Delivering Integrated, Sustainable,
Water Resources Solutions
Institute for Water Resources
2010
Integrated Risk Management
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Risk
• Risk is a measure of the probability and
consequence of uncertain future events
• Risk includes
– Exposure to losses (hazards)
• Risk
– Potential for gain (opportunities)
• Reward
2
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Risks of Interest
• Existing-risk to life and safety, property
damage, et al
• Risk reduction-what can we avoid,
prevent, mitigate
• Residual risk-what remains after
mitigation, flood hazard that remains
• Transformed risk-slow rise in floodwaters
to catastrophic overtopping
• Transferred risk-induced flooding
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Potential Rewards
•
•
•
•
Completing a project or activity at or under cost
Completing a project or activity early on schedule
Project performs at or exceeds expectations
New methods save resources
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US Army RM Guidance
Composite Risk Management
• Field Manual 5-19
establishes CRM as
the Army’s primary
decision-making
process for identifying
hazards and
controlling risks
across the full
spectrum of Army
missions, functions,
operations, and
activities.
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Risk Management
• Essentially, making
decisions under
uncertainty
• Planning, analyzing,
organizing,
implementing and
monitoring efforts to
control the effects of
uncertainty on the
Corps’ Civil Works
Program
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Working Definition
• Risk management is the process of
problem finding and initiating action
to identify, evaluate, select,
implement, monitor and
modify actions taken to alter levels of
risk, as compared to taking no
action, while taking uncertainty into
account.
7
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Honest Brokers
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Characteristics of Integrated Risk
Management
•
•
•
•
•
•
•
Universal Applicability-horizontal & vertical
Analytically-based and judgment-driven
Simple and Flexible
Systematic and Scalable
Iterative
Transparent and Open
Documented
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Lake siltation
Allocating O&M resources
IPET
in District
Post-disaster work
Managing construction
Complex FRM or other
projects
investigations
Annual budget/programs
Landscape
scale studies
Consequence
of Being Wrong
management
Feasibility
studies
e.g. CERP
Personnel
assignments
Recon
Studies
Project
Climatedesign
change Grave
Routine
purchases
Allocating
inspection
Emergency Management
Data collection
resources
activities
Some permit
applications
Extensive
Analysise.g.,
Special Risk
programs,
Routine
Risk Analysis
W/ Adaptive Management
Routine coordination
noxious weeds
activities
Dam safety program
Much
Little
Administrative
activities
Flood risk management
Budget updates
Corporate budget
Congressionals
When To Do Risk Analysis
Uncertainty
Modest Level of Risk
Analysis
No Risk Analysis
Required
Minor
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Analyze Risks
Evaluate Risks
Risk Mitigation
Adapted from ISO 31000- Risk Management—Principles and Guidelines
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Monitor, Evaluate, Modify
Identify Risks
Risk Assessment
Consult, Communicate and
Collaborate
Establish Decision Context
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Establish Decision Context
• Something triggers RM activity
• Decision problem is defined
• Goals, objectives, and strategies of RM
identified and articulated
• Decision criteria explicitly considered so
appropriate information is gathered
• Stakeholder and public involvement
begins
Establish Decision Context
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Delivering Integrated, Sustainable,
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Analyze Risks
Evaluate Risks
Risk Mitigation
Adapted from ISO 31000- Risk Management—Principles and Guidelines
“ Building Strong “
Monitor, Evaluate, Modify
Identify Risks
Risk Assessment
Consult, Communicate and
Collaborate
Establish Decision Context
Delivering Integrated, Sustainable,
Water Resources Solutions
Identify Risks
Description
• Identify the risks relevant to
the decision context. This
means identifying but not
yet quantifying the
consequences (positive or
negative) and likelihoods
and how they will be
expressed. It includes
asking and answering “what
can go wrong” and “how can
it happen” about the
problem setting.
Outputs
• A narrative description
of the risks or
significant uncertainties
of concern to this risk
management activity.
• A decision whether or
not to pursue a risk
assessment.
