk Matrix with Scoring Ranges

    Consequence

    Score

    Likelihood Score

    -4

    [-4.5, -3.5)

    -3

    [-3.5, -2.5)

    -2

    [-2.5, -1.5)

    -1

    [-1.5, -0.5)

    0

    [-0.5, 0.5)

    10

    [9.5, 10.5)

    6

    [5, 7)

    7

    [6, 8)

    8

    [7, 9)

    9

    [8, 10)

    10

    [9, 11)

    9

    [8.5, 9.5)

    5

    [4, 6)

    6

    [5, 7)

    7

    [6, 8)

    8

    [7, 9)

    9

    [8, 10)

    8

    [7.5, 8.5)

    4

    [3, 5)

    5

    [4, 6)

    6

    [5, 7)

    7

    [6, 8)

    8

    [7, 9)

    7

    [6.5, 7.5)

    3

    [2, 4)

    4

    [3, 5)

    5

    [4, 6)

    6

    [5, 7)

    7

    [6, 8)

    6

    [5.5, 6.5)

    2

    [1, 3)

    3

    [2, 4)

    4

    [3, 5)

    5

    [4, 6)

    6

    [5, 7)

    Though 10-fold increase/decrease in score but no gaps

    Practical, Simple & Useful!

  • Quantitative Risk Assessment 19

    Issues Related to Risk Management

    Need to have defined actions at each level of Risk

    Calibrate carefully to get appropriate level of

    response

    Risk is assessed relative to current mitigation

    activities

    Quantitative does not mean accurate be

    aware of (and allow for) the uncertainties in

    estimates of risk

  • Quantitative Risk Assessment 20

    Overall Consequence Score

    Each identified risk gets scored 6-10 on each category and the scores are combined (how?)

    Hazard

    Death,

    injury or

    illness

    Economic

    /Business Social

    Environ

    mental Symbolic External

    Reputation

    /Public

    Image

    Overall

    Score

    (Example 1) 6 9 6 6 6 6 6 9.0026

    (Example 2) 6 9 6 9 9 6 6 9.4777

    Do this by summing 10x, and then taking logs!

    Log10(106+109+106+106+106+106+106) = Log10(1,006,000,000) = 9.0026

    Very different from the averaging, which is 6.43 for Ex 1

    Similar to taking maximum, but gives larger value if there is more than one 9

  • Quantitative Risk Assessment 21

    Risk Matrix Approach

    Likelihood

    Consequences

    IMPROBABLE

    (-4)

    REMOTE

    (-3)

    OCCASIONAL

    (-2)

    PROBABLE

    (-1)

    LIKELY

    (0)

    CATASTROPHIC

    (10)

    VERY

    HIGH

    MAJOR (9) HIGH

    MODERATE (8) MEDIUM

    MINOR (7) LOW

    Risk Level Risk Management Action Required

    Very High

    Un