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WBI Risk Analysis

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Instruments and Approaches in Risk Analysis Session 3 Dr. Bijan Khazai Risk Analysis Fundamentals of Risk Analysis * – PowerPoint PPT presentation

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Title: WBI Risk Analysis


1
Instruments and Approaches in Risk Analysis
Session 3 Dr. Bijan Khazai
Risk Analysis Fundamentals of Risk Analysis
2
Learning objectives
  • Learn
  • Probabilistic concept of risk.
  • Concepts of return period, loss-frequency curve,
    average annual loss.
  • Sources of uncertainty in risk analysis.
  • Understand
  • Difference between probabilistic and
    deterministic risk analysis.
  • Outcomes of a scenario analysis.
  • Depiction and ranking of risk through risk matrix
    and risk indexing.
  • Components of a loss estimation model.
  • Methodology of a cost-benefit analysis.
  • Uses of a participatory risk analysis.

3
Risk
  • There are two approaches to defining risk
  • Probabilistic Approach
  • Risk is defined as the likelihood (i.e.,
    probability) of sustaining a certain level of
    loss during a given time period.
  • Risk Probability of an event occurring x impact
    of the event
  • Deterministic Approach
  • The geographical distribution of the severity of
    loss due to the occurrence of a postulated event
    (i.e., Scenario).

4
Probabilistic Risk Analysis
  • Probabilistic Risk Assessment answers three basic
    questions
  • What and where are the initiators or initiating
    events?
  • What and how severe are the potential
    consequences?
  • How likely will these consequences occur
    (probability or frequency)?
  • In a PRA, risk is characterized by two
    quantities
  • The magnitude (severity) of possible adverse
    consequences
  • The likelihood (probability) of occurrence of
    each consequence

Value and Fragility of Exposed Assets
x

1
5
10
Probability earthquake intensity will be exceeded
during a particular time period (T 200 yrs)
Probable losses (Billions Euros)
5
Uncertainty
  • Estimating risk is fraught with lots of
    uncertainty.
  • Dealing with uncertainty is the essence of risk
    analysis..
  • Uncertainty is the state of having limited
    knowledge.
  • In probabilistic risk analysis, we can account
    for uncertainty.
  • Uncertainties are inherent (for example) in

6
Return Period
  • Return period also known as a recurrence interval
    is an estimate of the interval of time between
    events.
  • An event with a 100-year recurrence interval will
    on average only occur once every 100 years.
  • Return period (RP) is the inverse of the
    probability that the event will be exceeded in
    any one year (Exceedance Probability, EP).

Return Period, in years (RP) Probability of occurrence in any given year Annual Probability of Exceedance (EP) Probability of Exceedance in 50 years
500 1 in 500 0.2 10
200 1 in 200 0.5 25
100 1 in 100 1 50
50 1 in 50 2 100
10 1 in 10 10 500
7
Exceedance Probability Curve
  • The key relationship in managing risk is the
    exceedance probability (loss frequency) curve,
    which represents the relationship between
    frequency (Exceedence Probability) and severity
    (amount of losses).
  • Area under curve Average Annual Losses (AAL)

AAL ? probability that event occurs loss
associated with event
10
8
6
rare events, apply with caution!
Annual Probability of Exceedance ()
100 year loss (1 EP) US 125 million
4
2
0
50
100
150
200
250
300
0
Loss Amount (US Million)
8
Multiple Risk Mapping - AAL
  • Average Annual Loss (AAL) presents a rational way
    to integrate risk associated with various
    hazards.
  • An AAL value is calculated in each cell for any
    desired factor (e.g., Loss of housing units,
    economic loss, casualty, etc.).

