Optimum Risk Estimates are the solution

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In this presentation we discuss the liabilities brought to you by Risk Management approaches using “Risk Matrices”, Probability-Impact Graphs, “Heat Maps” (we will use the acronym “PIGs” generically, to also include risk matrices and heat maps).

Despite their notoriety, PIGs are considered Standard Practices through the world by Risk practitioners, PIGs have critical and potentially damaging intrinsic problems. That's what Riskope have learned thanks to two decades of Risk Assessments for interesting and unusual projects.

When looking at Risk Assessments of financial institutions, industries, operations, plants, networks, we can affirm that PIGs do not fly. They are misleading and could get their users straight in front of a Judge.

Riskope is not the only entity to reckon this. Academia, other consultants around the world are indeed starting to or have already published papers going in the same direction.

A formal yet simple approach to replace PIGs, called ORE (Optimum Risk Estimates (c)Oboni Riskope Associates Inc.), which avoids the pitfalls and liabilities, is presented.

Like PIGs, ORE can be applied to a wide range of potential risks, but leads to a clearer, rational, defensible description of the institution's risk environment (risk horizon).

The benefits brought by using ORE are explained in this presentation using a real life Risk Assessment. Happily, ORE can reuse most of the work you have already developed to establish your PIGs.

With Riskope's ORE it is possible to upgrade existing corporate Risk Register and to steer your institution/company/project towards a rational, defensible and transparent stance.

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Optimum Risk Estimates are the solution

