Risk Assessments

1. Risk Assessments

2. Risk Assessment • Read each trait description. Be aware that looking for hidden meanings will not improve the value of your self-rating. Your first reaction is probably your best. • Part I: Mark whether you Agree or Disagree with the statements. • Parts II and III: Follow the instructions.

3. Scoring Part I Give yourself one point for each of the following statements with which you agree: 2, 3, 4, 5, 10, 13, 14. Give yourself one point for each of the following statements with which you disagree: 1, 6, 7, 8, 9, 11, 12, 15. Calculate your total.

4. Scoring Parts II and III • Add up the number from each column in Part II and place the totals next to the matching letter. From Part III, add up the number of responses for each letter, multiply by 2 and place the number in the line under Part III

5. Summary Parts II and III Risk Style • A – AVOIDERS • B - DAREDEVILS • C - ADVENTURERS • D - CALCULATORS

6. Avoiders • This style is extremely cautious about anything new. They tend to be very suspect of anything that isn't proven and in practice for many years. • Risk and change are very difficult for this style to accept. Given enough sound information and others who have successfully experienced risk, these styles will cautiously try new things. • Often this group of avoiders is also very quiet and reserved. Much probing and simple questions are needed to determine how they feel about a situation. They need time and data to accept “risks.”

7. Daredevils • If something even hints that it might have a chance of being successful they will give it a try. They do things quite spontaneously . They may not want to keep doing things the "same old way" because it becomes somewhat boring. They embrace risk/change. • This risk style has a great ability to figure things out and to solve crisis situations. Thus, their propensity for risk is higher than any of the other styles. However, their ability to get out of the problems caused by excessive risk taking might cause them to fail.

8. Adventurers • This style does accept/enjoy taking risks, but they like to have most of the answers up front. Sometime best innovators because they have a great ability to visualize. They study, collect information, and then plunge into the new endeavor or practice • Like the daredevil, they often enjoy the fun of risk. The difference is that this style takes the time to study the situation carefully before plunging into something new. • This group is often called our intellectual risk takers because they will plan and strategize before plunging full bore into the new area.

9. Calculators • Calculator styles are the risk takers that are somewhat conservative but willing to learn. They recognize that risk is necessary and it is important to change in a calculated way to keep risk low. This style tries to find out all the answers before they jump into something new or different. Their decisions almost always take into consideration their family. Not usually the first, but rarely the last to change. • This group does not "gamble" much, preferring to develop and work a plan. In their planning process, they are willing to build in some risk and may even view risk as a positive part of their management

10. Analysis: Part I • Part I is a measure of overall (business/career) “risk tolerance”. • Someone giving a pro-risk response on all inventory items would agree with the following beliefs and assumptions about risk taking, which correspond to the items in the inventory:

11. 1. Taking risks makes good sense only in the absence of acceptable alternatives. Disagree. Risk by choice, not just by necessity; chosen risks usually benefit you much more than forced ones. Analysis: Part I

12. Analysis: Part I • 2. I generally prefer stimulation over security. • Agree. Security is a myth; professional stimulation (challenge, growth, or excitement) is worth the cost.

13. 3. I have confidence in my ability to recover from my mistakes, no matter how big. Agree. A way out of almost any risk-taking problem can probably be found or created, including a way to survive "the worst," if it actually happens. Analysis: Part I

14. 4. I would promote someone with unlimited potential but limited experience to a key position over someone with limited potential but more experience. Agree. Conventional personnel management practices like promoting someone on the basis of past experience, produce average results, if more certain performance; unconventional management practices like promoting someone on the basis of his or her potential, produce unconventional results, such as outstanding, if less certain, performance. Analysis: Part I

15. 5. Anything worth doing is worth doing less than perfectly. Agree. Risk taking is typically a messy, fast-moving, make-it-up-as-you-go, very imperfect process, no matter how well you plan or implement it; waiting until you can risk near-perfectly means seldom risking, or missing the best window of opportunity for risking. Analysis: Part I

16. 6. I believe opportunity generally knocks only once. Disagree. No matter how many times your risks fail, there will always be another opportunity to risk again, and perhaps succeed the next time. The ratio of wins to losses matters little in the end. Risk takers know that what counts most is the net value of wins as compared to losses in an acceptable period of time. Analysis: Part I

