Risk Management Principles and Application

This is a discussion of safety risk management policy and procedures for implementing safety risk management as a decision making tool. It also discusses the establishment of a Safety Risk Management Committee.

It's important to develop a flexible but formalized safety risk management process for all high-consequence decisions, except in situations deemed to be an emergency. A high-consequence decision is one that either creates or could be reasonably estimated to result in a statistical increase or decrease in personal injuries and/or loss of life and health, a change in property values, loss of or damage to property, costs or savings, or other economic impacts valued at $100,000,000 or more per annum.

The objective of a risk management policy is to formalize a common sense approach to risk management and safety risk analysis/assessment. An organization should use a formal, disciplined, and documented decisionmaking process to address safety risks in relation to high-consequence decisions impacting the complete product life cycle. The critical information resulting from a safety risk management process can thereby be effectively communicated in an objective and unbiased manner to decisionmakers, and from decisionmakers to the public.

Risk managers should maintain safety risk management expertise appropriate to their operations, and should perform and document the safety risk management process prior to issuing the high-consequence decision. The risk manager should determine the documentation format. The approach to safety risk management is composed of the following steps:

1. Plan. A case-specific plan for risk analysis and risk assessment should be predetermined in adequate detail for appropriate review and agreement by the risk manager prior to commitment of resources. The plan should additionally describe criteria for acceptable risk.
2. Hazard Identification. The specific safety hazard or list of hazards to be addressed by the safety risk management plan should be explicitly identified to prevent ambiguity in subsequent analysis and assessment.
3. Analysis. Both elements of risk (hazard severity and likelihood of occurrence) should be characterized. The inability to quantify and/or lack of historical data on a particular hazard does not exclude the hazard from this requirement. If the seriousness of a hazard can be expected to increase over the effective life of the decision, this should be noted. Additionally, both elements should be estimated for each hazard being analyzed, even if historical and/or quantitative data is not available.
4. Assessment. The combined impact of the risk elements should be compared to acceptability criteria and the results provided for decisionmaking.
5. Decision. The risk management decision should consider the risk assessment results. Risk assessment results may be used to compare and contrast alternative options.

Principles for Safety Risk Assessment and Risk Characterization

Safety risk assessments, to the maximum extent feasible:

1. Are scientifically objective.
2. Are unbiased.
3. Include all relevant data available.
4. Employ default or conservative assumptions only if situation-specific information is not reasonably available. The basis of these assumptions must be clearly identified.
5. Distinguish clearly as to what risks would be affected by the decision and what risks would not.
6. Are reasonably detailed and accurate.
7. Relate to current risk or the risk resulting from not adopting the proposal being considered.
8. Allow for unknown and/or unquantifiable risks.

The principles to be applied when preparing safety risk assessments are:

1. Each risk assessment should first analyze the two elements of risk: severity of the hazard and likelihood of occurrence. Risk assessment is then performed by comparing the combined effect of their characteristics to acceptable criteria as determined in the plan.
2. A risk assessment may be qualitative and/or quantitative. To the maximum extent practicable, these risk assessments will be quantitative.
3. The selection of a risk assessment methodology should be flexible.
4. Basic assumptions should be documented or, if only bounds can be estimated reliably, the range encompassed should be described.
5. Significant risk assessment assumptions, inferences, or models should:
   • Describe any model used in the risk assessment and make explicit the assumptions incorporated in the model.
   • Identify any policy or value judgments.
   • Explain the basis for choices.
   • Indicate the extent that the model and the assumptions incorporated have been validated by or conflict with empirical data.
6. All safety risk assessments should include or summarize the information gathered. This record should be maintained by the organization performing the assessment.

Analysis of Risk Reduction Benefits and Cost

For each high-consequence decision, the following tasks should be performed:

1. Compare the results of a risk assessment for each risk-reduction alternative considered, including no action, in order to rank each risk assessment for decisionmaking purposes. The assessment will consider future conditions.
2. Assess the costs and the safety risk reduction or other benefits associated with implementation of, and compliance with, an alternative under final consideration.

Substitution Risks

Safety risk assessments of proposed changes to high-consequence decisions should include a statement of substitution risks. Substitution risks should be included in the risk assessment documentation.

Safety Risk Management Committee

A safety risk management committee can provide a valuable service to the organization for safety risk management planning. It can meet periodically to exchange risk management ideas and information. The committee can provide advice and counsel to the managers when requested.

The Safety Risk Management Committee provide a communication and support team to supplement the overall risk analysis capability and efficiency of key managers. The Committee supports safety risk management activities. It provides advice and guidance, upon request from responsible program offices, to help them fulfill their authority and responsibility to incorporate safety risk management as a decisionmaking tool. It serves as an internal vehicle for risk management process communication, for coordination of risk analysis methods, and for use of common practices where appropriate. This includes, but is not limited to:

1. Continuing the internal exchange of risk management information.
2. Fostering the exchange of risk management ideas and information to avoid duplication of effort.
3. Providing risk analysis/management advice and guidance.
4. Identifying and recommending needed enhancements to risk analysis/management capabilities and/or efficiencies upon request.
5. Maintaining a risk management resources directory that includes:
   • Risk methodologies productively employed,
   • Specific internal risk analysis/management expertise by methodology or tool and organizational contact point(s), and
   • A central contact point for resource identification assistance.
6. Encouraging the establishment of a directory of safety information resources via the Internet.
7. Assisting in the identification of suitable risk analysis tools and initiate appropriate training in the use of these tools.

Source: FAA Office of System Safety

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