Steven Lipton M.Ed. LEHP, CP-FSPresident , Biotest Services Inc. Vice President, Operations Quality, Scientific Device Laboratory Inc.

An Introduction to Risk Assessment

Objectives

Define risk Identify the risk within a process,

product or event. Indentify the three major risk levels Create a risk analysis chart Identify and evaluate actions

concerning potential Black Swans.

What is Risk

A relationship between Likeliness of an event Impact of that event

Impact

May be Positive or negative

WIN!!! LOSE!!!

Risk Management

Outside of finance, risk management generally deals with negative impacts.

A simple dice game

Roller rolls 5 times Roller Pays Bank $1 on rolls of 3,4,5 Bank Pays Roller $1 on rolls of 1,2,6

A simple dice game

Roller rolls 5 times Roller Pays Bank $1 on rolls of

5,6,7,8,9 Bank Pays Roller $1 on rolls of 2,3,

4,10,11,12

Possible impacts

Lose Low: $1 Moderate: $3 High: $5

Win Low: $1 Moderate: $3 High: $5

Probability

High - greater than 50% chance P(A)>0.50

Medium– 25% to 50% 0.25 ≤P(A) ≤ 0.50 Medium Low – 13% up to 25% 0.13 ≤

P(A) ≤ 0.25 Low - 13% P(A)<0.13

Risk Table

$ 5 loss

$3 Loss $1 Loss $1 Win $3 Win $5 Win

High Probability

Med Probability

Med Low

Low Probability

I Just don’t want to lose!!!!

Risk Table

$ 5 loss $3 Loss $1 Loss $0 Loss

High Probability

Med Probability

Med Low

Low Probability

Types of risk

Intolerable risk - IR Alarm or As Low as Reasonably

Practical (ALARP) - AL Broadly acceptable – BA

Risk Table

$ 5 loss $3 Loss $1 Loss $0 Loss

High Probability

Med Probability

Med Low

Low Probability

Risk Table

$ 5 loss $3 Loss $1 Loss $0 Loss

High Probability IR

Med Probability IR

Med LowIR

Low Probability IR

Risk Table

$ 5 loss $3 Loss $1 Loss $0 Loss

High Probability IR BA

Med Probability IR BA

Med LowIR BA

Low Probability IR BA

Risk Table

$ 5 loss $3 Loss $1 Loss $0 Loss

High Probability IR IR BA

Med Probability IR IR BA

Med LowIR BA

Low Probability IR BA

Risk Table

$ 5 loss $3 Loss $1 Loss $0 Loss

High Probability IR IR BA

Med Probability IR IR BA

Med LowIR BA

Low Probability IR BA BA

Risk Table

L5- $ 5 loss

L3 -$3 Loss

L1 -$1 Loss

L0 -$0 Loss

P4-High Probability IR IR AL BA

P3- Med Probability IR IR AL BA

P2- Med LowIR AL AL BA

P1- Low Probability IR AL BA BA

Risk Table

L5- $ 5 loss

L3 -$3 Loss

L1 -$1 Loss

L0 -$0 Loss

P4-High Probability IR IR AL BA

P3- Med Probability IR IR AL BA

P2- Med LowIR AL AL BA

P1- Low Probability IR AL BA BA

Risk Table

L5- $ 5 loss

L3 -$3 Loss

L1 -$1 Loss

L0 -$0 Loss

P4-High Probability IR IR AL BA

P3- Med Probability IR IR AL BA

P2- Med LowIR AL AL BA

P1- Low Probability AL AL BA BA

Risk assessment Form

(What can go wrong?)Hazard or Event

(If it goes wrong, what happens?)

Effect(Why did it go wrong?)

Root cause

Impact

Probability

Risk

(How could I stop it from going wrong?)

Control Measure

Residual

Impact

Probability

Risk

Play Dice Game Lose $5 5

Play Dice Game Lose $3 3

Play Dice Game Lose $1 1

Play Dice Game Lose $0 0

A simple dice game

Based on evidence for 1-die game, assume even odds.

