Risk evaluation

Risk evaluation is a process in which judgments are made on the tolerability of the risk based on risk analysis and taking into account factors such as socioeconomic and environmental aspects (Rausand M., 2013, p. 1.2.2).

Risk evaluation relies on comparing the estimated risk levels with the defined risk criteria to determine the importance of the level and type of risk. It is based on the combination of estimated consequences and probability. It also uses information from the hazard/risk identification and risk analysis phases to make recommendations for decision-makers. These decisions may include avoiding the hazard, further controls, other forms of risk treatment or operation all together. Supplementary inputs to the decision-making process include financial, legal, ethical, and other considerations. If there is a possibility that more than one action could be feasible this process may also be used to prioritize possible actions (Popov G., Lyon B. K., Hollcroft B., 2016, p. 60).

Management's omission of analysts who have produced risk analysis can cause communication errors and erroneous conclusions, so it is therefore recommended to involve analysts in the evaluation (Rausand M., 2013, p. 1.2.2).

The risk evaluation will sometimes include a comparison of the results from the risk analysis with some risk acceptance criteria. Methods for defining risk criteria can spread from a level that does not require treatment, through a single level dividing risks that require treatment to multiple levels of risk demanding graduated degrees of actions. Decisions concerning treating a risk will probably depend on the costs and benefits of risk and the costs and benefits of enforcing improved controls. The ALARP ('as low as reasonably practicable') criteria is used to ascertain when the cost of further reduction is disproportionate to the benefits gained in the risk reduction and safety (Popov G., Lyon B. K., Hollcroft B., 2016, p. 60).

Risk assessment

Risk assessment is an overall process of risk analysis and risk evaluation (Rausand M., 2013, p. 1.2.3).

The UK Health and Safety Executive has published a simple and informative introduction to risk assessment called Five steps to risk assessment. The five steps are (Rausand M., 2013, p. 1.2.3):

1. Identify the hazard.
2. Decide who might be disadvantaged and how.
3. Evaluate the risks and decide on precautions.
4. Record your findings and implement them.
5. Review your assessment and update if necessary.

Risk management

According to definition presented by Marvin Rausand risk management is a continuous management process with the purpose of which is to identify, analyze, and assess potential hazards in a system or related to an activity, and to identify and introduce risk control measures to eliminate or reduce potential harms to people, the environment, or other assets (Rausand M., 2013, p. 1.2.4).

Risk assessment is the combined effort of risk analysis and risk evaluation. This in turn combined with risk control creates risk management.

Risk is the probability of an unwanted event that results in negative consequences (Ostrom L. T., Wilhelmsen C. A., 2019, p. 5).

Examples of Risk evaluation

• Environmental Risk Evaluation: This is the process of assessing the potential environmental impacts of a project or activity. This includes assessing the potential for pollution, changes to ecosystems, and other environmental changes that could be caused by the project.
• Financial Risk Evaluation: This is the process of assessing the potential financial impacts of a project or activity. This includes assessing the potential for financial losses, changes to financial markets, and other financial changes that could be caused by the project.
• Human Health Risk Evaluation: This is the process of assessing the potential health impacts of a project or activity. This includes assessing the potential for health risks, changes to health care systems, and other health changes that could be caused by the project.
• Security Risk Evaluation: This is the process of assessing the potential security impacts of a project or activity. This includes assessing the potential for security threats, changes to security protocols, and other security changes that could be caused by the project.

Advantages of Risk evaluation

Risk evaluation offers a number of advantages to organizations and individuals:

• It helps to identify and assess potential risks, allowing organizations to take proactive measures to avoid or mitigate them.
• It also facilitates the determination of appropriate risk management strategies, based on the severity of the risk and the resources available.
• Risk evaluation allows organizations to make informed decisions, as it provides them with a comprehensive view of the risks they face.
• It enables organizations to prioritize risk management activities, as they can identify the most significant risks and allocate resources accordingly.
• Risk evaluation helps to quantify risks and to determine their financial costs, allowing organizations to allocate resources more efficiently.
• It also helps to ensure that risks are properly monitored, so that organizations can quickly identify and respond to any changes in the risk environment.

Limitations of Risk evaluation

Risk evaluation is a valuable process for assessing the potential impact of risks on a particular system, but it is not without its limitations. These limitations include:

• The process is subjective, relying heavily on the opinions of the assessor. This can lead to biases in the assessment, as well as an inability to accurately weigh the relative importance of different factors.
• It can be difficult to accurately quantify risk, as many factors are not easily quantifiable. This can make the evaluation process difficult to standardize across different systems.
• Risk evaluation does not take into account future changes, such as technological advances or changing regulations. This can lead to an outdated assessment that does not accurately reflect the current risk.
• Risk evaluation does not take into account potential interactions with other systems or external factors, which can have a significant impact on the overall risk.
• Risk evaluation does not necessarily provide clear solutions for reducing or eliminating risks. It is typically up to the assessor to develop a plan to mitigate risks.

Other approaches related to Risk evaluation

Introducing other approaches related to Risk evaluation, one can name:

• Risk assessment - a process of evaluating potential risks associated with a particular activity or operation, looking at the likelihood and severity of any potential risks (Rausand M., 2013, p. 1.2.1).
• Risk management - a set of processes through which an organization plans, organizes, directs and controls its resources to minimize, monitor, and control the probability and/or impact of unfortunate events (Rausand M., 2013, p. 1.3).
• Risk analysis - a process of analyzing the potential risks associated with a particular activity or operation, taking into account the probability, severity and other factors (Rausand M., 2013, p. 1.1.2).
• Risk communication - a process of exchanging information among stakeholders, including both providing and receiving feedback, to ensure that everyone is properly informed and can make decisions based on the best available information (Rausand M., 2013, p. 1.4).

In summary, Risk evaluation is just one part of a broader approach to managing risk. Other important processes in this area include risk assessment, risk management, risk analysis, and risk communication. Each of these processes is important in its own right and should be taken into consideration when evaluating risk.

Risk evaluation — recommended articles

Residual risk — Risk response — Risk management process — Design risk assessment — Risk management methodology — Business risk management — Risk category — Total risk — Evaluation of risk

References

• Covello V. T., Menkes J., Mumpower J. L. (2012), Risk Evaluation and Management, Springer Science & Business Media
• Ostrom L. T., Wilhelmsen C. A. (2019), Risk Assessment: Tools, Techniques, and Their Applications, John Wiley & Sons
• Popov G., Lyon B. K., Hollcroft B., (2016), Risk Assessment: A Practical Guide to Assessing Operational Risks, John Wiley & Sons
• Rausand M. (2013), Risk Assessment: Theory, Methods, and Applications, John Wiley & Sons
• Tsudikman V., Izraylevich S., Balishyan A. (2011), Risk Evaluation and Financial Crises: Review of New Approaches to Risk Evaluation: VaR Criticism, Alternatives and Modifications, Pearson Education

Author: Natalia Supernak