Risk Science

An Introduction

Terje Aven, Shital Thekdi

• Publisher: Taylor & Francis
• Year: 2021
• Print ISBN: 9780367742683
• eBook ISBN: 9781000435030
• Edition: 1
• Topic: Technology & Engineering
• Subtopic: Business General
• Index: Technology & Engineering

Risk science is becoming increasingly important as businesses, policymakers and public sector leaders are tasked with decision-making and investment using varying levels of knowledge and information. Risk Science: An Introduction explores the theory and practice of risk science, providing concepts and tools for understanding and acting under conditions of uncertainty.

The chapters in this work cover the fundamental concepts, principles, approaches, methods and models for how to understand, assess, communicate, manage and govern risk. These topics are presented and examined in a way which details how they relate, for example, how to characterize and communicate risk with particular emphasis on reflecting uncertainties; how to distinguish risk perception and professional risk judgments; how to assess risk and guide decision-makers, especially for cases involving large uncertainties and value differences; and how to integrate risk assessment with resilience-based strategies. The text provides a variety of examples and case studies that relate to highly visible and relevant issues facing risk academics, practitioners and non-risk leaders who must make risk-related decisions.

Presenting both the foundational and most recent advancements in the subject matter, this work particularly suits students of risk science courses at college and university level. The book also provides broader key reading for students and scholars in other domains, including business, engineering and public health.

CHAPTER 1

Illustrative examples

DOI: 10.4324/9781003156864-1

Chapter summary

This chapter presents three cases which will be used to illustrate the coming discussions about risk science concepts, principles, approaches, methods and models. These cases relate to the individual, organizational and societal level, respectively. The first concerns a student’s personal and academic lifestyle, the second a company considering some investments and the third a pandemic. The cases will be followed up in detail in Chapter 11.

1.1 Personal case: management of time in an academically rigorous environment

A student in a highly competitive academic program is facing a common issue encountered by almost all students: the 24-hour day. This student has many critical tasks to perform, along with some elective activities that are of value. However, the student must first consider several high-level objectives for college life, including:

• Academic performance: The student must earn high grades in order to qualify for prestigious jobs and graduate programs
• Financial security: The student could elect to pursue high-interest loans or choose to work a part-time job to help offset college expenses
• Physical wellness: The student values time spent exercising and recognizes that physical activity is linked to better academic performance and mental wellness
• Nutrition: The student recognizes the importance of consuming healthy meals, which involve cost and/or time to prepare
• Mental and emotional wellness: The student values activities, such as time spent outdoors or interacting with peers, as a source of wellness
• Social growth: The student values extracurricular activities, such as social clubs, academic fraternities and academic student organizations on campus
• Sleep: Any student or person requires sufficient rest in order to perform all other activities

While balancing these objectives is a challenge for any person, the risk management implications are unique for a student in an academically rigorous environment. Insufficient investment in any of the objectives can be disastrous for students, such as by causing degradation of health and emotional issues. Less severe impacts include poor job prospects and financial losses. There are also opportunity costs related to not taking advantage of growth that generally happens in college environments, such as interactions in student organizations and other social activities.

You as an expert of risk science are tasked with mentoring this college student. You are tasked with exploring the following questions:

• What risks does the student face?
• How should the risks be measured and described for this student?
• What are the relevant issues related to risk perception and communication when consulting with this student?
• What are the relevant risk management issues? What risk strategies and policies are relevant for the student?

In the upcoming chapters, you will explore how to address the issues described previously.

1.2 Organizational case: Total Business Management Inc.: supply chain investments in response to major potential changes in business and technology

Consider a fictional retailer that sells goods and service through brick-and-mortar stores and also has a rapidly growing online presence. In recent years, the business has changed considerably in both operations and customer habits. Customer traffic at brick-and-mortar locations has decreased considerably, while revenues from within those locations have also decreased. However, online sales have grown, with online sales expected to encompass 90% of revenues within the next five years. This retailer is competing against many global retailers who guarantee fast product delivery, often delivering purchases within a few hours or a few days. As a result, customer expectations are high: They require a quality product, with no shipping damage, that is delivered quickly.

