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Risk Assessment Basics

This module explains the basics of risk assessment, its uses as a decision-making tool, and provides resources and tools. It covers the categories of risk, defines risk in terms of probability, vulnerability, and value, and explains the role of benefit-cost analysis in risk assessment.

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Risk Assessment Basics

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  1. Risk Assessment Basics Content Developed by Steve Pardue, Antares Planning Group, LLC Amended by Caroline Cunningham, AICP Stantec Natural Hazard Mitigation Association

  2. Purpose of Module • Explain the basics of risk assessment • Highlight uses as a decision-making tool • Provide resources, including documents and tools

  3. Learning Objectives • Explain why risk assessment is an essential element in Disaster Risk Reduction decision-making processes • Identify the categories of risk • Define risk in terms of probability, vulnerability, and value • Explain the role of benefit-cost analysis (BCA) in risk assessment

  4. Risk and Risk Assessment How do you define Risk? What is Risk Assessment?

  5. Risk and Risk Assessment How do you define Risk? • Risk is the future effects of an event or series of events on a community What is Risk Assessment? • In the context of natural hazards, risk assessment means organizing and counting future effects of an event or series of events on a community

  6. Risk Assessment and Risk Perception

  7. How Can We Solve the Problem of Inaccurate Perceptions of Risk? • Formal risk assessments provide a structure for understanding potential damages (the risk) • Structured risk assessment helps to tune out subjective things and focus on information that can be measured and characterized

  8. A Word about Benefit-Cost Analysis (BCA)

  9. What Hazards Can Be Evaluated?

  10. Risk Assessment Process

  11. Risk Assessment Source: Ready.gov

  12. How are Risk Assessments Used? • Traditional • Businesses/operations • Healthcare • Non-traditional • Company Siting • Politics

  13. Some Reasons for Performing Natural Hazard Risk Assessment • Comparing Effects • Single hazard on different elements in a community • Different hazards on one element • Prioritizing mitigation alternatives • Characterizing the effects of hazards in common terms (standard language) • Resource allocation

  14. A Definition of Risk Risk = Probability X Vulnerability X Value

  15. “Proving” the Value of a Project A project must: • Return more in cost savings over its expected life than it costs initially • Be appropriate to the disaster damage • Prevent future similar damage • Be directly related to the eligible damaged elements • Not increase risks or cause adverse effects to the property or elsewhere

  16. BCAs = Two Comparative Risk Assessments Divided by Cost • FEMA uses BCA to fulfill the Stafford Act requirement • Except for the Pre-Disaster Mitigation Grant Program (PDM), FEMA generally does not use BCA results to prioritize projects

  17. How is Risk Characterized?

  18. Monetize Risk $$$ • The most common standard for conveying risk is in terms of money • This enables us to compare risks for different kinds of things that can be damaged

  19. The Uncertainty Question Well, you know there are some things that you can’t quantify, so what’s the purpose of going through all this?

  20. Risk Assessment Is Not Perfect “Democracy is the worst form of government, except all the others” – Attributed to Winston Churchill

  21. Reliability and Consistency • Reliable data is crucial to the accuracy of risk assessment • It is important to explain any weaknesses in information to decision makers

  22. What are the Categories of Risk?

  23. What is Probability? Risk = Probability X Vulnerability X Value • Probability is defined as the likelihood some specific event will happen in a particular span of time

  24. Probability: The Most Common Example FIRM section generated for Gainesville, Florida using the FEMA Flood Map Service Center

  25. However… Flood Profile, FEMA MSC

  26. Flood Profile Graph: A Closer Look Flood Profile: Santa Fe River, Gainesville, FL; FEMA Flood Map Service Center

  27. Flood Profile Graph: A Closer Look (2) Flood Profile

  28. FEMA Risk MAP Flood Risk Products FEMA MSC

  29. Probabilities – What are They and What are the Limitations? Risk = Probability X Vulnerability X Value • Probability of changing environment – predictable? • Example: Sea level rise (SLR) • New York City Panel on Climate Change (NPCC2) • National Oceanic and Atmospheric Administration (NOAA) – Digital Coast

