Risk Science: An Introduction

427 Pages·2021·6.121 MB·English

by  Terje Aven, Shital Thekdi

Risk Science
Risk science is becoming increasingly important as businesses, policymakers and public
sector leaders are tasked with decision-making and investment using varying levels of
knowledge and information. Risk Science: An Introduction explores the theory and
practice of risk science, providing concepts and tools for understanding and acting
under conditions of uncertainty.
The chapters in this work cover the fundamental concepts, principles, approaches,
methods and models for how to understand, assess, communicate, manage and govern
risk. These topics are presented and examined in a way which details how they relate,
for example, how to characterize and communicate risk with particular emphasis
on reflecting uncertainties; how to distinguish risk perception and professional risk
judgments; how to assess risk and guide decision-makers, especially for cases involving
large uncertainties and value differences; and how to integrate risk assessment with
resilience-based strategies. The text provides a variety of examples and case studies
that relate to highly visible and relevant issues facing risk academics, practitioners and
non-risk leaders who must make risk-related decisions.
Presenting both the foundational and most recent advancements in the subject
matter, this work particularly suits students of risk science courses at college and
university level. The book also provides broader key reading for students and scholars
in other domains, including business, engineering and public health.
Terje Aven is Professor of Risk Analysis and Risk Management at the University of
Stavanger, Norway.
Shital Thekdi is Associate Professor of Management at the University of Richmond,
USA.