In the past, this retailer has relied on package delivery and supply chain management vendors to handle the shipping. This is often a sophisticated process, involving several methods of warehousing and delivery. For large or bulky items that are considered low volume, Total Business Management Inc. (TBM) typically contracts with manufacturers to ship products directly from the manufacturer’s warehousing facility. While TBM maintains a list of preferred shipping vendors, it does not contract shipping rates, nor does it require any particular shipping timeframe or vendor. The second method involves maintaining inventory of high-volume items at several strategically placed warehouses. Over the last five years, TBM has found traditional shipping vendors to be costly, slow and non-transparent in their practices for both moving product between warehouses and also in delivering products from the warehouse to the customer.

In response to the challenges in working with shipping vendors, TBM considers building up its own supply chain capabilities. It considers investing in several features: 1) dedicated shipping channels with TBM’s privately owned infrastructure to move product among its regional warehouses, 2) some dedicated shipping channels to deliver products directly to customers located near regional warehouses and 3) capability to outsource delivery to customers by using delivery workers who accept delivery jobs on a case-by-case basis and perform the task using their own vehicle.

The technology landscape has changed considerably in recent years. Recent issues facing TBM include:

• Gig economy: TBM can coordinate with contractors to deliver products easily, without any fixed cost or agreement
• Self-driving vehicles: There is a global technological shift toward autonomous vehicles. The technology is being developed but is not yet fully validated, with several safety features currently being tested. There are also major legislative hurdles, including issues with safety and influences from lobbying groups
• Other evolving technologies: There is rapid development of other related technologies, such as drones
• Sustainability initiatives: There is increased emphasis on sustainability initiatives, calling for improved fuel efficiency, lower miles traveled by the TBM fleet, sustainable packaging material policies, consolidation of items in deliveries and others
• Electronic materials: There is increased popularity in selling product through electronic mediums, such as e-books, digital music, digital video and so on to avoid packaging and shipping costs
• Updatable technologies: There is some interest in developing electronic devices that are designed to be updated using software upgrades, thereby extending the life of the product and delaying obsolescence
• Subscriptions: There is an opportunity to increase sales using subscription methods in an effort to make sales and deliveries more predicable
• Rising cost of packaging for delivery: There is a need to address how to avoid breakage of product during shipping while also acknowledging packaging costs
• Fluctuating shopping habits: Recent economic, health-related and other factors have caused demand patterns to exhibit major shifts over short periods of time

TBM also recognizes that the issues listed here are not comprehensive. There may be many issues that can be surprises in the future and other issues that may be pressing but not considered a high priority by the executive team. The executive team has contracted with your organization to study the following questions:

• What are the relevant risks for TBM?
• How should the risks be measured and characterized?
• What are the relevant risk management issues? What risk strategies and policies are relevant for TBM?

The following chapters will address the issues described previously.

1.3 Public health crisis: addressing a global pandemic

Suppose you are a risk advisor to the leadership for a nation. In recent weeks, a previously unknown virus has begun spreading globally, with potential to spread to your nation. Because this virus is new and unstudied, there are several questions that have remained unanswered about this virus, including:

• What are the symptoms?
• How can the disease caused by the virus be diagnosed?
• What are the origins (e.g., what is the natural source? is it manmade? is it an act of biological warfare?, etc.)
• How does it spread (e.g., through aerosols, surfaces, etc.)
• How long does it ‘live’ on surfaces?
• What methods and medications are appropriate for treating the disease caused by the virus?
• Is a vaccine possible? If possible, is the vaccine effective and safe for all populations?
• Would populations be willing to receive a vaccine, if available?
• Is immunity possible (e.g., are certain populations naturally immune? Are recovered patients immune for some time period, etc.)
• What is the effectiveness of personal protective equipment (PPE) in managing the spread of the virus?
• What are the implications for other unforeseen contagions, as climate change and other factors may increase the likelihood of future pandemics?

