Technical risk

Technical risk
See also
Insurance risk Cost risk Risk transfer Operational risk Concentration risk Related diversification Ergonomics Descriptive model Operational impact

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).

Examples of Technical risk

• System Failure: System failure is a risk that occurs when a system, such as a computer, fails to perform its intended function as a result of a hardware or software malfunction. This type of risk can cause a loss of data, a disruption in service, and potential financial losses.
• Data Loss: Data loss is a risk that occurs when data becomes inaccessible or is corrupted. This can be caused by hardware malfunction, human error, or malicious attack. Data loss can lead to significant financial losses and a disruption in service.
• Cyber Security Risk: Cyber security risk is a risk that involves unauthorized access or attack of a system through the internet or other networks. Cyber security risks can lead to financial losses, data theft, and disruption in service.
• Hardware Failure: Hardware failure is a risk that occurs when a hardware component, such as a hard drive or processor, fails to perform its intended function as a result of a malfunction or defect. This type of risk can lead to data loss and a disruption in service.

Advantages of Technical risk

The advantages of technical risk include:

• Increased awareness of potential technical failure and of the need for proper maintenance and training, allowing for preventive action to be taken.
• The ability to identify, assess and prioritize risks, allowing for the implementation of appropriate risk management strategies.
• Improved understanding of the impact of technical failure on the business, allowing for proper contingency plans to be formulated.
• Enhanced ability to identify and implement solutions to minimize the impact of technical failure.
• Improved ability to monitor and review the effectiveness of risk management strategies, enabling corrective action to be taken if necessary.

Limitations of Technical risk

• Technical risks are often difficult to evaluate and predict due to their complexity and the variability of their possible causes.
• The technology used in a system can be out of date or lack the necessary features to effectively mitigate the risk.
• Technical risks can be hard to identify and diagnose, making the process of risk management more difficult.
• Technical risks can be expensive to manage and mitigate due to the cost of the technology involved.
• Technical risks can be difficult to control or manage due to the complexity of the system and its components.
• Technical risks can be difficult to transfer or share, making it difficult to spread out the risk across multiple parties.
• Technical risks can be difficult to communicate, making it difficult for stakeholders to understand the risk.

Other approaches related to Technical risk

An introduction to the other approaches related to Technical risk is that there are a variety of methods to minimize, manage, and prepare for the risks associated with technical systems. These methods include:

• Risk Analysis: This is the process of identifying, analyzing and responding to the risks associated with technical systems. It involves looking at the potential risks, the potential consequences and the potential preventive measures.
• Risk Management: This is the process of minimizing risk by implementing strategies, procedures and protocols that reduce the chances of a technical failure. It involves identifying and analyzing the risks, and then developing and implementing measures to reduce the risks.
• Risk Mitigation: This is the process of reducing the consequences of a technical failure. This can involve the use of backup systems, the implementation of safety measures, or the purchase of insurance.
• Risk Monitoring: This is the process of actively monitoring a technical system for any potential risks. This can involve the use of predictive analytics to detect any anomalies, or the use of software tools to monitor for any potential risks.

In summary, these are some of the other approaches related to Technical risk. Risk Analysis is used to identify and analyze potential risks, Risk Management is used to reduce the chances of a technical failure, Risk Mitigation is used to reduce the consequences of a technical failure, and Risk Monitoring is used to actively monitor for potential risks.

References

• Amyotte P., McCutcheon J. (2016), Risk Managment – an area of knowlerge for all enginners, Dalhousie University, Inspiring minds, p. 6-10.
• Borghesi A., Gaudenzi B. (2013), Risk Management, How to Assess, Transfer and Communicate Critical Risks, Springer Milan Heidelberg New York Dordrecht London, p. 31-35.
• Crane L., Gantz G., Isaacs S., Jose D., Sharp R. (2013),Introduction to Risk Management, Management Education and Risk Management Agency, p. 8-9.
• Europan Commission (2010), Risk management in the procurement of innovation, Directorate-General for Research, European Research Area, p. 10-18.
• Habegger B. (2008), The International Handbook on Risk Analysis and Management, Center for Security Studies, ETH Zurich, p. 13-16.

Author: Anna Korovytska

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