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Instruments and Approaches in Risk Analysis
Session 3
Dr. Bijan Khazai
Risk AnalysisFundamentals of Risk Analysis 1
Risk AnalysisFundamentals of Risk Analysis
Learning objectives
Learn Probabilistic concept of risk. Concepts of return period, loss-frequency curve, average annual
loss. Sources of uncertainty in risk analysis.
Understand Difference between probabilistic and deterministic risk analysis. Outcomes of a scenario analysis. Depiction and ranking of risk through risk matrix and risk
indexing. Components of a loss estimation model. Methodology of a cost-benefit analysis. Uses of a participatory risk analysis.
2
Risk AnalysisFundamentals of Risk Analysis
RiskThere are two approaches to defining risk:
Probabilistic Approach: Risk is defined as the likelihood (i.e., probability) of sustaining a
certain level of loss during a given time period. Risk = Probability of an event occurring x impact of the event
Deterministic Approach: The geographical distribution of the severity of loss due to the
occurrence of a postulated event (i.e., Scenario).
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Risk AnalysisFundamentals of Risk Analysis
Probabilistic Risk Analysis Probabilistic Risk Assessment answers three basic
questions: What and where are the initiators or initiating events? What and how severe are the potential consequences? How likely will these consequences occur (probability or
frequency)?
In a PRA, risk is characterized by two quantities: The magnitude (severity) of possible adverse consequences The likelihood (probability) of occurrence of each
consequence
Probable losses (Billions
Euros)
Value and Fragility of Exposed Assets
Probability earthquake intensity will be exceeded during a particular time period (T = 200 yrs)
Probable losses (millions of Euro)
1 5 10
Intensities
x =
4
Risk AnalysisFundamentals of Risk Analysis
Uncertainty Estimating risk is fraught with lots of uncertainty. Dealing with uncertainty is the essence of risk analysis.. Uncertainty is the state of having limited knowledge. In probabilistic risk analysis, we can account for
uncertainty. Uncertainties are inherent (for example) in:
Hazard(spatial, temporal,
dimensional)
Susceptibility(physical, social,economic, etc.)
Exposure Database(acquisition,
transformationrepresentation, change)
Benefits of risk reduction measures
5
Risk AnalysisFundamentals of Risk Analysis
Return Period Return period also known as a recurrence interval is an
estimate of the interval of time between events. An event with a 100-year recurrence interval will on
average only occur once every 100 years.
Return Period, in years (RP)
Probability of occurrence in any
given year
Annual Probability of Exceedance (EP)
Probability of Exceedance in 50
years
500 1 in 500 0.2% 10%
200 1 in 200 0.5% 25%
100 1 in 100 1% 50%
50 1 in 50 2% 100%
10 1 in 10 10% 500%
RP = 1
EP
Return period (RP) is the inverse of the probability that the event will be exceeded in any one year (Exceedance Probability, EP).
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Risk AnalysisFundamentals of Risk Analysis
Exceedance Probability Curve The key relationship in managing risk is the exceedance
probability (loss frequency) curve, which represents the relationship between frequency (Exceedence Probability) and severity (amount of losses).
Area under curve = Average Annual Losses (AAL)
Loss Amount ($US Million)
0
2
4
6
10
8
50 100 150 200 250 3000
Annual Pro
bab
ility
of
Exce
edance
(%
)
100 year loss (1% EP) = $US 125 million
AAL = probability that event occurs * loss associated with event
rare events, apply with caution!
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Risk AnalysisFundamentals of Risk Analysis
Multiple Risk Mapping - AAL Average Annual Loss (AAL) presents a rational way to integrate
risk associated with various hazards.
An AAL value is calculated in each cell for any desired factor (e.g., Loss of housing units, economic loss, casualty, etc.).
Cell
Hazard
Earthquake (AAL) Flood (AAL) Earthquake & Flood (AAL)
Housing Units
Economic Loss (1000$)
Casualties
Housing
Economic Loss (1000$)
Casualties Housing Units
Economic Loss (1000$)
Casualties
1 10 150 5 5 90 3 15 240 8
2 15 300 14 25 50 15 40 350 29
3 30 130 20 5 70 6 35 200 26
4 1 20 5 10 20 8 11 40 13
5 0 35 0 27 14 15 27 49 15
6 5 12 2 4 10 2 9 22 4
7 8 50 1 7 35 1 15 85 2
Total 69 697 47 83 289 50 152 986 97
8
Risk AnalysisFundamentals of Risk Analysis
Risk Matrix Analysis Risk Matrix presents a visual two-dimensional display of the
“ranking” of the risk for a region: frequency and severity scale that is relevant to the region of interest . The scale will help in interpreting historical experience and translating
expert opinion in a consistent manner.
It is a simple approach for setting priorities.
