IND 205 Lesson # 2 Risk & Risk Taking

IND 205 Lesson # 2 Risk & Risk Taking • Risk & Risk Taking • TLO #2: Given a scenario where risk is involved, predict the probability of a future event occurring.

IND 205 Lesson # 2 Risk & Risk Taking • ELOs • 1. Define Risk. • 2. Identify a negative future event. • 3. Define Issue. • 4. Give an example of a negative future event occurring. • 5. Predict the probability of a negative future event occurring. • 6. Define confidence level. • 7. Select a confidence level that would be acceptable for a given risk • 8. Determine the consequence of a negative future event. • 9. Explain the Risk Management Process. • 10. Define risk mitigation. • 11. Explain the methods used for Risk Mitigation.

Risk and Risk-Taking • What is “Risk?” It is a negative future event. • Definition(Merriam-Webster) • 1: The possibility of loss or injury : peril • 2: Someone or something that creates or suggests a hazard. • 3: The chance of loss or the perils to the subject matter of an insurance contract; also: the degree of probability of such loss: a person or thing that is a specified hazard to an insurer: an insurance hazard from a specified cause or source <war risk>. • 4: The chance that an investment (as a stock or commodity) will lose value. • A state or condition marked by a high level of risk or susceptibility <patients at risk of infection>.

Risk Exercise • You may use the internet for this exercise. • Put together a presentation on risk (slides, flip charts, demonstration, etc.). • Using the definition of risk provided in this lesson, brainstorm with your team and identify 10 specific examples of risk. You may include examples of the following types of risks: environmental, safety, personal, health, product, financial, design, etc. • For each example, briefly explain why each is considered to be a risk. • Identify where you obtained your information. • Present it to your instructors and your colleagues.

Negative Future Event • A risk is a negative, future event that may cause an execution failure in the program. The probability and consequence can be estimated. • Many good examples of risk were provided in the previous exercise. • There is the probability that a risk or negative future event may not happen. • Probability and consequence will be discussed later in this lesson. • When a risk happens then it becomes an issue.

Definition of an Issue • A risk is something that has not yet happened. • If it has already happened then a risk can become an “issue.” • An “issue” is a risk that has already occurred. It is something that you will have to deal with. • For Example: There is a risk that you will have an auto accident. When the accident happens, it is no longer a risk, it is an issue.

Examples of Risks Becoming an Issue • The Stock Market crashes and your investments are worthless. • You have a heart attack. • You loose your diamond engagement ring. • The compressor in your refrigerator fails. • The RMS Titanic hits an iceberg and sinks. • You are hit by a bolt of lightning. • You don’t win at the roulette table.

Probability Definition • Definition of PROBABILITY n. (Merriam-Webster) • The quality or state of being probable (see next slide) • Something (as an event or circumstance) that is probable • A branch of mathematics concerned with the study of probabilities; The ratio of the number of outcomes in an exhaustive set of equally likely outcomes that produce a given event to the total number of possible outcomes: The probability of selecting the 5 of hearts is 1 in 52. The chance that a given event will occur.

Probable Definition • Definition of PROBABLE adj. (Merriam-Webster) • Supported by evidence strong enough to establish presumption but not proof <a probable hypothesis> • Likely to be or become true or real <probable outcome> • Accurate predictions depend upon the quality and quantity of the evidence available. • Examples of PROBABLE: • It is probable that a hurricane will hit Florida this year. • It is probable that there will be another earthquake in Los Angeles.

Examples of Probability Lottery Winner • There is a low probability that you will win the lottery. The probability of winning a typical state lottery is 1 in 18 million! • There is a 10% chance of snow today. • The probability of being involved in an airplane accident is 1 in 11 million. • The probability of a coin coming up heads is one out of every two tries.

Consequence Definition • Definition of CONSEQUENCE (Merriam-Webster) • A conclusion derived through logic; an inference, guess, or prediction. An inference is the act of passing from statistical sample data to generalizations with calculated degrees of certainty. • Something produced by a cause or necessarily following from a set of conditions <the economic consequences of the war>

Examples of Consequence • The slightest error in navigation can have serious consequences. • What were the economic consequences of the war? • The decrease in sales was a consequence of bad publicity about the company. • Economists predict that many jobs will be lost as a consequence of the trade agreement. • He weighed the consequences of making a career change. Navigation Error

Making Predictions:Probability Exercise • Predict how many times (out of 100 tries) the DIE number assigned to your group (1, 2, 3, 4, 5, or 6) will occur. Record your prediction before your start. • Directions: Go to: www.random.org/dice/ • This site allows you to roll virtual dice using true randomness. Other web sites may be used to select random rolls of the die. • Using your computer and this web site roll one electronic DIE. Record the number obtained for each of the 100 rolls of the die. • How many times does your number come up? • Based upon your experience with this exercise, what are your thoughts regarding predictions?