Risk Science
An Introduction
Terje Aven and Shital Thekdi
First published 2022
by Routledge
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and by Routledge
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Routledge is an imprint of the Taylor & Francis Group, an informa business
© 2022 Terje Aven and Shital Thekdi
The right of Terje Aven and Shital Thekdi to be identified as authors of this work
has been asserted by them in accordance with sections 77 and 78 of the Copyright,
Designs and Patents Act 1988.
All rights reserved. No part of this book may be reprinted or reproduced or utilised
in any form or by any electronic, mechanical, or other means, now known or
hereafter invented, including photocopying and recording, or in any information
storage or retrieval system, without permission in writing from the publishers.
Trademark notice: Product or corporate names may be trademarks or registered
trademarks, and are used only for identification and explanation without intent to
infringe.
British Library Cataloguing-in-Publication Data
A catalogue record for this book is available from the British Library
Library of Congress Cataloging-in-Publication Data
Names: Aven, Terje, author. | Thekdi, Shital, author.
Title: Risk science : an introduction / Terje Aven and Shital Thekdi.
Description: 1 Edition. | New York : Routledge, 2022. | Includes bibliographical
references and index.
Subjects: LCSH: Risk management. | Decision making.
Classification: LCC HD61 .A9463 2022 (print) | LCC HD61 (ebook) | DDC
338.5—dc23
LC record available at https://lccn.loc.gov/2021011831
LC ebook record available at https://lccn.loc.gov/2021011832
ISBN: 978-0-367-74269-0 (hbk)
ISBN: 978-0-367-74268-3 (pbk)
ISBN: 978-1-003-15686-4 (ebk)
DOI: 10.4324/9781003156864
Typeset in Sabon
by Apex CoVantage, LLC
Contents
About the authors viii
Preface ix
Acknowledgments xvii
Key symbols xviii
1 Illustrative examples 1
1.1 Personal case: management of time in an academically
rigorous environment 1
1.2 Organizational case: Total Business Management Inc.: supply
chain investments in response to major potential changes
in business and technology 2
1.3 Public health crisis: addressing a global pandemic 4
PART I BASIC CONCEPTS 7
2 What is risk? 9
2.1 Definitions of the risk concept 10
2.2 Illustrating examples 13
2.3 Risk and related concepts 16
2.4 Problems 21
3 Measuring and describing risk 24
3.1 The probability concept 26
3.2 Basic ideas on how to measure or describe risk 31
3.3 Common risk metrics 43
3.4 Potential surprises and black swans 49
3.5 Problems 53
vi Contents
PART II RISK ASSESSMENT 59
4 Basic theory of risk assessment 61
4.1 Basic ideas 63
4.2 Risk assessment stages 74
4.3 Quality of risk assessments 80
4.4 Problems 81
5 More on risk assessment methods 87
5.1 Sensitivity and importance analyses 88
5.2 Bayesian networks 94
5.3 Monte Carlo simulation 97
5.4 Probabilistic risk assessment (quantitative risk assessment) 99
5.5 Vulnerability analysis 102
5.6 Methods for assessing resilience 115
5.7 Other methods 120
5.8 Problems 122
PART III RISK PERCEPTION AND COMMUNICATION 127
6 Risk perception 129
6.1 Examples illustrating what risk perception and risk perception
research are about 131
6.2 Risk perception knowledge 135
6.3 How to conduct a risk perception study 154
6.4 Problems 161
7 Risk communication 164
7.1 Some illustrating examples 165
7.2 Risk communication knowledge 168
7.3 How to conduct a risk communication study 186
7.4 Problems 190
PART IV RISK MANAGEMENT 193
8 Basic theory of risk management 195
8.1 Examples illustrating basic risk management issues 197
8.2 Basic concepts and terminology 201
8.3 Main risk handling strategies and policies 203
8.4 Risk informed 209
8.5 Precautionary principle 216
Contents vii
8.6 Cautionary principle 220
8.7 Vulnerability and resilience management 223
8.8 Ethics 226
8.9 Problems 228
9 Methods for balancing different concerns: decision
and cost-benefit analysis 232
9.1 Examples illustrating basic issues 234
9.2 Cost-effectiveness analysis 239
9.3 Cost-benefit analysis 240
9.4 Expected utility analysis 241
9.5 Multi-attribute analysis: discussion 244
9.6 Problems 252
PART V TACKLING PRACTICAL RISK PROBLEMS AND ISSUES 257
10 General knowledge and experience 259
10.1 Competences 260
10.2 Pre-analysis and framing 263
10.3 Treatment of uncertainty in risk analysis 267
10.4 Problems 276
11 Cases: personal, organizational and public 278
11.1 Personal case: student risk management 278
11.2 Organizational case: enterprise risk management 284
11.3 Societal case: pandemic 292
11.4 Problems 296
Appendices 299
A Basic terminology 301
B Risk science fundamentals 310
C Outline of solutions to problems 327
References 377
Index 394
About the authors
Terje Aven has been Professor in Risk Analysis and Risk Science at the University of
Stavanger, Norway, since 1992. Previously he was also Professor (adjunct) in Risk Anal-
ysis at the University of Oslo and the Norwegian University of Science and Technology.
He has many years of experience as a risk analyst in industry and as a consultant. He
is the author of many books and papers in the field, covering both fundamental issues
as well as practical risk analysis methods. He has led several large research programs
in the risk area, with strong international participation. He has developed many master
programs in the field and has lectured on many courses in risk analysis and risk man-
agement. Aven is Editor-in-Chief of the Journal of Risk and Reliability and Area Editor
of Risk Analysis in Policy. He has served as President of the International Society for
Risk Analysis (SRA) and Chairman of the European Safety and Reliability Association
(ESRA) (2014–2018).
Shital Thekdi has been Associate Professor of Management at the University of Rich-
mond, USA, since 2012. She has co-authored several papers on risk management and
decision-making. She has a Ph.D. in Systems & Information Engineering from the Uni-
versity of Virginia; she has a M.S.E. and B.S.E. in Industrial & Operations Engineering
from the University of Michigan. She has several years of experience working in indus-
try, with extensive supply chain management and operational analytics experience.
Preface
This is a textbook on risk science – covering the basic concepts, principles, approaches,
methods and models for how to understand, assess, communicate, manage and govern
risk. It presents the foundational and most recent advancements in the subject matter
for a risk science course at the university/college level while applying these to recent
high-profile risk-related events and issues. It is relevant for students from all types of
domains, including business, engineering and public health, as it highlights the generic
and fundamental concepts, principles, approaches, methods and models of this science
and field. In order to adequately handle risk, it is essential to understand all the core
subjects of risk science and how they relate, for example, what is risk science; how to
characterize and communicate risk, with particular emphasis on reflecting uncertain-
ties; how to distinguish risk judgments and risk perception; how to assess risk and
guide decision-makers, especially for cases involving large uncertainties and value dif-
ferences; and how to integrate risk assessment with resilience-based strategies.
We encounter risk in all types of situations, such as in our personal lives and when
considering high-level issues like climate change and politics. At a firm level, an orga-
nization invests in a project with a goal to be profitable; in reality, this project could
result in profitability or failure and losses. At a global health level, the potential occur-
rence of a health pandemic represents a risk for societies and activities all over the
world. Today we do not know what types of epidemics that will happen in coming
years, how they will develop or what the consequences will be.
Risk is a concept that is fundamental to our lives, our work and our societies. The
essence of the concept is that events may occur in the future that are not as planned or
anticipated. Being subject to risk means that there is a potential for some undesirable
consequences of these events. The actual consequences could, however, be positive. For
example, following a major investment, the firm could be profitable. Without risk, little
happens. As the saying goes, who dares nothing, need hope for nothing. The saying is
just as relevant to individuals as it is to businesses and society. On the other hand, we
also want to eliminate and reduce many types of risk. We do not want the food we eat
to increase the risk of cancer, the health risk in relation to an epidemic should be as low
as possible and jobs should be safe. Taking risks implies that mistakes or accidents can
occur. These failures can eventually result in learning and improvement over time, but
too high a risk obviously can be disastrous. The challenge is to find the right balance