17. 7. It is better to ask for permission than to beg for forgiveness. Disagree. While getting permission is always a smart approach, some management risks have to be launched without prior approval; if it succeeds, no apologies are needed; if the risk fails, and it was legitimate and responsibly undertaken, you will probably be forgiven anyway. Analysis: Part I

18. 8. Success is as much a matter of luck as ability. Disagree. Luck always helps, but you create your own luck by taking risks and betting on yourself. Your own ability contributes to making things happen the way you want them to happen. "You have to be in it to win;” that means taking risks and not depending just on random circumstances, events, or other people (but you should still consider that random things happen). Analysis: Part I

19. 9. Given a choice, I would choose a three-thousand-dollar annual raise over a ten-thousand-dollar bonus, which I had about a one-in-three chance of winning. Disagree. The bigger the risk, the bigger the reward, so go for the riskier choice if it offers a greater payoff; believe in your own ability to produce results, especially when you have pivotal control of the outcome, as with your job performance. Analysis: Part I

20. 10. I can handle big losses and disappointments with little difficulty. Agree. Failure and loss should be viewed as learning experiences that will pay off in the long term. What you learn from your risk-taking mistakes is what makes risks worth taking. Learning anything new is a matter of doing things wrong until you get them right. Analysis: Part I

21. 11. If forced to choose between them, I would take safety over achievement. Disagree. For an organization, achieving something worthwhile usually requires venturing into unsafe territory. Being satisfied with average achievements, a standard of mediocrity, allows you to stick with the safe, sure, and secure; being dissatisfied with anything less than outstanding, a standard of excellence, forces you to relinquish the safe, sure, and secure. Analysis: Part I

22. 12. Failure is the long way to success. Disagree. Succeeding means having a modest share of failures, if only because producing outstanding results requires taking risks, many of which will fail. The trick is not to fail too catastrophically and not to always fail. Analysis: Part I

23. 13. I tolerate ambiguity and unpredictability well. Agree. Ambiguity and unpredictability permeate and complicate risk taking; those able to cope with these constraints will do well at risk taking, or at least better than those who can't. Analysis: Part I

24. 14. I would rather feel intense disappointment than intense regret. Agree. You always feel good about yourself when you risk sensibly and boldly, even when you fail, for you sustain and expand your self-esteem and earn the respect of others. Risking and then failing means never having to blame yourself for lacking the courage to try. Better to feel the disappointments of risking than the regrets of not risking. Analysis: Part I

25. 15. When facing a decision with uncertain consequences, my potential losses are my greatest concern. Disagree. When risking, keep one eye on the potential losses and one on the potential gains, instead of focusing obsessively on what you can lose. Risk to secure gains, as well as to prevent losses. Analysis: Part I

26. RISK ASSESSMENTS Consequences of new technologies (e.g. nuclear, chemical) are often unfamiliar, delayed, not suited to trial-and-error. Development of these complex technologies has given rise to discipline of risk assessment. Risk assessments attempt to aid in identifying, characterizing, and quantifying risk.

27. EXPERT: quantitative LAYPERSON: intuitive

30. A Comparison of Shark Attack Fatalities with Dog Attack Fatalities in the U.S.: 2001-2007 Shark Attack Fatalities: 6 Dog Attack Fatalities: 175 Source of fatal dog attack statistics: National Canine Research Foundation/www.dogbitelaw.com.   Source of shark attack data: International Shark Attack File, August 12, 2008.

31. Probability & Risk:Many people overestimate “RISK” and Reward because they don’t understand probability.Like you they have not had a course in probability. What then? Simple probability (I.e. chance): What’s P of event X? Often its estimated by simple counting & fractions. Conditional probability: What’s P of event X if Z happens?

32. p=.99 then p500 is less than .0001 • If p=.999 p500 is about 60% Overestimate probability of compound (conjunctive) events • 2-stage lottery; • odds of a breakdown in a complex system • ballistic missile with • 500 subsystems. Each has 99% reliability • What’s chance it will work on 1st attempt? • What if 99.9%? If events independent with prob p overall probability of n all events is pn

33. Underestimate probability of disjunctive events • What’s odds drawing 4 colored marbles in urn with 10 colored & 10 white? • What’s odds of event x happening again once it occurs (machine failure; limited nuclear war)

34. Simple P(x): Prob. of event x If there are w possible outcomes of why y lead to x the P(x) is y/w. Conditional P(x|z) Prob of event x if z happens? To estimate P(x) from P(x|z) we need both P(z) and dependence between x and z. Most people get conditional Probability wrong. What is simple probability? conditional probability? • People don’t know p(x) & don’t get data. Without it cannot estimate risks associated with X. • Pay close attention to probability of prior (p(z)) and it’s impact on p(x|z) • Even if you cannot compute them, how can your avoid bias in your estimates?

