Risk assessment is a step in a risk management Risk is defined in ISO 31000 as the effect of uncertainty on objectives . Risk management can therefore be considered the identification, assessment, and prioritization of risks followed by coordinated and economical application of resources to minimize, monitor, and control the probability and/or impact of unfortunate events or to maximize the process. Risk assessment is the determination of quantitative A quantitative attribute is one that exists in a range of magnitudes, and can therefore be measured. Measurements of any particular quantitative property are expressed as a specific quantity, referred to as a unit, multiplied by a number. Examples of physical quantities are distance, mass, and time. Many attributes in the social sciences, or qualitative The term qualitative data is used to describe certain types of information. This is the almost the converse of quantitative data, in which items are more precisely described data in terms of quantity and in which numerical values are used. However, data originally obtained as qualitative information about individual items may give rise to value of risk related to a concrete situation and a recognized threat A threat is an act of coercion wherein an act is proposed to elicit a negative response. It is a communicated intent to inflict harm or loss on another person. It is a crime in many jurisdictions. Libertarians hold that a palpable, immediate, and direct threat of aggression, embodied in the initiation of an overt act, is equivalent to aggression (also called hazard). Quantitative risk assessment requires calculations of two components of risk Risk concerns the deviation of one or more results of one or more future events from their expected value. Technically, the value of those results may be positive or negative. However, general usage tends to focus only on potential harm that may arise from a future event, which may accrue either from incurring a cost or by failing to attain some: R, the magnitude of the potential loss L, and the probability p, that the loss will occur.

Methods may differ whether it is about general financial decisions or environmental or public health risk assessment.

Explanation

Risk assessment consists in an objective evaluation of risk in which assumptions and uncertainties are clearly considered and presented. Part of the difficulty of risk management is that measurement of both of the quantities in which risk assessment is concerned - potential loss and probability of occurrence - can be very difficult to measure. The chance of error in the measurement of these two concepts is large. A risk with a large potential loss and a low probability of occurring is often treated differently from one with a low potential loss and a high likelihood of occurring. In theory, both are of nearly equal priority in dealing with first, but in practice it can be very difficult to manage when faced with the scarcity of resources, especially time, in which to conduct the risk management process. Expressed mathematically,

Financial decisions, such as insurance, express loss in terms of dollar amounts. When risk assessment is used for public health or environmental decisions, loss can be quantified in a common metric,such as a country's currency, or some numerical measure of a location's quality of life. For public health and environmental decisions, loss is simply a verbal description of the outcome, such as increased cancer incidence or incidence of birth defects. In that case, the "risk" is expressed as:

If the risk estimate takes into account information on the number of individuals exposed, it is termed a "population risk" and is in units of expected increased cases per a time period. If the risk estimate does not take into account the number of individuals exposed, it is termed an "individual risk" and is in units of incidence rate per a time period. Population risks are of more use for cost/benefit analysis; individual risks are of more use for evaluating whether risks to individuals are "acceptable"....

Risk assessment in public health

In the context of public health Public health is "the science and art of preventing disease, prolonging life and promoting health through the organized efforts and informed choices of society, organizations, public and private, communities and individuals." It is concerned with threats to the overall health of a community based on population health analysis. The, risk assessment is the process of quantifying the probability of a harmful effect to individuals or populations from certain human activities. In most countries, the use of specific chemicals, or the operations of specific facilities (e.g. power plants, manufacturing plants) is not allowed unless it can be shown that they do not increase the risk of death or illness above a specific threshold. For example, the American Food and Drug Administration The Food and Drug Administration is an agency of the United States Department of Health and Human Services, one of the United States federal executive departments, responsible for protecting and promoting public health through the regulation and supervision of food safety, tobacco products, dietary supplements, prescription and over-the-counter (FDA) regulates food safety through risk assessment.^[1] The FDA required in 1973 that cancer-causing compounds must not be present in meat at concentrations that would cause a cancer risk greater than 1 in a million lifetimes.