You foresee several challenges related to addressing this virus. Due to movement of individuals across nations, the impact is not localized. This is a drastically different condition versus your past experiences dealing with localized disasters, such as hurricanes or earthquakes. As a result of this potential global situation, resources would be needed quickly in all areas of the globe. Also, because the virus impacts workforces through direct illness of employees, quarantining of employees if the virus is present and government-issued quarantine orders for regions, manufacturing of resources needed to address this potential pandemic may become scarce. For example, manufacturing of vehicles may be temporarily halted due to social distancing requirements, but those facilities could potentially be reconfigured to produce PPE.

At a socio-economic level, there are several challenges to consider. For example, there is concern over availability of food, healthcare and care for various populations with special needs, such as children and the elderly. There are some industries in particular that can potentially be impacted by declining economic conditions and quarantine policies, such as retail and restaurant industries.

At a healthcare level, there is concern over the availability of healthcare for patients who are not being treated for this particular virus. For example, parents may choose to not expose their children to healthcare facilities out of fear of contracting the virus. As a secondary impact, those children may not receive adequate medical care and vaccinations, possibly increasing likelihood of a secondary epidemic related to illnesses associated with missed vaccinations (e.g., measles, rubella, hepatitis A/B, etc.). Similarly, patients may elect to not seek medical attention for emergencies out of avoidance of healthcare facilities, possibly electing to not treat serious conditions such as heart attacks and strokes. Some regions may also ban the practice of elective health procedures. Finally, there is concern over adequate treatment of the virus itself. For example, it is unclear whether certain drugs or devices, such as ventilators, are effective and/or improve health outcomes for patients.

With these concerns and more, you are tasked with understanding and providing guidance on how risk science, with its concepts, principles, approaches, methods and models, can support the actual assessments, communication and handling of the risks related to the virus. This includes responding to challenges related to, for example:

• How should the risks be measured and characterized?
• What are the relevant issues related to risk perception and communication when consulting with political leaders and the public?
• How should the risks be communicated?
• What are the relevant risk management and government issues?
• How should the risks be handled? What risk strategies and policies should be adopted?

The virus triggers many issues concerning risk and risk analysis, as indicated. For example, consider the COVID-19 pandemic of early March 2020. Is the risk really worth worrying about, and should one, for example, cancel all plane trips because of the risk? Refer to the discussion in the preface. In this example, some experts stated that the risk for the average healthy person was small, and as long as trips to and from some specific areas were avoided, life should proceed as normal. However, the circumstances resulted in an overwhelming reduction in air travel. Risk psychologists explain why: “The coronavirus ‘hits all the hot buttons’ for how we misjudge risk”. These buttons include lack of control, catastrophic potential, delays in effects and being new and unknown, often summarized by the two dimensions dread and newness. Because of such factors, people tend to raise their risk estimates – how likely it is to happen to them. The fact that we are repeatedly hearing about cases and deaths has the same effect. At the same time, it is acknowledged that assessing the risk posed by the virus is very difficult. How can we then conclude that we ‘misjudge the risk’? What is the reference for comparison when faced with situations like this characterized by large uncertainties? To what extent can we trust the experts’ judgments?

In coming chapters, we will discuss these issues. We will explain the difference between lay people’s risk perceptions and professional judgments about risk, and we will provide guidance on how we should best characterize, communicate and handle the virus risks. In this case, we are faced with the potential for serious consequences, and there are scientific uncertainties about these consequences. Models providing accurate predictions of the implications of the virus and possible governmental interventions are not a...

Table of contents

• Cover
• Half Title
• Title
• Copyright
• Contents
• About the authors
• Preface
• Acknowledgments
• Key symbols
• 1 Illustrative examples
• Part I Basic concepts
• Part II Risk assessment
• Part III Risk perception and communication
• Part IV Risk management
• Part V Tackling practical risk problems and issues
• Appendices
• References
• Index