3: Risk Management

Question 1

Define Severity, Likelihood, and Risk:

Answer 1

Severity:
- the degree of harm or potential harm that a risk event could cause

Likelihood:
- the probability of a harm-causing incident occurring

Risk:
- the probability of harm occurring, determined based on the product of severity and likelihood, aka…
RISK = SEVERITY X LIKELIHOOD

Question 2

What is a Hazard? How is it different than Risk?

Answer 2

Hazard is something that has the capacity to cause harm, where’s risk is the probability of harm from the hazard!

Ex/
The cutting blades in a food processor or blender are very shard and represent a hazard

Question 3

What are the three sources of risk?

Answer 3

Preventable:
- risks to be minimized and within an engineer’s or organization’s control

Strategic:
- Risks knowingly accepted with the hopes of greater reward or return

External:
- Risks outside an organization’s control, but still need to be considered and accounted for

Question 4

3 examples; State which one is preventable, strategic, and external:

1. An automotive manufacturer invests in the development of a new engine technology, that if successful, could result in significant profits (but leave the company with no new products next year)
2. Flights of stairs must have handrails, cannot be too steep, stair treads must be a minimum depth, etc. to prevent falls
3. Economics changes such as rapid inflation that result in significant price increases for raw materials and impact consumer spending habits

Answer 4

1. strategic
2. preventable
3. external

Question 5

What are the 5 types of risk?

Answer 5

Safety: health and welfare of people and the environment

Technical: designed and manufactured to ensure the solution works as intended

Project Management: completing a project on time and on budget

Organizational: decision-making and operation of the organization or device

market: correctly understanding market needs and competition

Question 6

What is the risk identification table? How do you set it up? What’s it used for?

Answer 6

Risk identification table: Helpful way to identify and document risks

You set it up by putting sources of risk on x-axis and types of risk on y-axis. Then you have a 3x5 grid that you can categorize risks in

NOTE: THERE IS ONE BLANK SPOT AND THAT IS THE STRATEGIC SAFETY RISK. THERE IS NO STRATEGIC SAFETY RISK EVER!

Question 7

How do you deal with risks?

Answer 7

There is no single risk analysis process
- key is to have a thorough process
- risks should be document and analyzed
- when risks are unacceptable, change is made, product is re-examined,…

Question 8

What is a generic risk analysis process we use in this class?

Answer 8

1. Identify risks
2. conduct the risk analysis
3. Is risk acceptable:
   
   • Risk is acceptable -> monitor and manage
   • Risk isn’t acceptable
4. Can risk be reduced?
   
   • Risk can’t be reduced -> discontinued
   • Risk can be reduced -> Reduce the risk
5. Identify risks (re-evaluate)

Question 9

Why does the feedback loop return to “identify Risks” in our risk analysis process?

Answer 9

Changes made to reduce the risk may introduce new risks in other parts of the design!

Question 10

What is the risk matrix? How do you set it up? What things do you have to think about when using the tool?

Answer 10

Risk matrix: a guide and a tool that represents the significant of each risk visually

Setup: Severity from 1-5 on x-axis
likelihood from 1.5 on y-axis
multiply severity by likelihood for each grid and obtain a number

Things to think about:
- The number scale should never contain a 0

Question 11

What are the 4 approaches to managing risk?

Answer 11

1. Avoid - change what you are doing
2. Mitigate - take steps to minimize the likelihood or severity of the risk (or both). Eliminate, reduce, or contain
3. Transfer - Pass the risk to someone else
4. accept - be willing to live with the consequences

Question 12

4 examples of risk; categorize each into the 4 approaches to managing risk

1. Buy insurance when purchasing expensive or key equipment so that if it falls out of warranty the funds to replace it would be available
2. Building a containment structure around an oil storage tank that prevents oil from polluting the ground in the event that the tanks leaks
3. An oil and gas pipeline routed through a region where drinking water for a community is source - reroute the pipeline to a less ecologically sensitive area
4. marketing a product with a bold unusual flavor combination at a carnival

Answer 12

1. Transfer
2. Mitigate
3. avoid
4. accept