  1. 1. PIGs cannot fly! Optimum Risk Estimates (ORE) will get you back on track. Prologue1. PIGs did not fly Is it true that PIGs can fly? already in the 90s2. Despite being considered State No, they do not fly, they are of the Art PIGs have problems misleading you, but Optimum Risk3. So what can be Estimates (ORE) will get you back done to avoid PIGs problems? on track. By Dr. F. Oboni, C. Oboni Page 1 of 82 (c) Riskope International SA, 2012 page 1 of 35 www.riskope.com
  2. 2. PIGs cannot fly! Optimum Risk Estimates (ORE) will get you back on track. Prologue1. PIGs did not fly already in the 90s2. Despite being considered State Studies by reputable researchers in the of the Art PIGs have problems UK, US, Academia, consultants and3. So what can be Riskope have done to avoid PIGs problems? repeatedly shown that Probability Impact Graphs (PIGs) actually may fail to deliver, and can mislead the decision making process.. Page 2 of 82 (c) Riskope International SA, 2012 page 2 of 35 www.riskope.com
  3. 3. PIGs cannot fly! Optimum Risk Estimates (ORE) will get you back on track. Prologue1. PIGs did not fly qualitative, hybrid, quantitative already in the 90s ”Heat maps”,2. Despite being considered State “PIGs=Probability Impact Graphs” of the Art PIGs have problems and Industrial Depot3. So what can be done to avoid Usual risk matrices like this one PIGs problems? Will not answer a number of clients questions: Page 3 of 82 (c) Riskope International SA, 2012 page 3 of 35 www.riskope.com
  4. 4. PIGs cannot fly! Optimum Risk Estimates (ORE) will get you back on track. Prologue How to deal with risks from multiple1. PIGs did not fly already in the hazards along thousands of kilometres 90s2. Despite being of railroad without being overwhelmed? considered State of the Art PIGs have problems3. So what can be done to avoid PIGs problems? Page 4 of 82 (c) Riskope International SA, 2012 page 4 of 35 www.riskope.com
  5. 5. PIGs cannot fly! Optimum Risk Estimates (ORE) will get you back on track. Prologue1. PIGs did not fly How to prioritize risks among thousands of already in the potentially hazardous areas in the aftermath 90s2. Despite being of a conflict where landmines were deployed? considered State of the Art PIGs have problems3. So what can be done to avoid PIGs problems? Page 5 of 82 (c) Riskope International SA, 2012 page 5 of 35 www.riskope.com
  6. 6. PIGs cannot fly! Optimum Risk Estimates (ORE) will get you back on track. Prologue1. PIGs did not fly Is it possible to compile a map where local already in the hazards are transformed into risks (to 90s2. Despite being population, infrastructure), and these are considered State of the Art PIGs consolidated by region? have problems3. So what can be done to avoid PIGs problems? Page 6 of 82 (c) Riskope International SA, 2012 page 6 of 35 www.riskope.com
  7. 7. PIGs cannot fly! Optimum Risk Estimates (ORE) will get you back on track. Prologue1. PIGs did not fly How can we show in a rational and already in the 90s transparent way the potential effects of2. Despite being terrorism? And reasonably mitigate them? considered State of the Art PIGs have problems3. So what can be done to avoid PIGs problems? Page 7 of 82 (c) Riskope International SA, 2012 page 7 of 35 www.riskope.com
  8. 8. PIGs cannot fly! Optimum Risk Estimates (ORE) will get you back on track. Prologue1. PIGs did not fly How can we include in a plants Risk already in the 90s Assessment possible effects from unrelated2. Despite being considered State plants, handling hazardous matters and of the Art PIGs using the same infrastructure? have problems3. So what can be done to avoid PIGs problems? Page 8 of 82 (c) Riskope International SA, 2012 page 8 of 35 www.riskope.com
  9. 9. PIGs cannot fly! Optimum Risk Estimates (ORE) will get you back on track. Prologue1. PIGs did not fly PIGs do not fly because: already in the 90s2. Despite being 1) Too many hazards, considered State of the Art PIGs have problems3. So what can be 2) Too many targets, done to avoid PIGs problems? 3) They lack of “definition” and are “arbitrary” by nature, blurring reality 4) They expose clients to unsustainable mitigation expenses Page 9 of 82 (c) Riskope International SA, 2012 page 9 of 35 www.riskope.com
  10. 10. PIGs cannot fly! Optimum Risk Estimates (ORE) will get you back on track. Prologue1. PIGs did not fly Polls have shown a discrepancy already in the between users needs and PIGs results. 90s2. Despite being considered State of the Art PIGs Users would like an approach: have problems3. So what can be done to avoid - covering dominoes effects (cascading PIGs problems? failures), - including multiparameter consequences, - allowing continuous updates, - allowing the study of new risks as they arise on corporates radar screen and evaluating their impact in the risk landscape. Page 10 of 82 (c) Riskope International SA, 2012 page 10 of 35 www.riskope.com
  11. 11. PIGs cannot fly! Optimum Risk Estimates (ORE) will get you back on track. Prologue PIGs do not allow any of that!1. PIGs did not fly already in the Too many people mistakenly think that using 90s PIGS is doing Risk Management!2. Despite being considered State Try tell where your operation stands in the plot of the Art PIGs below using PIGs...You cannot! have problems3. So what can be done to avoid PIGs problems? Page 11 of 82 (c) Riskope International SA, 2012 page 11 of 35 www.riskope.com