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Risk Identification Tasks
• Start of risk
assessment when one
is done
• Identify
– Presenting/existing
risks
– Risk reductions
– Residual risks
– Risk
transformations
– Risk transfers
Identify Risks
• Ask and answer
(scenarios)
– What can go
wrong?
– How can it happen?
• Methods depend on
nature of activity,
process, or asset
• Stakeholder and
public involvement
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Analyze Risks
Evaluate Risks
Risk Mitigation
Adapted from ISO 31000- Risk Management—Principles and Guidelines
“ Building Strong “
Monitor, Evaluate, Modify
Identify Risks
Risk Assessment
Consult, Communicate and
Collaborate
Establish Decision Context
Delivering Integrated, Sustainable,
Water Resources Solutions
Analyze Risks
• Remainder of risk assessment
• Each individually identified risk is
analyzed
– Gather information
– Identify and assess significant sources of
uncertainty
– Identify options for achieving RM objectives
and solving the problems
– Evaluate and compare risk management
options while accounting for uncertainty
Analyze Risks
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Qualitative Risk Assessment
• Increase or
Decrease Risk
• Risk Narratives
• Evidence Mapping
• Screening
• Ratings
• Rankings
• Enhanced Criteria
Ranking
• Operational Risk
Management (Risk
Matrix)
• Develop a Generic
Process
• Qualitative
Assessment
Models
• Multi-Criteria
Decision Analysis
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Quantitative Risk Assessment
• Safety Assessment
• Scenario Planning
• Scenario Analysis
– Deterministic Scenario Analysis
– Probabilistic Scenario Analysis
•
•
•
•
Sensitivity Analysis
Uncertainty Analysis
Modeling
Vulnerability Assessment
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Analyze Risks
Evaluate Risks
Risk Mitigation
Adapted from ISO 31000- Risk Management—Principles and Guidelines
“ Building Strong “
Monitor, Evaluate, Modify
Identify Risks
Risk Assessment
Consult, Communicate and
Collaborate
Establish Decision Context
Delivering Integrated, Sustainable,
Water Resources Solutions
Evaluate Risks
Description
Outputs
• Risk management
alternatives are evaluated
and compared to identify the
best solution. This
evaluation includes
consideration of the risk and
other values important to the
decision. The evaluation
will consider the cost to
reduce increments of risk;
who bears the risk; what
risks are managed, reduced,
borne, transferred, and so
on.
• An effective summary or
display of the uncertainties
most relevant to the risk
manager’s decision
• Display of the varying
contributions of the risk
management options to the
risk management objectives
and other social values
considered in the decision
process
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Evaluate Risks
• Is the risk acceptable?
• With stakeholder and
public input reduce
unacceptable risks to a
tolerable level
• Tolerance is based on
trade-off among residual
risk, cost of risk reduction
and other factors
Evaluate Risks
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Analyze Risks
Evaluate Risks
Risk Mitigation
Adapted from ISO 31000- Risk Management—Principles and Guidelines
“ Building Strong “
Monitor, Evaluate, Modify
Identify Risks
Risk Assessment
Consult, Communicate and
Collaborate
Establish Decision Context
Delivering Integrated, Sustainable,
Water Resources Solutions
Risk Mitigation
• Reduce unacceptable risks to TLR
– Combinations of options may be needed
• RM plan should identify mitigation
measures, responsibilities, schedules,
expected outcomes, and measurements
associated with mitigation strategy
• It’s critically important to identify desired
outcomes of RM strategy prior to
implementation
Risk Mitigation
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Risk Management Strategies
More Specific
General Strategies
•
•
•
Accept
Manage
–
–
–
–
–
Avoidance
Reduce probability of
event (prevent)
Reduce consequence of
event (mitigate)
Insurance
Retain the risk
25
“ Building
Build confidence and
trustworthiness
• Involve affected people
• Deliberation
• Accountability
• Continuous research
• Reduce uncertainties
• Clarify facts
• Transfer
• Transformation
• Development of substitutes
• Containment
• Increasing resilience–surprises do
less harm
• Precautionary principle
• Constant monitoring
Strong
“
• Adaptive
management
Delivering Integrated, Sustainable,
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Analyze Risks
Evaluate Risks
Risk Mitigation
Adapted from ISO 31000- Risk Management—Principles and Guidelines
“ Building Strong “
Monitor, Evaluate, Modify
Identify Risks
Risk Assessment
Consult, Communicate and
Collaborate
Establish Decision Context
Delivering Integrated, Sustainable,
Water Resources Solutions
Communicate, Consult and Collaborate
Description
•
Active communication is an
essential part of risk analysis.