  30. What is Vulnerability? Risk = Probability X Vulnerability X Value • Vulnerability is simply the degree of damage that occurs when something is exposed to (in this case) a natural hazard

  31. Vulnerability – Example 1 Photos: FEMA.gov

  32. Vulnerability – Example 1 (cont.) Photo: FEMA.gov

  33. Vulnerability – Example 2

  34. Vulnerability – Example 3 Photos: FEMA.gov

  35. How is Vulnerability Characterized and Quantified? Risk = Probability X Vulnerability X Value • At least in the context of risk assessment, vulnerability is described in terms of impacts and losses

  36. Examples of Tools for Analyzing and Quantifying Vulnerability • FEMA’s Hazus-MH • Rapid Visual Screening of Buildings for Potential Seismic Hazards • Integrated Hazards Assessment Tool (IHAT) (Best Practices link) • Stantec’s Mitigation Benefits Estimator

  37. What is Value and How is It Determined? Risk = Probability X Vulnerability X Value

  38. Value: Life Risk = Probability X Vulnerability X Value • The Federal Aviation Administration (FAA) and other organizations (insurance companies) develop specific values for life/injury

  39. Value: Life (cont’d) TREATMENT OF THE VALUES OF LIFE AND INJURY IN ECONOMIC ANALYSIS (Federal Aviation Administration) AIS - Abbreviated Injury Scale VSL – Value of a Statistical Life Treatment of the Values of Life and Injury in Economic Analysis

  40. Value: Life (cont.) Risk = Probability X Vulnerability X Value • FEMA’s approach and current year values are discussed in Standard Economic Values guidance • Guidelines and Discount Rates for Benefit-Cost Analysis of Federal Programs (Circular A-94, Revised)

  41. Value: Physical Elements Risk = Probability X Vulnerability X Value • Wide range of elements and ways to find values • Examples • Buildings – Building Replacement Value (BRV), Materials and Structures (M&S) • Contents (FEMA defaults) • Roads and infrastructure (engineering resources) • Environment, habitat, etc.

  42. Value: Loss of Function (1) Risk = Probability X Vulnerability X Value • Functions include: • Services • Businesses • “Infrastructure” like roads and utilities

  43. Value: Loss of Function (2) How loss of function is counted varies by the function itself • Public services – “proxy” value – willingness to pay • Private sector – revenue (profit) • Roads – detour distance and time • Water – (FEMA) fixed value X number of customers • Sewage treatment – (FEMA) fixed value X number of customers • Electric power – (FEMA) fixed value X number of customers

  44. Value: Loss of Function (3) How loss of function is counted varies by the function itself • Hospitals – algorithm incorporates deaths and population served (complex) • Police - algorithm incorporates changes in crime and population served (complex) • Fire - algorithm incorporates changes in fire damage and population served (complex) • Emergency Medical Services (EMS) - algorithm incorporates avoided deaths and injuries and population served (complex)

  45. Value: Loss of Function (4) Risk = Probability X Vulnerability X Value Risk assessments may also include enjoyment and health benefits • US Army Corps of Engineers (USACE) assesses (flood) risks and the benefits of recreation and tourism • US Environmental Protection Agency (EPA) counts damages from water and air pollution • National Institute of Building SciencesNatural Hazard Mitigation Saves: 2017 Interim Report also includes societal benefits when determining value

  46. Methodologies and Tools for Risk Assessment • Many different, but conceptually related, approaches • Varying degrees of subjectivity and objectivity • Point is always the same: try to characterize potential losses • Very wide range of things that can be counted as risks • Data sources and tools available on FEMA’s Hazard Identification and Risk Assessment web page

  47. FEMA BCA Software, Guidance, and Methodology • FEMA Benefit Cost Analysis • BCA Toolkit current version • System requirements • BCA Helpline 1-855-540-6744 bchelpline@fema.dhs.gov • Training – search Benefit Cost Analysis at Emergency Management Institute (EMI)

  48. Mitigation Benefits Estimator (MBE) & Recap • Flood Hazard • At risk structures – multiple frequencies

  49. MBE & Recap • Dollar loss • 100-yr • All frequencies annualized

  50. MBE & Recap (cont.) • Mitigation Project Costs

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