  12. 12. PIGs cannot fly! Optimum Risk Estimates (ORE) will get you back on track. Prologue1. PIGs did not fly With PIGs it is not possible to already in the “explicitly and formally” use multiple 90s2. Despite being criteria to define the impact. considered State of the Art PIGs have problems Often instructions say: “between3. So what can be done to avoid physical and human losses, apply the PIGs problems? highest consequence”. Absolutely nonsensical! Especially if the “average scenario” is used! Page 12 of 82 (c) Riskope International SA, 2012 page 12 of 35 www.riskope.com
  13. 13. PIGs cannot fly! Optimum Risk Estimates (ORE) will get you back on track. Prologue This is a real PIG from a large1. PIGs did not fly already in the environmental project 90s2. Despite being considered State of the Art PIGs have problems3. So what can be done to avoid PIGs problems? Page 13 of 82 (c) Riskope International SA, 2012 page 13 of 35 www.riskope.com
  14. 14. PIGs cannot fly! Optimum Risk Estimates (ORE) will get you back on track. Prologue1. PIGs did not fly Large consequence risks already in the 90s (for example catastrophic accident,2. Despite being successful Cyber-warfare attack on considered State of the Art PIGs critical infrastructure, etc...) have problems3. So what can be done to avoid all fall in the “top consequence cell”, but PIGs problems? cannot be discerned one from another. The habit of reducing scenarios to their “average” p, C only adds to this problem. Page 14 of 82 (c) Riskope International SA, 2012 page 14 of 35 www.riskope.com
  15. 15. PIGs cannot fly! Optimum Risk Estimates (ORE) will get you back on track. Prologue Lets use a historic and recent set of1. PIGs did not fly already in the tolerability criteria... 90s2. Despite being considered State of the Art PIGs have problems3. So what can be done to avoid PIGs problems? Page 15 of 82 (c) Riskope International SA, 2012 page 15 of 35 www.riskope.com
  16. 16. PIGs cannot fly! Optimum Risk Estimates (ORE) will get you back on track. Prologue1. PIGs did not fly ...and plot the PIG on top. The non sense already in the becomes evident...because.... 90s2. Despite being considered State of the Art PIGs have problems3. So what can be done to avoid PIGs problems? Page 16 of 82 (c) Riskope International SA, 2012 page 16 of 35 www.riskope.com
  17. 17. PIGs cannot fly! Optimum Risk Estimates (ORE) will get you back on track. Prologue1. PIGs did not fly already in the 1) Risks that are very different can fall in 90s2. Despite being the same category. considered State of the Art PIGs have problems 2) Cells limits are arbitrary.3. So what can be done to avoid PIGs problems? 3) PIGs can only differentiate risks if there are macroscopic differences in p and C. CONCLUSION: PIGs critically lack of “resolution”.. Page 17 of 82 (c) Riskope International SA, 2012 page 17 of 35 www.riskope.com
  18. 18. PIGs cannot fly! Optimum Risk Estimates (ORE) will get you back on track. Prologue1. PIGs did not fly PIGs give: already in the 90s2. Despite being considered State 1) a false sense of confidence, of the Art PIGs 2) cannot prioritize risks properly, have problems3. So what can be 3) do not allow comparisons among done to avoid alternatives/projects. PIGs problems? Thus cannot be used for sensible ERM, create a fuzzy “risk landscape” in studies where numerous scenarios, possibly linked by interdependency, threatened by multiple hazards are present. Page 18 of 82 (c) Riskope International SA, 2012 page 18 of 35 www.riskope.com
  19. 19. PIGs cannot fly! Optimum Risk Estimates (ORE) will get you back on track. Prologue1. PIGs did not fly already in the The number of cells in the matrix will 90s not change these results, because2. Despite being considered State tolerability is not explicitly defined. of the Art PIGs have problems3. So what can be It is way better to work with properly done to avoid PIGs problems? approximated quantitative estimates than with “precise” semi-qualitative PIGs! It is better to be generally right rather than precisely wrong! Page 19 of 82 (c) Riskope International SA, 2012 page 19 of 35 www.riskope.com
  20. 20. PIGs cannot fly! Optimum Risk Estimates (ORE) will get you back on track. Prologue1. PIGs did not fly already in the 90s For rational decision making we2. Despite being considered State cannot rely on: of the Art PIGs have problems3. So what can be done to avoid -arbitrary cells limits, PIGs problems? -arbitrary tolerability defined by “steps” in the cells! Page 20 of 82 (c) Riskope International SA, 2012 page 20 of 35 www.riskope.com
  21. 21. PIGs cannot fly! Optimum Risk Estimates (ORE) will get you back on track. Prologue1. PIGs did not fly already in the 90s2. Despite being considered State of the Art PIGs We need to go back to raw data... have problems3. So what can be done to avoid PIGs problems? ...and use Optimum Risk Estimates (ORE) Page 21 of 82 (c) Riskope International SA, 2012 page 21 of 35 www.riskope.com
  22. 22. PIGs cannot fly! Optimum Risk Estimates (ORE) will get you back on track. Prologue1. PIGs did not fly already in the As we do not want to waste time 90s2. Despite being and resources, lets use clients considered State of the Art PIGs PIGs (if they have been developed have problems3. So what can be already). done to avoid PIGs problems? But... Page 22 of 82 (c) Riskope International SA, 2012 page 22 of 35 www.riskope.com
  23. 23. PIGs cannot fly! Optimum Risk Estimates (ORE) will get you back on track. Prologue1. PIGs did not fly already in the 90s2. Despite being ...develop a rational and scientific considered State of the Art PIGs prioritization criteria based on have problems explicit tolerability.3. So what can be done to avoid PIGs problems? ORE are the only rational way, better than any ranking, top ten list, etc...to plan your mitigations. Page 23 of 82 (c) Riskope International SA, 2012 page 23 of 35 www.riskope.com
