Risk assessment is a process for identifying
hazards, potential (future) events which may negatively impact (harm) an individual(s), asset(s), and/or the environment likelihood (probability) of those hazards occurring consequences of those hazards actions (risk reduction methods) which can mitigate these hazardous effects. As the first stage of a risk assessment process, hazard analysis identifies the situations and events for all potential or foreseeable hazards. As part of the risk assessment process, judgments may be made "on the tolerability of the risk on the basis of a risk analysis" (i.e. risk evaluation taking into account costs and benefits of further risk reduction). Sometimes risks can be deemed tolerable, meaning the risk "is understood and tolerated .. usually because the cost or difficulty of implementing an effective countermeasure for the associated vulnerability exceeds the expectation of loss." Results of a risk assessment process may be expressed in a quantitative or qualitative fashion. Risk assessment forms a key part of a broader risk management strategy to help reduce any potential risk-related consequences. Rapid technological change, increasing scale of industrial complexes, increased system integration, market competition, and other factors have been shown to increase societal risk since the 90's. As such, risk assessments have become increasingly critical in mitigating accidents, improving safety, and improving outcomes. More simply, risk assessment consists of an objective evaluation of risk in which assumptions and uncertainties are clearly considered and presented. More completely, risk assessments involve documentation of the risk assessment findings, implementation dates of mitigation methods, and periodic review of the risk assessment (or risk management plan), coupled with updates when necessary.
Categories
Individual risk assessment Risk assessments can be undertaken in individual cases, including in patient and physician interactions. In the narrow sense chemical risk assessment is the assessment of a health risk to an individual in response to environmental exposures. Methods of communication of statistics to an individual, both through words and numbers impact an individual's interpretation of benefit and harm. For example, communicating to an individual a fatality rate may be interpreted as less benign than the corresponding survival rate. A 2017 systematic review of patients and doctors found that overstatement of benefits and understatement of risks occurred more often than the understatement/overstatement alternative. A 2024 systematic review from the Cochrane collaboration suggests "well-documented decision aids" help reduce effects of such tendency or bias. Decision aids may help individuals
come to a decision about their care based on evidence-informed information that aligns with their values. understand the risks more clearly take an active role when making medical decisions. In people who had adverse treatment outcomes, the systematic review did not find a difference in decision regret between those who used decision aids and those who had the usual standard treatment without decision aids. An individual's own risk perception may be affected by psychological, ideological, religious or otherwise subjective factors, which impact the rationality of the process. Individuals tend to be less rational when risks and exposures concern themselves as opposed to others. There is also a tendency to underestimate risks that are voluntary or where the individual sees themselves as being in control, such as smoking.
Systems risk assessment Risk assessment can also be made on a much larger systems theory scale, for example assessing the risks of an ecosystem or an interactively complex mechanical, electronic, nuclear, and biological system or a hurricane (a complex meteorological and geographical system). Systems may be defined as linear and nonlinear (or complex), where linear systems are predictable and relatively easy to understand given a change in input, and non-linear systems are unpredictable when inputs are changed. As such, risk assessments of non-linear/complex systems tend to be more challenging. In the engineering of complex systems, sophisticated risk assessments are often made within safety engineering and reliability engineering when it concerns threats to life, natural environment, or machine functioning. The agriculture, nuclear, aerospace, oil, chemical, railroad, and military industries have a long history of dealing with risk assessment. Also, medical, hospital, social service, and food industries control risks and perform risk assessments on a continual basis. Methods for assessment of risk may differ between industries and whether it pertains to general financial decisions or environmental, ecological, or public health risk assessment.
Concept
Mild versus wild risk Benoit Mandelbrot distinguished between "mild" and "wild" risk and argued that risk assessment and risk management must be fundamentally different for the two types of risk. Mild risk follows normal or near-normal probability distributions, is subject to regression to the mean and the law of large numbers, and is therefore relatively predictable. Wild risk follows fat-tailed distributions, e.g., Pareto or power-law distributions, is subject to regression to the tail (infinite mean or variance, rendering the law of large numbers invalid or ineffective), and is therefore difficult or impossible to predict. A common error in risk assessment and management is to underestimate the wildness of risk, assuming risk to be mild when in fact it is wild, which must be avoided if risk assessment and management are to be valid and reliable, according to Mandelbrot.
Mathematical conceptualization
To see the risk management process expressed mathematically, one can define expected risk as the sum over individual risks, R i {\displaystyle R_{i}} , which can be computed as the product of potential losses, L i {\displaystyle L_{i}} , and their probabilities, p ( L i ) {\displaystyle p(L_{i})} :
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