Cell Hazard Hazard Hazard Hazard Hazard Hazard Hazard Hazard Hazard
Cell Earthquake (AAL) Earthquake (AAL) Earthquake (AAL) Flood (AAL) Flood (AAL) Flood (AAL) Earthquake Flood (AAL) Earthquake Flood (AAL) Earthquake Flood (AAL)
Cell Housing Units Economic Loss (1000) Casualties Housing Economic Loss (1000) Casualties Housing Units Economic Loss (1000) Casualties
1 10 150 5 5 90 3 15 240 8
2 15 300 14 25 50 15 40 350 29
3 30 130 20 5 70 6 35 200 26
4 1 20 5 10 20 8 11 40 13
5 0 35 0 27 14 15 27 49 15
6 5 12 2 4 10 2 9 22 4
7 8 50 1 7 35 1 15 85 2
Total 69 697 47 83 289 50 152 986 97
9
Risk Matrix Analysis
  • Risk Matrix presents a visual two-dimensional
    display of the ranking of the risk for a
    region
  • frequency and severity scale that is relevant to
    the region of interest .
  • The scale will help in interpreting historical
    experience and translating expert opinion in a
    consistent manner.
  • It is a simple approach for setting priorities.

10
Scenario Analysis
  • A deterministic risk analysis or a scenario
    analysis is the process of analyzing the
    consequences - damages, losses or impacts - from
    a single postulated hazard event, e.g. a
    scenario.
  • Choice between a probabilistic risk analysis and
    scenario analysis depends on the aims of the
    study.
  • Scenarios Analysis (scenarios such as the worst
    case scenario) can be used in establishing a
    disaster risk management plan.
  • Scenario events are not meant predict the next
    event.
  • Different scenarios should be simulated to
    develop a comprehensive understanding of the
    potential impacts.

11
Loss Estimation Models
Loss estimation software packages can be used to
identify the risk profiles and risk parameters of
a region under the simulated events and display
them in maps.
1. POTENTIAL HAZARDS
2. INVENTORY DATA
3. DIRECT DAMAGE
4. INDUCED DAMAGE
5. SOCIAL LOSSES
6. ECONOMIC LOSSES
7. INDIRECT LOSSES
12
Cost-Benefit Analysis
  • Cost-Benefit analysis (CBA) is a systematic
    procedure for evaluating decisions that have an
    impact on society.
  • CBA provides comparison between the upfront
    investment costs of mitigation and the benefits
    of mitigation.
  • CBA uses results of risk analysis to ensure
    effectiveness of protective measures by
  • Balancing the various interests of the
    stakeholders,
  • Considering the reasonability (or utility) of
    measures, and
  • Enabling consensus on strategies and measures to
    reduce risks
  • Clarify objectives
  • At outset, check objectives of conducting a CBA.
  • Combination of scoping exercises, shared learning
    dialogues and more qualitative.

13
Cost-Benefit Analysis Methodology
  • Cost-Benefit Analysis in the context of DRM
    requires
  • Assessment of risk, and
  • Assessment of avoided risks.
  • Hazard
  • Intensity
  • Recurrence

Analysis of risk reduction potential impacts
with risk management
Risk Analysis potential impacts without risk
management
  • Vulnerability
  • Exposure
  • Fragility
  • Capacities

Net benefits Reduction of the potential
impacts less Cost of risk reduction
Source Mechler, Reihnard
14
Participative Risk Analysis
  • A Participatory Risk Analysis is carried out with
    the participation of an affected target groups in
    cooperation with the experts and decision makers.
  • Participatory Appraisal sociological approach
    of rapid, action-oriented assessment of local
    knowledge, needs, and potentials.

Source GTZ, Reconstruction after Hurricane Stan
  • PRA can be used in
  • development of disaster emergency plans,
  • arrangement and introduction of early warning
    systems for flooding
  • implementation of disaster prevention exercises,
  • development of prevention-based planning methods,
    in which risk analysis is part of the planning
    process.

15
Summary
  • Probabilistic concepts
  • Uncertainty, Return Period, Exceedance
    Probability, Loss-Frequency Curve, AAL.
  • Probabilistic Risk Analysis
  • All potential impacts corresponding to a specific
    return period is assessed.
  • Scenario (or Deterministic) Analysis/Loss
    Estimation Models
  • Impact assessed for a postulated event over a
    defined spatial area.
  • Risk Indexing/Mapping
  • Key indicators of risk are aggregated in order to
    set priorities.
  • Risk Matrix Analysis
  • Visual two-dimensional display of the ranking
    of the risk.
  • Cost Benefit Analysis
  • Upfront investment costs of mitigation vs. the
    benefits of mitigation.
  • Participative Risk Analysis
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