Severity (Loss)
Frequency
Earthquakes
Draughts
Technological
Floods
Forest Fires
Epidemics
LowVery Low
Medium High Very High
Very HighHigh
Medium
Low
Very Low
Very Low 0.001 100000 0.01 1/10000 Very Low 0.002 500Low 0.01 10000 0.1 1/1000 Low 0.005 200Moderate 0.02 5000 0.5 1/200 Moderate 0.02 50High 0.1 1000 2 1/50 High 0.1 10Very High 1 100 >20 >1/5 Very High 1 1
Very Low 0.001 100000 0.01 1/10000 Very Low 0.002 500Low 0.01 10000 0.1 1/1000 Low 0.005 200Moderate 0.02 5000 0.5 1/200 Moderate 0.02 50High 0.1 1000 2 1/50 High 0.1 10Very High 1 100 >20 >1/5 Very High 1 1
SeverityIndex Percent Rate Percent Rate
Casualty Damage
Very Low 0.001 100000 0.01 1/10000 Very Low 0.002 500Low 0.01 10000 0.1 1/1000 Low 0.005 200Moderate 0.02 5000 0.5 1/200 Moderate 0.02 50High 0.1 1000 2 1/50 High 0.1 10Very High 1 100 >20 >1/5 Very High 1 1
Very Low 0.001 100000 0.01 1/10000 Very Low 0.002 500Low 0.01 10000 0.1 1/1000 Low 0.005 200Moderate 0.02 5000 0.5 1/200 Moderate 0.02 50High 0.1 1000 2 1/50 High 0.1 10Very High 1 100 >20 >1/5 Very High 1 1
FrequencyIndex
ExceedanceProbability
ReturnPeriod
9
Risk AnalysisFundamentals of Risk Analysis
Scenario Analysis
A deterministic risk analysis or a scenario analysis is the process of analyzing the consequences - damages, losses or impacts - from a single postulated hazard event, e.g. a scenario.
Choice between a probabilistic risk analysis and scenario analysis depends on the aims of the study.
Scenarios Analysis (scenarios such as the worst case scenario) can be used in establishing a disaster risk management plan.
Scenario events are not meant predict the next event.
Different scenarios should be “simulated” to develop a comprehensive understanding of the potential impacts.
10
Risk AnalysisFundamentals of Risk Analysis
Loss Estimation Models
1. POTENTIAL HAZARDS
1. POTENTIAL HAZARDS
2. INVENTORY DATA
2. INVENTORY DATA
3. DIRECT DAMAGE3. DIRECT DAMAGE
4. INDUCED DAMAGE
4. INDUCED DAMAGE
5. SOCIAL LOSSES
5. SOCIAL LOSSES
6. ECONOMIC LOSSES
6. ECONOMIC LOSSES
7. INDIRECT LOSSES
7. INDIRECT LOSSES
Loss estimation software packages can be used to identify the risk profiles and risk parameters of a region under the simulated events and display them in maps.
11
Risk AnalysisFundamentals of Risk Analysis
Cost-Benefit Analysis
Cost-Benefit analysis (CBA) is a systematic procedure for evaluating decisions that have an impact on society.
CBA provides comparison between the upfront investment costs of mitigation and the benefits of mitigation.
CBA uses results of risk analysis to ensure effectiveness of protective measures by: Balancing the various interests of the stakeholders, Considering the reasonability (or utility) of measures, and Enabling consensus on strategies and measures to reduce
risks
Clarify objectives At outset, check objectives of conducting a CBA. Combination of scoping exercises, shared learning dialogues
and more qualitative.12
Risk AnalysisFundamentals of Risk Analysis
Cost-Benefit Analysis MethodologyCost-Benefit Analysis in the context of DRM requires:
Assessment of risk, and Assessment of avoided risks.
VulnerabilityExposureFragilityCapacities
Source: Mechler, Reihnard
HazardIntensityRecurrence
Risk Analysis:potential impacts
without risk management
Analysis of riskreduction:
potential impacts withrisk management
13
Net benefitsReduction of the potential
impactsless
Cost of risk reduction
Risk AnalysisFundamentals of Risk Analysis
Participative Risk Analysis A Participatory Risk Analysis is carried
out with the participation of an affected target groups in cooperation with the experts and decision makers.
“Participatory Appraisal” sociological approach of rapid, action-oriented assessment of local knowledge, needs, and potentials. Source: GTZ,
Reconstruction after Hurricane Stan
PRA can be used in: development of disaster emergency plans, arrangement and introduction of early warning systems for
flooding implementation of disaster prevention exercises, development of prevention-based planning methods, in which
risk analysis is part of the planning process.
14
Risk AnalysisFundamentals of Risk Analysis
Summary Probabilistic concepts
Uncertainty, Return Period, Exceedance Probability, Loss-Frequency Curve, AAL.
Probabilistic Risk Analysis: All potential impacts corresponding to a specific return period is
assessed.
Scenario (or Deterministic) Analysis/Loss Estimation Models Impact assessed for a postulated event over a defined spatial area.
Risk Indexing/Mapping Key indicators of risk are aggregated in order to set priorities.
Risk Matrix Analysis: Visual two-dimensional display of the “ranking” of the risk.
Cost Benefit Analysis Upfront investment costs of mitigation vs. the benefits of mitigation.
Participative Risk Analysis15