35. Common bias: “confusion of the inverse” • Probability of a compound event • Given the the prior probability odds that lump in a breast is malignant is .01 (1/100) • And a test for malignancy is 80% accurate with 10% false detection rate. • What are the chances of malignancy when a lump is detected/tested as positive?

36. Not just your bias! • 95 out of 100 physicians responded the probability of malignancy would be around 75%, apparently because the physicians believed that the chances of malignancy given a positive test result were approximately the same as the chances of a positive test result given malignancy. • Most people get it wrong as the see it as extremely likely since detection rate is 80% accurate.

37. Correction the confusion • P(M) = Prob malignant • P(B) = Prob Benign • P(M|pos) = P(pos|M)P(M) _ • P(pos|M)P(M) + P(pos|B)P(B) • P(M|pos) = (80 * .01) _ • ((.80 * .01) + (.10 * .99) • P(M|pos) = 0.075 = 7.5%

38. How to avoid inversion bias? • Confusion of the inverse, also called the conditional probability fallacy, is a logical fallacy whereupon a conditional probability is equivocated with its inverse • Think through what is being implied by what. A implies B, given B is true says NOTHING about A without more information on the relationship. • Pay close attention to PRIOR Probabilities and take a course in probablility/stats and learn Bayes Rule

39. Perceptions of randomness • Unlikely “coincidences” • Carl Jung “synchronicity” • divine intervention

40. Can people recognize random series? • Not really • Experts judged series with .40 probability of repetition as • “most random”

41. Rate probability of outcome will occur: If betting on red/black with no knowledge they assume 50/50 If they they are told the rate is not equal, they estimate pretty well on red/black. But: if it is testing smiling vs frowning cards. if 70% cards smiling face, the average prediction is 68% cards are smiling If 70% cards frowning faces, average prediction is only 57.7% would be frowning 2nd probability bias: “positive outcomes judged more likely”

42. What if it’s a prediction about yourself? • What’s LIKELIHOOD you will experience positive events compared to your pears? (15% more likely compared to others) • ...to experience negative effects? (20% less likely) • (Weinstein, 1980) Related to but separate from “Illusory superiority”, a.k.a. the Lake Wobegon effect

43. CONSERVATISM • “Once people form a probability estimate, they are often slow to change the estimate given NEW INFORMATION” • “takes 2-5 observations to do one observation’s worth of work in inducing change of opinion (Edwards,1968:18)

44. Perception of Risk • “Smoking 1.4 cigarettes increases odds of death by same amount as living within 20 miles of nuke power plant for 150 years(Wilson,1979) • So why do people continue to smoke?

45. People more likely to accept “voluntary risk” 3 dimensions or types of RISKS (Slovic, 1987:283): 1: dread risk - perceived loss of control 2: unknown risks - unobserved or delayed (gene splicing) 3: No. of people exposed to risk Subjective nature of “risk”

46. LAY People: Influenced by catastrophic potential and threat to future generations in estimating actual risks EXPERTS Better job at estimating actual risks Use more data not just feelings Expert Vs Novice differences: Risk Estimates

47. After false alarm that caused 100 B-52 to go on high alert: Most opponents of nuclear deterrence reported feeling LESS SAFE Most supporter confidence in system INCREASED Similar reactions Chernobyl nuclear accident….> Radiation, and political, fall-out from this accident was a factor fueling democracy movement in C. & E. Europe Do accidents make us safer?(reactions to near misses…>reinforces prior attitudes)

48. BUT HOW SHOULD RISK BE MEASURED? Based on financial loss? Injury? Loss of life expectancy? Death? Some combination of these factors?

49. How risk is operationalized in a risk assessment is inherently value-laden and subjective (Slovic 1999:6).

50. “Danger is real, but risk is socially constructed”