The real value of risk thinking is that it takes into account not only the consequences of a hazard, but also how likely that event might be. An event like a lightning strike might have very severe consequences, but in most places it’s not very likely to happen, so the level of risk is low. But, If you live at the top of a hill in thunderstorm alley, then it’s much more likely that you’ll get hit by lightning, so whilst the consequence is the same, based on where you live, the risk may be much higher. Similarly, the consequences of a flood event might be less severe than getting hit by lightning, but if you live in an area that’s prone to flooding on a regular basis, then the risk level posed by flooding might be higher than that of getting hit by lightning, even though the consequences are less severe.
So to calculate a level of risk, first of all we need to define the consequence and then try to find out or estimate how likely that is to happen.
Risk can usually be defined by a simple equation:
Risk = Consequence x likelihood
As I said earlier, risk and reward are like two sides of the same coin, so if risk is consequence times likelihood, then the associated reward would be defined by; benefit x likelihood.
In financial risk calculations, actual numbers are used in these equations, but for health and safety risks, home emergency risks or any risk that isn’t easy to represent with a number, descriptive terms can be used.
Often, particularly in health and safety risk, a risk matrix can be used to calculate and represent a level of risk. A risk matrix will have pre-defined descriptive scales for consequence and likelihood and is a simple, easy to use visual tool that can help to identify which risks are more, or less, critical to deal with. Clearly the risks that sit in the red area are the ones that we would need to place extra attention on and the risks in the green area are generally going to be ones that we don’t pay much notice of.
So, in this green area we have the low consequence, low probability risks, and in general we’re going to be happy to take those risks. In the red area we have the high consequence, high probability risks, that we’re going to try hard to avoid. Somewhere in the middle of this orange area will be a line that divides the risks that we are happy to tolerate and the risks that we are not comfortable with. This line of risk tolerance will be in a different place for everybody and will probably change over time too.
The risks that fall higher up the scale are the ones that we need to prioritise. There’s no point concentrating on a risk that is very unlikely to happen, when there are other risks that might cause problems on a monthly or seasonal basis.
For most risk situations, outside of a workplace, we’re not going to use a risk matrix, but the actual risk decision-making will be the same. Identify the consequences, then decide on how likely you think that is to happen. After that you’ll have a fairly good idea of how high risk of an activity you’re considering. At that point you have to then think of the rewards that you’re taking that risk for. If the risk outweighs the rewards, don’t take that risk. If the reward outweighs the risk, then you should probably bite the bullet and take that risk!
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