Risk assessment

Risk assessment is the determination of quantitative or qualitative estimate of risk related to a well-defined situation and a recognized threat (also called hazard). Quantitative risk assessment requires calculations of two components of risk (R): the magnitude of the potential loss (L), and the probability (p) that the loss will occur. An acceptable risk is a risk that is understood and tolerated usually because the cost or difficulty of implementing an effective countermeasure for the associated vulnerability exceeds the expectation of loss. "Health risk assessment" includes variations, such as risk as the type and severity of response, with or without a probabilistic context.

In all types of engineering of complex systems sophisticated risk assessments are often made within safety engineering and reliability engineering when it concerns threats to life, environment or machine functioning. The agriculture, nuclear, aerospace, oil, rail and military industries have a long history of dealing with risk assessment. Also, medical, hospital, social service and food industries control risks and perform risk assessments on a continual basis. Methods for assessment of risk may differ between industries and whether it pertains to general financial decisions or environmental, ecological, or public health risk assessment.

Risk assessment consists of an objective evaluation of risk in which assumptions and uncertainties are clearly considered and presented. Part of the difficulty in risk management is that both the quantities by which risk assessment is concerned – potential loss and probability of occurrence – can be very difficult to measure. The chance of error in measuring these two concepts is high. Risk with a large potential loss and a low probability of occurrence is often treated differently from one with a low potential loss and a high likelihood of occurrence. In theory, both are of near equal priority, but in practice it can be very difficult to manage when faced with the scarcity of resources, especially time, in which to conduct the risk management process. To see this expressed mathematically, one can define total risk as the sum over individual risks, ${\displaystyle R_{i}}$, which can be computed as the product of potential losses, ${\displaystyle L_{i}}$, and their probabilities, ${\displaystyle p(L_{i})}$:

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