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Refining Risk Management

​In 1988, more than 160 people died in a fire on the Piper Alpha oil platform in the North Sea. Risk analyst Terje Aven was assigned to assess a similar Norwegian oil platform to prevent further accidents. While presenting his findings, which included the probabilities of certain adverse events occurring, Aven was asked what the probabilities truly meant and whether he had considered all of the inherent uncertainties. Aven was unable to provide a satisfactory answer and that troubled him. He has since devoted extensive research to strengthening risk assessment and risk communication.

Risk assessment can be statistics-laden, and those tasked with making decisions based on the information often don’t understand how to interpret it. Aven, who is a professor of risk analysis and risk management at the University of Stavanger in Norway, found that probabilities just could not fully encompass the problem in part because they don’t account for the extent to which those probabilities are based on judgments.

Aven says that decision makers need risk presented in a more comprehensive way. “In a risk assessment context, there are often many stakeholders, and they may not be satisfied with a probability-based assessment expressing the subjective judgments of the analysis group; a broader risk description is sought.”

That is why Aven now includes an uncertainty analysis in any risk assessment he performs. “This uncertainty assessment provides an important part of the risk assessment…. This gives a more humble approach to risk assessment, stressing that risk assessment is informing decision making, nothing more.”

However, risk assessments alone are not enough. Company leaders must also learn the art of effective risk communication, which can be a tricky business.

According to Aven, it is a common belief that it is difficult to communicate probabilities and uncertainties because “lay” people do not understand the concepts. “This is a view I challenge,” he says.

He contends that people can appreciate the risk concepts if they are properly introduced. But that’s often not done, perhaps because the analysts preparing the risk and uncertainty picture do not have a solid understanding of the key concepts themselves. Another possibility is that analysts are afraid to deal with the uncertainties, thinking that will complicate the message.

“Many analysts seem to think that information provided to managers and politicians needs to be very simple,” explains Aven. But he says that managers are accustomed to dealing with uncertainty and factoring that into decisions.

Managers and public officials also need to learn how to communicate the risk effectively to their employees and the public.

An executive who wants to convey risk to stakeholders must consider their perspective and their emotional investment in the issue, because risk is subjective, says David Ropeik, an instructor at Harvard and author of How Risky is it, Really? Why Our Fears Don’t Always Match the Facts.

For example, the risk that a company will be broken or hacked into will be perceived differently by a customer who fears personal data theft than by a company executive who fears the company’s share price will drop. Effective communication must take the emotions of the message recipient into consideration.

Risk communications must go past the basics of the situation, says Ropeik. He cites the nuclear industry as an example. “If the industry says, ‘we’re safe, and here’s all the science that backs us up,’ that’s a different message altogether from ‘there are risks to what we do, but they’re really low, and here are all the things we’re doing to make them lower,’” says Ropeik.

The first approach tries to get the message recipient to see things the way the communicator sees them; the second approach tries to get the recipient to see the issue the way the communicator sees it by framing it in the way the recipient already sees it.

Ropeik says that many companies and individuals have a fear of fear. Risk communication is an attempt to explain the risk of a negative outcome occurring, and yet the communicators can be afraid to acknowledge that the risk is even present. “And so you dance around it, and no matter how well you do that, the audience hears it as spin,” Ropeik says. “And the dishonesty creates the barriers of mistrust that are far more damaging than if you had admitted the fear in the first place.”