Communicate and consult with
internal and external
stakeholders as appropriate at
each stage of the process. If
there are shared risk
management decisions, they
should be identified, the
decision participants recorded
and a formal agreement
documenting the shared
responsibility for the decision
prepared and signed by all
responsible participants.
Outputs
• Preparing and
executing a public
involvement plan
including provisions for
risk communication.
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Communicate, Consult and Collaborate
• Keep all stakeholders
informed about
– Process
– Findings of risk
assessment steps
– Nature of risk and its
associated benefits
– Deliberations that lead
to risk management
decision
– Their role in
implementing the
solution
• Continual
communication
among participants to
minimize
misunderstandings
and surprises at the
end of the process
Communicate and Consult
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Who Owns the Risk
• Many risks are shared ownership
–
–
–
–
Corps
Non-federal partners
Stakeholders
The public
• All must know and accept their
responsibilities
• Ownership can change over life-cycle
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Analyze Risks
Evaluate Risks
Risk Mitigation
Adapted from ISO 31000- Risk Management—Principles and Guidelines
“ Building Strong “
Monitor, Evaluate, Modify
Identify Risks
Risk Assessment
Consult, Communicate and
Collaborate
Establish Decision Context
Delivering Integrated, Sustainable,
Water Resources Solutions
Monitor, Evaluate, Modify
Outputs
Description
•
There are several purposes of post
implementation monitoring. One is to
assure that there is progress toward
achieving the outcomes of the
implemented risk management strategy.
If there is an adaptive management
process there will be data collection
targeted to testing hypotheses required
to reduce analytical uncertainties
identified in the initial planning process.
This task also scans the overall setting
for the activity to identify hazards or
changes in socioeconomic preference or
conditions that may not have been
recognized during the initial risk analysis
process, or that may have changed in
their significance. In all cases, the risk
mitigation strategy may be modified in
accordance with what is learned.
• A plan for monitoring,
reviewing and
modifying the
implemented solution
• Implementation of that
plan
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Monitor, Evaluate, Modify
• Implication of
uncertainty is that RM is
evolutionary decision
making
• Assure decision is
having desired outcome
• Monitoring-gather
information that
measures progress
toward desired
outcome(s)
Monitor, Evaluate, Modify
• Information is evaluated
to determine if adequate
progress is being made
toward outcomes
• If outcomes are not
satisfactory changes are
needed
• A mechanism for
change, e.g. adaptive
management plan, is
part of best practice
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Analyze Risks
Evaluate Risks
Risk Informed Decision
Risk Mitigation
Adapted from ISO 31000- Risk Management—Principles and Guidelines
“ Building Strong “
Monitor, Evaluate, Modify
Identify Risks
Risk Assessment
Consult, Communicate and
Collaborate
Establish Decision Context
Delivering Integrated, Sustainable,
Water Resources Solutions
Risk-Informed Decision Making
• Confluence of risk management and risk
assessment
– Assessors convey significance of uncertainty
– Managers take it explicitly into account in
decision making
• Develops and uses risk information to aid
decisions made under uncertainty
– Decision metrics and rules developed by
decision makers
– Use risk assessment approach to develop
science-based values of risk metrics
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The Job
• Success in risk management is defined by
practical and useful solutions for dealing
with uncertainty
• It is the risk assessors’ job to address the
uncertainty and variability in inputs
• It is the risk managers’ job to address the
uncertainty and variability in the decision
criteria
– And to manage risks that are not acceptable
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Metrics Are Needed
• Decision criteria will reflect
– Risk metrics become more critical
• Existing risk, risk reductions, residual risk,
transformed risk, transferred risk
– Other risk management objectives
• These are the usual impacts of interest to
decision makers
– Costs, benefits, compliance with laws,
budget impacts, capability, and so on
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What Kinds of Decisions
• Is the status quo acceptable? Can we
accept this risk?