WAIT!!! There are really only 11 possibilities, not 12! P for dealer is (5/11)- 45%/throw, P for player is (6/11) 54%

A simple dice game

Lose 5 – 1.8% P1 Lose 3 – 11.6% P1 Lose 1 – 27.1% P3 Lose 0 – 59.5%P5

Risk assessment Form

(What can go wrong?)Hazard or Event

(If it goes wrong, what happens?)

Effect(Why did it go wrong?)

Root cause

Impact

Probability

Risk

(How could I stop it from going wrong?)

Control Measure

Residual

Impact

Probability

Risk

Play Dice Game Lose $5 5 1 A

Play Dice Game Lose $3 3 1 A

Play Dice Game Lose $1 1 3 A

Play Dice Game Lose $0 0 5 B

A simple dice game

Roller rolls 5 times Roller Pays Bank $1 on rolls of

5,6,7,8,9 Bank Pays Roller $1 on rolls of 2,3,

4,10,11,12 Now Play the

game!!!

Class Results

Class Class %

Lose 5

Lose 3

Lose 1

Win 1

Win 3

Win 5

Lose 0

Total

Probability

Some events are more likely to happen than others

Simulation Results

Simulation

Lose 5 24%

Lose 3 40%

Lose 1 26%

Win 1 9%

Win 3 1%

Win 5 0 (0.08)

Lose 0 10%

Total

A sucker bet

($5) ($3) ($1) $0 0

5

10

15

20

25

30

35

40

Original Risk Assessment

(What can go wrong?)Hazard or Event

(If it goes wrong, what happens?)

Effect(Why did it go wrong?)

Root cause

Impact

Probability

Risk

(How could I stop it from going wrong?)

Control Measure

Residual

Impact

Probability

Risk

Play Dice Game Lose $5 5 1 A

Play Dice Game Lose $3 3 1 A

Play Dice Game Lose $1 1 3 A

Play Dice Game Lose $0 0 5 B

Revised Risk for Probability

(What can go wrong?)Hazard or Event

(If it goes wrong, what happens?)

Effect(Why did it go wrong?)

Root cause

Impact

Probability

Risk

(How could I stop it from going wrong?)

Control Measure

Residual

Impact

Probability

Risk

Play Dice Game Lose $5 5 2 A

Play Dice Game Lose $3 3 3 I

Play Dice Game Lose $1 1 3 A

Play Dice Game Lose $0 0 2 B

Risk Table

L5- $ 5 loss

L3 -$3 Loss

L1 -$1 Loss

L0 -$0 Loss

P4-High Probability IR IR AL BA

P3- Med Probability IR IR AL BA

P2- Med LowIR AL AL BA

P1- Low Probability AL AL BA BA

The Black Swan

The Black Swan

Nicholas Nassim Taleb (2006) A reference to Europeans who only

saw white swans and thus thought all swans were white – until they got to Australia.

A black swan event is a High impact, Low probability event.

After a Black Swan event, the event looks like it was inevitable with a simple, obvious explanation.

Changing the rules

If roller wearing anything white, the payoffs to bank and roller switch.

What happens?

Control Measures

Control measures change the impact or the probability of an outcome, and thus change the risk.

Control Measures

Control measures are found by determining the root cause, and finding a way to prevent minimize or eliminate that root cause

Revised Probabilities & Risk

(What can go wrong?)Hazard or Event

(If it goes wrong, what happens?)

Effect(Why did it go wrong?)

Root cause

Impact

Probability

Risk

(How could I stop it from going wrong?)

Control Measure

Residual

Impact

Probability

Risk

Play Dice Game Lose $5 5 2 A Wear white 0 2 B

Play Dice Game Lose $3 3 3 I Wear white 0 3 B

Play Dice Game Lose $1 1 3 A Wear white 0 3 B

Play Dice Game Lose $0 0 2 B Wear white 1 2 B

Revised Probabilities & Risk

(What can go wrong?)Hazard or Event

(If it goes wrong, what happens?)

