Chapter Eleven - Risk Management

Summary

“[O]ne could prepare, one could strive, one could make choices, but ultimately life was an elaborate game of providence and probability.”

—Author Daniel Silva

Managing risks involves balancing amongst concerns, safety, profits, and reputation in the context of the assessed risks. In general, risk management evaluates a collection of alternatives, considers pros and cons, and then reaches a decision that best achieves the decision-makers’ priorities.

Risk management is closely related to policy analysis and creation. A policy acts as a belief or plan to guide decision-making toward favored outcomes for international organizations, governments, private sector organizations, or individuals. The development and operation of policies are often influenced by risk management practices and decision theory.

Risk assessments often include a combination of strategic risks (long term), tactical risks (medium term), and operational risks (short term). Management priorities and strategies for risks on each of these time scales are typically different, with conflicts arising when near- and long-term strategies have the potential to worsen either the longterm or near-term impacts.

Risks associated with climate change are characterized by large uncertainties and emergence, with complex interplays between emergency and incremental, long-term risks. For such situations, there is a growing focus on dynamic risk assessment and management rather than on conventional risk management and control.4 Particularly for emergent risks, the risks as well as the risk management responses need to be monitored and adjusted.

Risk Management Principles

“The unfortunate reality is that efforts to regulate one risk can create other, often more dangerous risks.” (Legal scholar Jonathan Adler)

Risk management starts with reviewing the results generated by risk estimation, characterization, and assessment. Acceptable risk requires no further management. With intolerable risk, benefits aside, management involves phasing out or eliminating the risk if at all possible. If that is impossible, then mitigation and increasing resilience come into focus. With tolerable risk, while there are perceived benefits, there remains a call for risk reduction. Public risk management for such risks should focus on designing and implementing actions that result in either acceptable risk or create sustainable longterm tolerance via reduction, mitigation, or increasing resilience. and implementing actions that result in either acceptable risk or create sustainable longterm tolerance via reduction, mitigation, or increasing resilience.