How the risk is determined

In the estimation of the risks, three or more steps are involved, requiring the inputs of different disciplines:

1. Hazard Identification, aims to determine the qualitative nature of the potential adverse consequences of the contaminant (chemical, radiation, noise, etc.) and the strength of the evidence it can have that effect. This is done, for chemical hazards, by drawing from the results of the sciences of toxicology Toxicology is a branch of biology and medicine concerned with the study of the adverse effects of chemicals on living organisms. It is the study of symptoms, mechanisms, treatments and detection of poisoning, especially the poisoning of people and epidemiology Epidemiology is the study of factors affecting the health and illness of populations, and serves as the foundation and logic of interventions made in the interest of public health and preventative medicine. It is considered a cornerstone methodology of public health research, and is highly regarded in evidence-based medicine for identifying risk. For other kinds of hazard, engineering or other disciplines are involved.
2. Dose-Response Analysis, is determining the relationship between dose and the probability or the incidence of effect (dose-response assessment). The complexity of this step in many contexts derives mainly from the need to extrapolate results from experimental animals (e.g. mouse A mouse is a small mammal belonging to the order of rodents. The best known mouse species is the common house mouse (Mus musculus). It is also a popular pet. In some places, certain kinds of field mice are also common. This rodent is eaten by large birds such as hawks and eagles. They are known to invade homes for food and occasionally shelter, rat Rats are various medium-sized, long-tailed rodents of the superfamily Muroidea. "True rats" are members of the genus Rattus, the most important of which to humans are the black rat, Rattus rattus, and the brown rat, Rattus norvegicus. Many members of other rodent genera and families are also referred to as rats, and share many) to humans, and/or from high to lower doses. In addition, the differences between individuals due to genetics Genetics , a discipline of biology, is the science of heredity and variation in living organisms. The fact that living things inherit traits from their parents has been used since prehistoric times to improve crop plants and animals through selective breeding. However, the modern science of genetics, which seeks to understand the process of or other factors mean that the hazard may be higher for particular groups, called susceptible populations. An alternative to dose-response estimation is to determine an effect unlikely to yield observable effects, that is, a no effect concentration. In developing such a dose, to account for the largely unknown effects of animal to human extrapolations, increased variability in humans, or missing data, a prudent approach is often adopted by including safety factors in the estimate of the "safe" dose, typically a factor of 10 for each unknown step.
3. Exposure Quantification, aims to determine the amount of a contaminant (dose) that individuals and populations will receive. This is done by examining the results of the discipline of exposure assessment Exposure assessment is a branch of environmental science that focuses on the processes that take place at the interface between the environment containing the contaminant of interest and the organism(s) being considered. These are the final steps in the path to release an environmental contaminant, through transport to its effect in a biological. As different location, lifestyles and other factors likely influence the amount of contaminant that is received, a range or distribution of possible values is generated in this step. Particular care is taken to determine the exposure of the susceptible population(s).

Finally, the results of the three steps above are then combined to produce an estimate of risk. Because of the different susceptibilities and exposures, this risk will vary within a population.

Small subpopulations

When risks apply mainly to small subpopulations, there is uncertainty at which point intervention is necessary. What if a risk is very low for everyone but 0.1% of the population? A difference exists whether this 0.1% is represented by *all infants younger than X days or *recreational users of a particular product. If the risk is higher for a particular sub-population because of abnormal exposure rather than susceptibility, there is a potential to consider strategies to further reduce the exposure of that subgroup. If an identifiable sub-population is more susceptible due to inherent genetic or other factors, there is a policy choice whether to set policies for protecting the general population that are protective of such groups (as is currently done for children when data exists, or is done under the Clean Air Act for populations such as asthmatics) or whether if the group is too small, or the costs to high. Sometimes, a suitable position is to at least limit the risk of the more susceptible to some risk level above which it seems too inequitable to leave them out of the risk.

Acceptable risk increase

The idea of not increasing lifetime risk by more than one in a million has become common place in public health discourse and policy. How consensus settled on this particular figure is unclear. In some respects, this figure has the characteristics of a mythical number A mythical number is a number used and accepted as deriving from scientific investigation and/or careful selection, but whose origin is unknown and whose basis is unsubstantiated. The term was coined in 1971 by Max Singer, one of the founders of the Hudson Institute. In another sense, the figure provides a numerical basis for what to consider a negligible increase in risk. Some current environmental decision making allows some discretion to deem individual risks potentially "acceptable" if below one in ten thousand increased lifetime risk. Low risk criteria such as these do provide some protection for the case that individuals may be exposed to multiple chemicals (whether pollutants or food additives, or other chemicals). But both of these benchmarks are clearly small relative to the typical one in four lifetime risk of death by cancer (due to all causes combined) in developed countries. On the other hand, adoption of a zero-risk policy could be motivated by the fact that the 1 in a million policy still would cause the death of hundreds or thousands of people in a large enough population. In practice however, a true zero-risk is possible only with the suppression of the risk-causing activity.