• If not, can we render it acceptable, can we
avoid it?
• If not, what level of risk is tolerable?
• What is the best way to achieve a tolerable
level of risk?
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Two Important Ideas
• Acceptable Risk-A risk
whose probability of
occurrence is small,
whose consequences
are so slight, or whose
benefits (perceived or
real) are so great, that
individuals or groups in
society are willing to
take or be subjected to
the risk (or that the
event might occur).
• Tolerable Risk-A
tolerable risk is a nonnegligible risk that has
not yet been reduced to
an acceptable level, but
the risk is tolerated due
to the inability to reduce
it further, the cost of
doing so or the
magnitude of the
benefits associated with
the risky activity.
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General Risk Management Strategies
•
•
Accept
Manage
–
–
–
–
–
Avoidance
Reduce probability of event (prevent)
Reduce consequence of event (mitigate)
Insurance
Retain
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Principles for Choosing Management
Option
•
•
•
•
•
•
•
•
Policy
Zero Risk
Weight-of-evidence
Precautionary Principle
ALARA Principle
ALOP Principle
Reasonable Relationship
Safety Standards
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Safety Standards
• Safety standards
– Thresholds
– Balancing standards
• Risk-Benefit Trade-Off: Greater benefit =>
Greater acceptable risk
• Comparative Risk Analysis: Rank risks for
seriousness of threat posed
• Benefit-Cost Analysis: Economic efficiency
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When Opportunities are Uncertain
• Consider net NED benefits as a decision
criterion before risk informed decision
making—an easy choice
Net Benefits
Plan 1: Red
Plan 2: Blue
Plan 3: Green
Mean
$6,998,000
$6,001,142
$4,000,039
• Decision making will become multidimensional—values and uncertainty.
• Can we handle that?
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Methods in Use
• Qualitative Risk Assessment
• Probabilistic Risk Assessment
• Multi-Criteria Decision Analysis
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Probabilistic Risk Assessment
Five Number Summary
Plus Mean
Mean
Minimum
1st Quartile
Median
3rd Quartile
Maximum
Plan 1
Red
Plan 2
Blue
Plan 3
Green
$ 6,998,000 $ 6,001,142 $ 4,000,039
$ (10,173,310) $ (4,114,583) $ (15,726,346)
$ 3,076,969 $ 3,960,606 $
318,544
$ 6,978,948 $ 5,952,181 $ 4,031,267
$ 10,931,366 $ 8,087,706 $ 7,682,767
$ 23,635,943 $ 16,894,192 $ 19,273,900
P(Negative return)
Which is the best plan now?
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MCDA
• Well-suited to multi-dimensional decision making
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Possible Rules for Making Decisions Under
Uncertainty
• Maximax—appeals to gamblers (blue)
– Choose plan with best upside payoff
• Maximin—appeals to cautious (purple)
– Choose plan with best downside payoff
• Laplace—risk neutral (red)
– Choose plan based on expected value payoff
• Hurwicz—neither neutral nor extreme
– Choose plan based on assigned weights
• Regret-make wrong decision and regret it
– Identify the maximum regret associated w/ each choice
– Choose plan that minimizes this regret
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Regret
States of the world
Min
Red
Blue
Green
Max
$
$
$
(10,173,310)
(4,114,583)
(15,726,346)
$
$
$
23,635,943
16,894,192
19,273,900
Red
$
6,058,727
$
-
Blue
$
-
$
6,741,751
$
6,741,751
Green
$
11,611,763
$
4,362,043
$
11,611,763
$
6,058,727
Regret Matrix
Minimax
Maximum
$
6,058,727
If we choose red our regret will at most be $6.1 million
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Just Give Me The Number Is Gone
• Uncertainty assures we do not know the
number
– If one even exists
• Analysis must honestly address the things
that are not known and convey this
information and its significance to
decision makers
• Decision making will become more
probabilistic
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