Technical risk

From CEOpedia | Management online
Technical risk
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Technical risks there are caused by unpredictable and (or) uncontrolled functioning (behavior or properties) of technical systems. This risk due to technical factors; it involves a series of different types of risk insurance, such as construction and installation insurance, electronic equipment insurance. The basis of technical risk is the danger of technical failure, accident (P. Amyotte, J. McCutcheon 2016).

Factors of technical risk

The uncertainty of the "behavior" of technology can be due to two main factors.

First technique can show properties that the developer simply did not know or could not foresee their manifestation (for example, when using asbestos did not yet know about its dangerous carcinogenic properties).

Secondly, the technical system can behave in a predictable way, but the person for one reason or another will not be able to prevent it (for example, a steam boiler can explode from overpressure if the safety valve does not work, or if the operator allows a violation of the operating mode).

When risk classification is not a formal approach to the allocation of a particular risk category "technical". Technology is designed, created and used by human. And if it in normal (settlement) conditions behaved not as it was supposed, it is a consequence of an error or omission of the developer, the manufacturer or the operator, or lack of knowledge of the specified persons of the phenomena underlying functioning of system. That is, strictly speaking, almost all accidents can be reduced to the human factor. However, in terms of risk management practices, this is not always appropriate (A. Borghesi, B. Gaudenzi 2013).

Categories of technical risk

For a particular company that only operates (but not develops or manufactures) any equipment, it is reasonable to divide the risks into two categories:

1) risks arising from possible defects or special features of the equipment;

2) risks caused by errors in this operation.

In the first case, the firm is generally unable to effectively manage these risks because it is only a "user". Even if the incorrect operation of the equipment is caused by a manufacturer error, it is often not visible to the user. Only the result is visible. Therefore, in this case, it is reasonable to categorize all risks beyond the control of the operator as "technical". Even if the designer or manufacturer is to blame for the incorrect operation of the equipment, presenting the risk of failure as a human factor associated with their behavior does not give the user anything but a psychological sense of his own innocence and a legal opportunity to sue him. For a company that operates any equipment, it is much more logical from a practical point of view to consider the technique as an independent system that functions, although under control, but has its own properties (sometimes unknown) and is able to get out of this control. This will allow you to more effectively analyze the risks associated with this equipment and look for ways to protect against them.

In the second case, the quality of operation depends largely on the company's management, selection and training of operators, completeness and correctness of regulations. And here the reasons for the risks of unexpected behavior of technology lie more in the human or social plane, rather than in the technical (Risk management in the procurement of innovation 2010).

Probability of loss

Technical risks include the possibility of losses as a result of:

  • negative results of scientific research;
  • failure to achieve the planned technical parameters in the course of design and technological developments;
  • low technological capabilities of production, which does not allow to master the results of new developments;
  • occurrence of side-or delayed-onset problems with the use of new technologies and products;
  • equipment failures and breakdowns, etc.

It should be noted that technical risk belongs to the group of internal risks, since the entrepreneur can have a direct impact on these risks and their occurrence, as a rule, depends on the activities of the entrepreneur (L. Crane, G. Gantz 2013).

Methods of risk management

There are four methods of risk management: abolition; loss prevention and control; insurance; absorption.

The abolition is to attempt the abolition of risk. The main drawback of this method is that the elimination of risk, as a rule, abolishes part of the meaning of human life, and for the company – a possible income, profit.

Loss prevention and control means the ability to protect yourself and the company from accidents.

Insurance from the point of view of risk management is a process when customers invest certain funds (insurance premiums) in insurance companies, and in case of unforeseen losses receive compensation in the form of insurance payments defined by the insurance contract.

The acquisition consists in the recognition of damage without compensation through insurance. Often this is a risk, the probability of which is quite small. A new type of services provided by brokerage firms, insurance and reinsurance companies to their clients are risk management (B. Habegger 2008).


Author: Anna Korovytska