Contributions to risk management : On the balance between value creation and protection

Abstract

The overall objective of this thesis is to contribute to new knowledge in risk management. More concretely, the research relates to one of the main tasks of risk management: to obtain an appropriate balance between value creation on the one hand and protection on the other. Risk management is considered to be all activities and measures carried out to manage the risk. The main purpose is to support the balancing of the conflicts inherent in exploring opportunities, creating values and development, on the one hand, and avoiding losses and accidents on the other. Many of the situations we face, however, involve high risk and uncertainty, making it challenging to predict the outcomes of our decisions and to obtain an appropriate balance between different concerns such as risk and socioeconomic profitability. Various strategies can form the basis for supporting risk management and decision-making under uncertainty, using different tools and approaches. To adequately inform the decision-makers about the risks and uncertainties, we need to make sure that the strategy we apply, and the approaches and principles that follow, are appropriate for the decision-making context and capable of capturing the relevant uncertainties. This is not straightforward, and there is a need to continuously develop the approaches we use to support the decision-makers. At the same time, we need to acknowledge the fact that the tools we use are just tools, with strong limitations. The quality of the produced decision support, then, relates to the quality of the background knowledge, on which the analyses and evaluations are based. To obtain good quality background knowledge, however, is not always straightforward. The thesis contributes to this end by exploring approaches, principles and underlying ways of thinking related to how we can obtain the appropriate balance between value creation and protection, and by producing new knowledge to support that balance in a specific domain. The scientific contribution of the thesis consists of seven papers. The content and contribution of the seven papers are summarised in the following. In risk management, different strategies can be applied to support the tasks. The strategy refers to the underlying way of thinking and the principles that follow. Amongst the principles, ALARP is central. According to the ALARP principle, risks should be reduced to a level that is As Low As Reasonably Practicable, meaning that risk-reducing measures should be implemented unless the costs are grossly disproportionate to the obtained benefits. By large, however, observations from the industry and literature indicate that analysts focus on single measures in isolation when using the ALARP principle to support decision-making. This underlying way of thinking might lead to misguided decisions: it does not consider that safety measures do not always give the intended effect, as offset effects can occur, and the weight given to the cautionary principle might be inappropriate, given the decision-making context. Paper I discusses and illustrates the importance of systems thinking when using the ALARP principle to guide decision-making under uncertainty. Systems thinking has a role to play, as it enhances the understanding of the decision-making context. Enhancing the understanding and knowledge of a risk-related problem is essential for risk management. The available knowledge (justified beliefs) forms the foundation on which risks are assessed. Different methods exist on how to evaluate the strength of the knowledge, but there is a gap in the literature with respect to methods useful for the identification of relevant knowledge, and an arbitrary approach does not appear to be optimal. Paper II suggests a framework, using a systems approach, to identify and assess the background knowledge, as a means to reduce the risk of missing relevant knowledge and obtain more complete background knowledge, on which risk can be assessed. If we are unable to capture all the relevant knowledge, such as hidden assumptions, the result is incomplete background knowledge, which hampers risk management and the balance between value creation and protection. The available background knowledge needs to be considered in a risk assessment, to inform the decision-makers on, for example, what assumptions the analysts made and what the risk assessment represents. The uncertainties and knowledge need adequate treatment and reflection, in order to produce informative decision support. Paper III contributes to this end and illustrates how the knowledge dimension can be integrated with a risk-based approach, supporting decisions about permanent plug and abandonment of offshore oil and gas wells. The objective of the original approach is to evaluate leakage risk from offshore wells on the basis of consequences and probability, in order to justify more costeffective solutions than the prescriptive ones. Creating cost-effective solutions, however, does not justify less focus on risk and uncertainties, and Paper III suggests an improved approach, which strengthens the decision support on the leakage risk by highlighting the uncertainties, assesses the risk of deviation from the assumptions and reflects the knowledge base. The adoption of safety measures, such as barriers in an offshore well, is an essential activity of risk management. At the same time, it is well known that safety measures do not always give the intended effect, as new safety measures are sometimes offset by other system components. This is problematic for the balance between value creation and avoiding losses, as any company has limited resources for safety expenditure. This implies a need for proper consideration of economic concerns. However, economic evaluations are usually made with sole reference to expected values, in which no or limited weight is given to the cautionary principle. The use of expected values is rational given the portfolio theory, but, at the same time, expected values should be used with care in risk management, as the uncertainties and cautionary principle need stronger weight than what the frame of expected values supports. Papers IV and V discuss and illustrate why traditional economic tools need stronger weight on the cautionary principle when applied in a risk context. Paper IV discusses foundational issues of the use of socioeconomic profitability as a prerequisite for investments in security measures, while Paper V discusses the application of the return of investments in safety (ROSI) measure in the chemical industry. Without considerations of uncertainty and background knowledge, the economic tools might produce misguided decision support, hampering the balance of different concerns. There is an increasing awareness of the importance of the knowledge dimension in the risk science field, in relation to managing risk. The knowledge dimension is split into general knowledge and specific knowledge. The former covers all knowledge available for related activities, whereas the latter covers specific knowledge of activities. For example, to improve patient safety in the emergency medical services, we need to know what can go wrong and why (i.e. general knowledge), but, at the same time, we need to make sure that necessary measures, such as a training programme, are implemented and functioning as intended in the emergency medical services (i.e. specific knowledge), especially when the risk management is subject to scarce resources. Papers VI and VII contribute to the latter, by producing new knowledge about the frequency of training in non-technical skills in the Norwegian emergency medical services. The studies indicate that training has had a positive effect, as the frequency of training in non-technical skills among the personnel in the helicopter emergency service has increased over recent years, and that there is a potential for learning and knowledge sharing between the two emergency medical services. This new specific knowledge provides input to evaluations and future practices of the training programmes, and to increase the general knowledge, which can assist the prehospital services in obtaining an appropriate balance between value creation and protection.