More stringent requirements, or even the 1 in a million one, may not be technologically feasible at a given time, or so expensive as to render the risk-causing activity unsustainable, resulting in the optimal degree of intervention being a balance between risks vs. benefit. For example, it might well be that the emissions from hospital incinerators result in a certain number of deaths per year. However, this risk must be balanced against the available alternatives. In some unusual cases, there are significant public health risks, as well as economic costs, associated with all options. For example, there are risks associated with no incineration Incineration is a waste treatment process that involves the combustion of organic substances contained in waste materials. Incineration and other high temperature waste treatment systems are described as "thermal treatment". Incineration of waste materials converts the waste into ash, flue gas, and heat. The ash is mostly formed by the (with the potential risk for spread of infectious diseases) or even no hospitals. But, often further investigation identifies further options, such as separating noninfectious from infectious wastes, or air pollution controls on a medical incinerator, that provide a broad range of options of acceptable risk - though with varying practical implications and varying economic costs. Intelligent thought about a reasonably full set of options is essential. Thus, it is not unusual for there to be an iterative process between analysis, consideration of options, and then further analysis.

Risk assessment in auditing

In auditing, risk assessment is a very crucial stage before accepting an audit engagement. According to ISA315 Understanding the Entity and its Environment and Assessing the Risks of Material Misstatement, "the auditor should perform risk assessment procedures to obtain an understanding of the entity and its environment, including its internal control."<evidence relating to the auditor’s risk assessment of a material misstatement in the client’s financial statements. Then, auditor obtains initial evidence regarding the classes of transactions at the client and the operating effectiveness of the client’s internal controls.In auditing, audit risk includes inherent risk Inherent risk, in auditing, is the risk that the account or section being audited is materially misstated without considering internal controls due to error; inherent risk does not include an assessment of the risk of material misstatement due to fraud. The assessment of inherent risk depends on the professional judgement of the auditor, and it is, control risk Control Risk, in auditing, is the risk that a company's internal controls are insufficient to mitigate or detect errors or fraud and detection risk.

Risk assessment in information security

There are two methods of risk assessment in information security field, qualitative and quantitative.^[2] Purely quantitative risk assessment is a mathematical calculation based on security metrics on the asset (system or application). Qualitative risk assessment is performed when the organization requires a risk assessment be performed in a relatively short time or to meet a small budget, a significant quantity of relevant data is not available, or the persons performing the assessment don't have the sophisticated mathematical, financial, and risk assessment expertise required.^[2] Qualitative risk assessment can be performed in a shorter period of time and with less data. Qualitative risk assessments are typically performed through interviews of a sample of personnel from all relevant groups within an organization charged with the security of the asset being assessed. Qualitative risk assessments are descriptive versus measurable.

Quantitative risk assessment

Quantitative risk assessments include a calculation of the single loss expectancy (SLE) of an asset. The single loss expectancy can be defined as the loss of value to asset based on a single security incident. The team then calculates the annualized rate of occurrence (ARO) of the threat to the asset. The ARO is an estimate based on the data of how often a threat would be successful in exploiting a vulnerability. From this information, the annualized loss expectancy (ALE) can be calculated. The annualized loss expectancy is a calculation of the single loss expectancy multiplied the annual rate of occurrence, or how much an organization could estimate to lose from an asset based on the risks, threats, and vulnerabilities. It then becomes possible from a financial perspective to justify expenditures to implement countermeasures to protect the asset.

Criticisms of quantitative risk assessment

Barry Commoner Barry Commoner is an American biologist, college professor, and eco-socialist. He ran for president of the United States in the 1980 U.S. presidential election on the Citizens Party ticket, Brian Wynne and other critics have expressed concerns that risk assessment tends to be overly quantitative and reductive. For example, they argue that risk assessments ignore qualitative differences among risks. Some charge that assessments may drop out important non-quantifiable or inaccessible information, such as variations among the classes of people exposed to hazards. Furthermore, Commoner and O'Brien claim that quantitative approaches divert attention from precautionary or preventative measures.^[3] Others, like Nassim Nicholas Taleb consider risk managers little more than "blind users" of statistical tools and methods.^[4]

