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Scott Schiller
Jatin Shah

published on

April 2005

Risk exposures often involve potential economic issues that can result in “business interruption” from damage to critical assets or public pressure that can alter or shut down an operation. Strong emotions from stakeholders further complicate risk exposures that involve safety impacts affecting a company’s employees and contractors, as well as the general public. Furthermore, risk exposures that have high-impact potential (catastrophic) create another layer of complexity as some stakeholders’ lose sight of the frequency side of the risk equation. Management teams are forced to toe a fine line in order to balance the needs of the various stakeholders and economically operate their facilities.

Fortunately, quantitative methods are available to help the risk professional evaluate the complex interactions that make many risk exposures difficult to evaluate using just qualitative methods. The more complicated risk exposures, which are often comprised of the high or catastrophic impacts coupled with low to very low frequency, often require the use of quantitative analytical methodologies like Layer of Protection Analysis (LOPA) and/or Quantitative Risk Assessment (QRA) methodology. In addition to providing a better understanding of the risk exposure, QRA provides an objective means to review and compare the relative benefits of potential risk reduction alternatives and forms the basis for economic comparison analysis between such risk reduction alternatives. Incremental risk analysis is used when one needs to clearly show the point of diminishing return when multiple options are available to address the risk exposure. The objective basis of quantitative techniques and the use of relative comparisons provide key insights needed to make decisions around the management of catastrophic risk exposures.

Case studies are provided to illustrate how quantitative analysis techniques are utilized to evaluate risk exposures from “as-is” operations and how these existing risk exposures are modified by potential risk mitigation alternatives. A case study also illustrates how augmenting the QRA study by utilizing incremental risk analysis provided additional insight for the facility decision-makers by making available to them comparison graphics and the support data which depict the point of diminishing returns relative to the viable risk reduction alternatives under consideration.

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