Effect(Why did it go wrong?)

Root cause

Impact

Probability

Risk

(How could I stop it from going wrong?)

Control Measure

Residual

Impact

Probability

Risk

Play Dice Game Lose $5 Biased Game 5 2 A Wear white 0 2 B

Play Dice Game Lose $3 Biased Game 3 3 I Wear white 0 3 B

Play Dice Game Lose $1 Biased Game 1 3 A Wear white 0 3 B

Play Dice Game Win $1 Biased Game 0 1 B Wear white 1 1 B

Play Dice Game Win $3 Biased Game 0 1 B Wear white 3 1 A

Play Dice Game Win $5 Biased Game 0 1 B Wear white 5 1 A

Stopping Black swans

Be creative Expert advice is anchored to the

means, not the extremes Examine for false impacts and

probabilities Examine for false risk Examine for hidden risk Apply control measures once found

Stopping Black Swans

You can’t stop all Black Swans When you do stop one, virtually

no one will know. (Jonah’s Dilemma)

Risk assessment charts

Brainstorm all possible events Brainstorm all possible outcomes Place on form and calculate risk Identify root causes If there is a control measure for the

root cause, note it. If there is a significant residual risk,

see if that is another event/outcome.

Brainstorming

Write down all possibilities for the topic without any editing or rejections

Organize the results

Brainstorming

Write down all possibilities for the topic without any editing or rejections

Organize the results

A Short Risk Analysis

Step 1: Decide in your groups a case Food borne outbreak Terrorist event Natural disaster Epidemic

Step 2: Brain storm all events that could happen during a topic.

Step 3: Events and Effect

(What can go wrong?)Hazard or Event

(If it goes wrong, what happens?)

Effect(Why did it go wrong?)

Root cause

Impact

Probability

Risk

(How could I stop it from going wrong?)

Control Measure

Residual

Impact

Probability

Risk

Define Impact

Impact Description & Criterion of Impact

I1 No harm

I2 Injury not requiring Medical treatment

I3 Injury requiring medical treatment

I4 Single death per time period

I5 Multiple deaths per time period

Probability Description & Criterion of Probability

P1 >50%

P2 Between 50% and 25%

P3 Between 25% and 12.5%

P4 Between 12.5% and 6.25

P5 Less than 6.25%

Set up risk table

Impact

Probabilit

y

I1 I2 I3 I4 I5

P1 BA AL AL NR NR

P2 BA AL AL NR NR

P3 BA AL AL NR NR

P4 BA BA AL AL NR

P5 BA BA AL AL NR

Step 7: Calculate your risk

(What can go wrong?)Hazard or Event

(If it goes wrong, what happens?)

Effect(Why did it go wrong?)

Root cause

Impact

Probability

Risk

(How could I stop it from going wrong?)

Control Measure

Residual

Impact

Probability

Risk

Step 8: Find the root cause

(What can go wrong?)Hazard or Event

(If it goes wrong, what happens?)

Effect(Why did it go wrong?)

Root cause

Impact

Probability

Risk

(How could I stop it from going wrong?)

Control Measure

Residual

Impact

Probability

Risk

Step 9: Control measure

(What can go wrong?)Hazard or Event

(If it goes wrong, what happens?)

Effect(Why did it go wrong?)

Root cause

Impact

Probability

Risk

(How could I stop it from going wrong?)

Control Measure

Residual

Impact

Probability

Risk

Step 3: Calculate residual risk

(What can go wrong?)Hazard or Event

(If it goes wrong, what happens?)

Effect(Why did it go wrong?)

Root cause

Impact

Probability

Risk

(How could I stop it from going wrong?)

Control Measure

Residual

Impact

Probability

Risk

Questions?

Steven Lipton Biotest Services 411 East Jarvis Ave Des Plaines IL

60018

steven.j.lipton@gmail.com Steve@scientificdevice.com Twitter: @Biotest http://www.biotestservices.com/risk.

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