What is Risk-Benefit AnalysisRisk-benefit analysis is the comparison of the risk of a situation to its related benefits. Exposure to personal risk is recognized as a normal aspect of everyday life.We accept a certain level of risk in our lives as necessary to achieve certain benefits. In most of these risks we feel as though we have some sort of control over the situation.
An exampleDriving an automobile is a risk most people take daily. "The controlling factor appears to be their perception of their individual ability to manage the risk-creating situation."Analyzing the risk of a situation is very dependent on the individual doing the analysis.
When individuals are exposed to involuntary risk, risk which they have no control, they make risk aversion their primary goal.Under these circumstances individuals require the probabilty of risk to be as much as one thousand times smaller then for the same situation under their perceived control.
Evaluations of future risk• Real future risk as disclosed by the fully matured future circumstances when they develop.• Statistical risk, as determined by currently available data, as measured actuarially for insurance premiums.
• Projected risk, as analytically based on system models structured from historical studies.• Perceived risk, as intuitively seen by individuals.
Air transportation as an example:• Flight insurance company - statistical risk.• Passenger - percieved risk.• Federal Aviation Administration(FAA) - projected risks.
Conclusion Hopefully the real risks turn out to be lessthan the projected risks. Although many people feel that flying ismore risky than driving, statistics showotherwise.
Perception of control is a very important factorthat explains why voluntary activities have risks of100 to 1000 times greater than involuntaryactivities.