Confidence Level • Confidence Level is a statistical measure of the number of times out of 100 that test results can be expected to be within a specified range. For example, a confidence level of 95% means that the result of an action will probably meet expectations 95% of the time. (Barron's Marketing Dictionary)

Selecting a Confidence Level • The confidence level tells you how sure you can be. It is expressed as a percentage and represents how often the true percentage of the population who would pick an answer lies within the confidence interval. The 95% confidence level means you can be 95% certain; the 99% confidence level means you can be 99% certain. Most researchers use the 95% confidence level.

Confidence Level • The confidence interval is the plus-or-minus figure usually reported in newspaper or television opinion poll results. For example, if you use a confidence interval of 4 and 50% of your sample picks an answer you can be "sure" that if you had asked the question of the entire relevant population between 46% (50-4) and 54% (50+4) would have picked that answer.

Confidence Interval • In statistics, a confidence interval is an educated guess about some characteristic of the population. A confidence interval contains an initial estimate plus or minus a margin of error (the amount by which you expect your results to vary, if a different sample were taken). • In the previous slide, the confidence interval was plus or minus 4

Confidence Level • When you put the confidence level and the confidence interval together, you can say that you are 95% sure that the true percentage of the population is between 46% and 54% (50% + or – 4%).

Confidence Level How confident are we that the true population average is in the shaded area? How many standard errors away from the mean must we go to be 95% confident? From -1 to +1=68.2%; from -2 to +2=95.4%; from -3 to +3=99.6% The levels of confidence may be: 90%, 95%, or 99%.

Confidence Level: Low Risk • Low Risk-90%: Class I Medical devices are subject to the least regulatory control. Class I devices are subject to "General Controls" as are Class II and Class III devices. General controls include provisions that relate to adulteration; misbranding; device registration and listing; premarket notification; banned devices; notification, including repair, replacement, or refund; records and reports; restricted devices; and good manufacturing practices. Class I devices are not intended for use in supporting or sustaining life or to be of substantial importance in preventing impairment to human health, and they may not present a potential unreasonable risk of illness or injury. Most Class I devices are exempt from the premarket notification and/or good manufacturing practices regulation. Examples of Class I devices include elastic bandages, examination gloves, and hand-held surgical instruments.

Confidence Level: Medium Risk • Medium Risk-95%: Class II Medical devices are those for which general controls alone are insufficient to assure safety and effectiveness, and existing methods are available to provide such assurances. Special controls may include special labeling requirements, mandatory performance standards and post market surveillance. Devices in Class II are held to a higher level of assurance than Class I devices, and are designed to perform as indicated without causing injury or harm to patient or user. Examples of Class II devices include powered wheelchairs, infusion pumps, and surgical drapes.[ Medium Risk

Confidence Level: High Risk • High Risk-99%: Class III Medical devices are usually those that support or sustain human life, are of substantial importance in preventing impairment of human health, or which present a potential, unreasonable risk of illness or injury. Examples of Class III devices which currently require a premarket notification include implantable pacemaker, pulse generators, HIV diagnostic tests, automated external defibrillators, and endosseousimplants. Used in critical situations such as the manufacture of medicines and medical devices.

Risk Management Process Risk Identification The Risk Management Process Risk Tracking Risk Analysis Root Cause Analysis of the Risks identified Risk Mitigation Planning Risk Mitigation Implementation A Process, Not an Event

Risk Management Risk Mitigation Approaches: • Avoid • Eliminate likelihood or consequence • Assume • Plan for expected consequences • Transfer • Transfer work to an organization better qualified to perform the work • Control (Handle) • Reduce likelihood or consequence

Risk Mitigation Methods Risk Mitigation Approaches: Example-Risk Mitigation for Travelling. • Avoid • Eliminate likelihood or consequence: Don’t travel; stay at home! • Assume • Plan for expected consequences: Assume the consequences of driving your own car (delays, mechanical failure, detour, crash, etc.) • Transfer • Transfer work to an organization better qualified to perform the work: Take a bus, taxi, chauffeured limousine, etc. • Control (Handle) • Reduce likelihood or consequence: Develop a system or process to reduce the likelihood of a risk becoming an issue or consequence. Take a course to improve your driving skills and put it into practice.

Risk Mitigation • A systematic reduction in the extent of exposure to a risk and/or the likelihood of its occurrence. Also called risk reduction. (Business Dictionary) • Risk Mitigation covers efforts taken to reduce either the probability or consequences of a threat. These may range from physical measures (protective fences) to financial measures (stockpiling cash, insurance). www.riskythinking.com

Risk Mitigation & Gov’t Property • The Contractor’s Property Management System is really a Risk Mitigation System. • At the end of this course you will analyze risk management as it applies to Government Property. • You will learn more about how the Contractor’s Property Management System is used to reduce the risk of loss of Government Property. Property Management System Procedures

IND 205 Lesson # 2 Risk & Risk Taking