See also

• Benefit risk A benefit shortfall results from the actual benefits of a venture being lower than the projected, or estimated, benefits of that venture. If, for instance, a company is launching a new product or service and projected sales are 40 million dollars per year, whereas actual annual sales turn out to be only 30 million dollars, then the benefit
• Cost risk
• Edwards v. National Coal Board Edwards v. National Coal Board was an important case in English case law. The 1949 case revolved around whether it was "reasonably practicable" to prevent even the smallest possibility of a rock fall in a coal mine
• Flood risk assessment A flood risk assessment is an assessment of the risk of flooding, particularly in relation to residential, commercial and industrial land use
• Form 696
• Green Globe Green Globe is based on Agenda 21 principles for Sustainable Development endorsed by 182 Heads of State at the United Nations Rio De Janeiro Earth Summit
• Hazard Identification A Hazard Identification Study or HAZID is a tool for hazard analysis, used early in a project as soon as process flow diagrams, draft heat and mass balances, and plot layouts are available. Existing site infrastructure, weather, and geotechnical data are also required, these being a source of external hazards
• Health Impact Assessment Health Impact Assessment is defined as "a combination of procedures, methods and tools by which a policy, program or project may be judged as to its potential effects on the health of a population, and the distribution of those effects within the population." (ECHP 1999, p. 4)
• Information assurance Information assurance is the practice of managing risks related to the use, processing, storage, and transmission of information or data and the systems and processes used for those purposes. While focused dominantly on information in digital form, the full range of IA encompasses not only digital but also analog or physical form. Information
• List of auditing topics
• ISO 31000 ISO 31000 is intended to be a family of standards relating to risk management codified by the International Organization for Standardization. The purpose of ISO 31000:2009 is to provide principles and generic guidelines on risk management. ISO 31000 seeks to provide a universally recognised paradigm for practitioners and companies employing risk
• ISO 28000 ISO 28000:2007 - Specification for security management systems for the supply chain is the International Organization for Standardization standard on requirements of a security management system particularly dealing with security assurance in the supply chain
• Megaprojects and risk Megaprojects and Risk: An Anatomy of Ambition is a 2003 book by Bent Flyvbjerg, Nils Bruzelius, and Werner Rothengatter dealing with the risks and legalities of promotion, policy, planning, and construction of megaprojects. The book's central theme is that promoters of multibillion-dollar megaprojects may misinform lawmakers, the media, and the
• Optimism bias Optimism bias is the demonstrated systematic tendency for people to be over-optimistic about the outcome of planned actions. This includes over-estimating the likelihood of positive events and under-estimating the likelihood of negative events. It is one of several kinds of positive illusion to which people are generally susceptible. Excessive
• Probabilistic risk assessment Probabilistic risk assessment (or probabilistic safety assessment/analysis) is a systematic and comprehensive methodology to evaluate risks associated with a complex engineered technological entity (such as an airliner or a nuclear power plant)
• Probit model
• Reference class forecasting Reference class forecasting predicts the outcome of a planned action based on actual outcomes in a reference class of similar actions to that being forecast. The theories behind reference class forecasting were developed by Daniel Kahneman and Amos Tversky. They helped Kahneman win the 2002 Nobel Prize in Economics
• Risk Risk concerns the deviation of one or more results of one or more future events from their expected value. Technically, the value of those results may be positive or negative. However, general usage tends to focus only on potential harm that may arise from a future event, which may accrue either from incurring a cost or by failing to attain some
• Risk management Risk is defined in ISO 31000 as the effect of uncertainty on objectives . Risk management can therefore be considered the identification, assessment, and prioritization of risks followed by coordinated and economical application of resources to minimize, monitor, and control the probability and/or impact of unfortunate events or to maximize the
• Risk aversion Risk aversion is a concept in psychology, economics, and finance, based on the behavior of humans whilst exposed to uncertainty
• Security Risk Security risk is the demarcation of risk, into the security silo, from the broader enterprise risk management framework for the purposes of isolating and analysing unique events, outcomes and consequences
• Strategic misrepresentation Strategic misrepresentation is the planned, systematic distortion or misstatement of fact—lying—in response to incentives in the budget process. Examples of strategic misrepresentation in budgeting illustrate that it is a contingent strategy responsive to a system of rewards in a highly competitive game where resource constraints are present

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