  24. 24. PIGs cannot fly! Optimum Risk Estimates (ORE) will get you back on track. Prologue1. PIGs did not fly already in the 90s2. Despite being considered State of the Art PIGs have problems3. So what can be We will use a real life done to avoid PIGs problems? example to show you how ORE are done: One clients operation had a PIG based prioritization as follows: Page 24 of 82 (c) Riskope International SA, 2012 page 24 of 35 www.riskope.com
  25. 25. PIGs cannot fly! Optimum Risk Estimates (ORE) will get you back on track. Prologue1. PIGs did not fly already in the 90s 50 risks which split into:2. Despite being considered State of the Art PIGs have problems -0 Severe3. So what can be done to avoid -14 High PIGs problems? -25 Medium -11 Low risks They called us in because they did not know how to tackle 14 high, 25 medium...too costly!!! Page 25 of 82 (c) Riskope International SA, 2012 page 25 of 35 www.riskope.com
  26. 26. PIGs cannot fly! Optimum Risk Estimates (ORE) will get you back on track. Prologue1. PIGs did not fly already in the 90s2. Despite being considered State of the Art PIGs Lets see how focus can be have problems3. So what can be increased with ORE so that done to avoid PIGs problems? client gets a clearer roadmap for managing risks, decision making, etc... Page 26 of 82 (c) Riskope International SA, 2012 page 26 of 35 www.riskope.com
  27. 27. PIGs cannot fly! Optimum Risk Estimates (ORE) will get you back on track. Prologue Lets build a tolerability curve: we display it here1. PIGs did not fly already in the ontop of the original PIGs cells, for comparison 90s2. Despite being considered State of the Art PIGs have problems3. So what can be done to avoid PIGs problems? Page 27 of 82 (c) Riskope International SA, 2012 page 27 of 35 www.riskope.com
  28. 28. PIGs cannot fly! Optimum Risk Estimates (ORE) will get you back on track. Prologue1. PIGs did not fly For each risk lets evaluate the intolerable part already in the 90s (orange) vs. tolerable part (blue).2. Despite being considered State of the Art PIGs have problems3. So what can be done to avoid PIGs problems? Page 28 of 82 (c) Riskope International SA, 2012 page 28 of 35 www.riskope.com
  29. 29. PIGs cannot fly! Optimum Risk Estimates (ORE) will get you back on track. Prologue Top 20 Total Risks prioritization,1. PIGs did not fly however we can do better than that! already in the 90s2. Despite being considered State of the Art PIGs have problems3. So what can be done to avoid PIGs problems? Page 29 of 82 (c) Riskope International SA, 2012 page 29 of 35 www.riskope.com
  30. 30. PIGs cannot fly! Optimum Risk Estimates (ORE) will get you back on track. Prologue Risks prioritization with the1. PIGs did not fly already in the intolerable part as discriminant 90s2. Despite being constitute the core of ORE considered State of the Art PIGs because... have problems3. So what can be done to avoid ...the only PIGs problems? risks that actually matter are the ones that extend above your tolerability. Page 30 of 82 (c) Riskope International SA, 2012 page 30 of 35 www.riskope.com
  31. 31. PIGs cannot fly! Optimum Risk Estimates (ORE) will get you back on track. Prologue1. PIGs did not fly Now it is possible to take rational decisions in already in the allotting mitigative funds, plan ahead! 90s2. Despite being considered State of the Art PIGs have problems3. So what can be done to avoid PIGs problems? ORE show that only 5 scenarios count for 83% of the total intolerable risks. Concentrating on them will greatly improve the situation. Five instead than 14 (+25) suggested by PIG! Page 31 of 82 (c) Riskope International SA, 2012 page 31 of 35 www.riskope.com
  32. 32. PIGs cannot fly! Optimum Risk Estimates (ORE) will get you back on track. Prologue1. PIGs did not fly Because of poor Hazard already in the 90s Identification, we noticed that the2. Despite being considered State client had omitted some scenarios, of the Art PIGs have problems so we had to include them in the3. So what can be done to avoid ORE. PIGs problems? How can new results be integrated in the ORE? What is the impact on decision making? Page 32 of 82 (c) Riskope International SA, 2012 page 32 of 35 www.riskope.com
  33. 33. PIGs cannot fly! Optimum Risk Estimates (ORE) will get you back on track. Prologue1. PIGs did not fly The results of ORE are to be seen already in the dynamically, through cyclical updates. 90s2. Despite being considered State of the Art PIGs They allow “what-if” analyses and the have problems cost-benefit evaluation of mitigative3. So what can be done to avoid alternatives. PIGs problems? ORE are a tool for day-to-day consultation which become richer with time, meanwhile offering a clear understanding of the evolution of risks and crises throughout the system. Page 34 of 82 (c) Riskope International SA, 2012 page 34 of 35 www.riskope.com
  34. 34. PIGs cannot fly! Optimum Risk Estimates (ORE) will get you back on track. Prologue1. PIGs did not fly already in the 90s2. Despite being considered State ORE are the key to your of the Art PIGs have problems business prosperity,3. So what can be done to avoid survival and PIGs problems? sustainability. CONTACT: Cesar Oboni coboni(a)riskope.com Page 35 of 82 (c) Riskope International SA, 2012 page 35 of 35 www.riskope.com

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