Sunday, May 23, 2010

Risk assessment

Why are some people prepared to risk it all and others spend their entire life playing it safe?

Business owners, their managers and supervisors are responsible not only for risks to the business itself, but also to staff.

Risk assessment consists of both a subjective and objective component and that these components are weighted differently. Simply providing data that proves a situation is “safe” can sometimes be insufficient to change a person’s mindset.

There are a number of factors can influence and bias an individual’s perception of risk, including:
  • Knowledge. Not enough knowledge of a particular task may give a false sense of security as the potential risks / dangers are unknown.
  • Situational awareness. Familiarity can bred contempt and a person who is very experienced or familiar with a particular situation, even if aware of the dangers, may become complacent and so take inappropriate shortcuts etc.
  • Hazard identification. Having recognised one form of hazard, people may focus myopically on this and miss other hazards present in an area.
  • Characteristics of the consequences. The more catastrophic or unpleasant an outcome, the greater is the risk perceived in the event. This ignores taking the frequency of the event into consideration.
  • Perceived control. The greater the control an individual feels they have over an event, the less exposed they feel. Individuals who feel they will be supported by managers/supervisors will also be less threatened by an event, and even encouraged to contribute.
  • Perceived benefits. The higher the return, the more likely they are to accept risks associated with that situation (maybe even minimising the risks).
  • Individual personality. Level of education, cultural background, experience etc, will all influence how they respond to risk.
Good business practice would indicate that to overcome these influences and biases, and to maximise the effectiveness of risk assessments, adoption of the following principals would be effective in reducing exposure to risk by creating an efficient risk assessment and management process:
  • Create teams with practical knowledge of the operation being assessed, knowledge of risk assessment and awareness of other factors that may influence the risk of the operation to carry out the assessment
  • Ensure that risk assessors are trained to identify, understand and reduce the impact of known risk perception biases
  • Encourage input from the processes operator in the risk assessment
  • Monitor and review the accuracy of risk assessments
  • Perform risk assessment prior to commencement of a project to enable implementation of assessment outcomes to be easily incorporated in that project.
  • Empower personnel with sufficient authority to implement risk control measures
  • Communicate known risk perception biases.

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