To effectively manage risk, Occupational Safety and Health (OSH) professionals must understand the meaning of risk, opportunity, and uncertainty. These three variables are closely related yet different, and OSH professionals must address them together to reduce uncertainty in decision-making.
What is Risk?
Risk has different definitions and meanings depending on the context. A general description of risk is the probability or likelihood of a harmful, unwanted, or detrimental event. However, the meaning of risk can differ greatly depending on your specific role in an organization.
OSH professionals may define risks as occupational hazards. Production and operational managers may view risks as operational issues – and senior executives may focus on the strategic and financial risks that threaten business objectives.
Over the years, the concept of risk management has evolved. For a long time, companies managed risk through silos, separating departments from each other. But gone are the days of silos and hazard-based compliance. This fragmented way of managing risk has now evolved into Enterprise Risk Management (ERM), which has created a more integrated approach. Different perspectives help reduce or eliminate gaps where risks may overlap between roles and departments. Applying ERM to management systems has made organizations more agile and resilient in achieving their objectives.
What is Opportunity?
Opportunity and risk sit on two sides of the same coin. While risk is primarily considered a negative event, opportunity has a more positive connotation. Opportunity can be defined as the likelihood or probability of a beneficial, wanted, or desirable event. It has a favorable outcome.
Notably, opportunity can’t happen without potential risk. There will always be some kind of risk when organizations pursue a new opportunity. The solution is to balance and manage risk to a tolerable level.
What is Uncertainty?
All decisions made by companies have unknown or known levels of uncertainty. Having some knowledge of the known certainties can significantly increase a company’s success. Uncertainty is the absence or deficiency of knowledge, information, or understanding, resulting in consequences of varying magnitude.
Uncertainty occurs in four ways:
- Epistemic Uncertainty: A lack of relevant knowledge of the system.
- Aleatoric Uncertainty: A random, unpredictable nature exists around the system (e.g., volcanic eruptions, earthquakes, individual reactions to medications).
- Linguistic Uncertainty: A vagueness or ambiguity in the spoken language.
- Decision Uncertainty: Doubts about the impact of values, societal norms, professional judgment, or company values.
Black Swan vs. Gray Rhino Events
Black swan events are catastrophic events that are unexpected in human history at the time of their occurrence. They are mainly unpredictable because there is no history of such an event in the past. Black swan events are low in likelihood, but high in severity (e.g., the September 11th, 2001 terrorist attack in New York).
Gray rhino events are known risks that are not taken seriously and are highly probable with high impacts. However, companies sometimes neglect and ignore these types of events.
It is essential to discern these two types of events because black swan events are often not actually black swan events. Many could have been foreseen and are actually gray rhino events that organizations neglected. Leadership and management should keep in mind that most catastrophic events are a series of less troublesome incidents, which means they can be avoided.
Strategies for Reducing Uncertainty in Decision-Making
With sufficient risk-based information, decision-makers can lessen uncertainty and risk in their decisions.
Here are some strategies organizations can implement to help reduce uncertainty in decision making:
- Reduce the size of the decision to reduce its impact
- Understand the options
- Defer the decision until it’s better understood
- Focus on one decision instead of multiple ones
- Understand the credible worst-case scenario
- Clarify potential outcomes, both positive and negative, including the risk drivers that influence the result
- Be flexible and adaptable, keeping options open and making adjustments as organizations learn new information
- Remain objective and unemotional, maintaining a calm rational mind
For situations where it is challenging to reduce uncertainty, use three methods to gain a better understanding: sensitivity analysis, scenario analysis, and Monte Carlo simulation.
- Sensitivity analysis is to understand how risk estimates and risk-based decisions affect a given set of contributing risk factors.
- Scenario analysis estimates risk levels and consequences of scenarios and their possible outcomes.
- The Monte Carlo simulation is a computer-based method used with statistical samplings to obtain potential solutions to a problem.
Becoming Active and Engaged in Risk Management
Risk, opportunity, and uncertainty are a “package deal,” and organizations should not view them separately. For OSH professionals to become efficient in risk management, they must learn Enterprise Risk Management (ERM) and work from the exact definition of these terms. They must understand each variable and how they may impact the organization as a whole.
Source:
Lyon, Bruce, K., and Popov, G., On the Concept of Risk, Uncertainty, and Black Swans Professional Safety
—
Pandemic Workplace Safety Updates:
What Purcell Enterprises wants you to know
Never have we seen such an upset to our health and economy. I have been keeping apprised of the latest advice and regulations to protect your employees and workplace. We still have spaces available for health and safety audits.
In 2022, these audits will include virtual or zoom interviews, questionnaires, telephone interviews, and electronic documentation to receive a three-year certificate of recognition in Alberta. If it is an electronic, virtual documentation-only audit, the audit is good for only one year. First-time certification documentation audits in Alberta are one year only as well. Companies can print off as many copies of their COR certificates as they require once they pass by logging into their WCB account in Alberta, Canada.
If you are interested, please contact Mary Treadwell at (780) 757-6680 or mary@purcellentreprises.ca to book your appointment.
I am creating this content in appreciation of all my new and existing clients—because, without them, I would not have a business. We are on a journey of creating a difference in all employees’ work lives together!
OH&S Info Line
Barbara Semeniuk, Editor
2051 Tanner Wynd
Edmonton AB, T6R 2R4
Phone: 780-431-1284 (office) or 780-951-0867 (cell). E-mail: bls1284@telus.net