Few people seem to know what risk analysis actually is, and I often get the question "what are you studying that for?". Many people tend to think that risk analysis is something specific for Economics and Finance. This is not entirely untrue, but it’s a very wide field that can be applied in many areas, such as health care, environment, politics, security, engineering, traffic, IT, business etc.
After reading this post, I hope you can all rest assured that the probability of me making a mess of your finances is very small.
Our mere existence is filled with risks, and we are forced to continuously make decisions in order to minimise these risks. Some of these decisions occur on subconscious level "I will not cross the street right now because there is a lot of traffic and the likelihood of me being hit by a car is big". Other risks are so unlikely that we don’t even spend much time thinking about them: "I can go for a picnic in the park today because it’s sunny and clear, so the likelihood of being hit by lightning is small". Few of us would even consider the risk of being hit by lightning, but of course, it does exist.
Nonetheless, there are decisions whose consequences can threaten a very large number of people. "Should we go to war?": what are the consequences if we decide to attack another country, what are the risks (economic issues, number of casualities, revenge, psychological problems among soldiers, etc.) for us and future generations? What is the likelihood of succeeding, and failing? What factors will influence the success/failure, and the potential consequences...? What should we do to minimize the risks? When the Soviet Union attacked Afghanistan in 1979, they obviously forgot to run a thorough risk analysis: what was supposed to be a quick military operation ended up being a guerrilla war that lasted for almost 10 years.
Or, we want to build new metro lines: is it economically viable? What risks will the workers be confronted with? How will it affect the environment? Will it harm people? What can we do to avoid this from happening? Etc.
A classmate of mine works for a company that is analysing security risks: they have worked with the Swedish government for instance, assessing the probability and risks of an attack on the Parliament.
So, as you can see, it’s all fearfully complex and interesting.
Last but not least I will give you a little task (one that we’ve spent quite some time on)... tell me in the comment box what you think :)
After a penetrating foot injury, you have developed an
infection and possibly gangrene in the left foot. One
response would be prompt amputation, but at this
stage it is possible that your foot will heal with
careful medical care. If surgical amputation is delayed, however, there is a risk
that infection and gangrene could spread, necessitating
amputation above the knee or even resulting in death. If
surgery is performed now, the amputation can be done
below the knee, with less resulting disability and deformity
than that associated with amputation above the knee. Limb
amputation is a relatively safe procedure, but there is
always some risk of operative mortality. Given this
description of the circumstances and of the decision
problem, should surgery below the knee be performed
immediately, or should you wait to see if the foot heals?
The choice is yours!
(example originally from Weinstein and Fineberg: "Clinical decision analysis")