USEFUL TOOLS

RISK ANALYSIS FOR EVERY DAY'S DECISIONS        

As humans we apply the principles of risk analysis every day when we make decisions. We either instinctively make choices (using subconscious risk analysis or our "gut feel") or we deliberatly consider our choices weighing how much risk each choice involves, make a decision on how much risk we are willing to take, and then proceed to take action.

Everyone in your company can consciously use the following approach to improve all decisions of any importance; from selecting materials of construction for a design to what inspections to conduct and how often.

A simple procedure to be used involves the following –

1. Identify the problem or decision to be made.

2. Identify alternatives to the problem or decision.

3. For each problem or decision identify on a scale of 1-high to 3-low:

• Probability of each alternative to be bad

• Consequence of each alternative to be bad

Put each alternative on the matrix below.  Alternatives will vary from the red square to the white square.

Choose your plan of action based on much risk you are willing to take or how much you want to have the right outcome. You can use your intuition to identify Probability and Consequence or back these judgments up based on calculations or criteria.