Risk-benefit analysis in professional ethics

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2. INTRODUCTION
• 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.
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3. • 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. For example, driving an automobile is a risk most people take daily.
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4. • 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, however, 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 probability of risk to be as
much as one thousand times smaller than for the same situation under their
perceived control.
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5. 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
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6. AIR TRANSPORTATION AS AN EXAMPLE
• Flight insurance company - statistical risk.
• Passenger - perceived risk.
• Federal Aviation Administration(FAA) - projected risks.
• Hopefully the real risks turn out to be less than the projected risks. Although
many people feel that flying is more risky than driving, statistics show
otherwise.
• Perception of control is a very important factor that explains why voluntary
activities have risks of 100 to 1000 times greater than involuntary activities.
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7. RISK COMMUNICATION
• Risk communication involves communicating risks that are involved in a
situation. People are generally apathetic when it comes to risks, and it is
difficult to get them concerned.
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8. Catch phrases such as, "Watch out!" and "Stop worrying" reflect the poles
of risk communication. The former demonstrates an urgent need, whereas the
latter demonstrates no urgent need.
Assumptions about risk communication:
• One-way communication, with an identifiable audience to be warned and a
source to do the warning.
• The source knows more about the risk than the audience.
• The audience's interests are at heart.
• The source's recommendations are based on real information, not values or
preferences
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9. • Risk communication, as described above, does not always follow these
assumptions. Therefore, risk communication should be multi-directional
rather than one-directional.
• Industry, government, and the media should talk less and listen more. Using a
multi-directional approach, "...it is easier to design effective messages if the
source pays attention to what the prospective audience thinks and feels.“
• Another approach, although not multidirectional, is to measure success by
what the audience knows and not by what the audience decides.
• Just by letting people know puts pressure on the companies to keep risk
below a certain point
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10. EXAMPLE FOR RISK COMMUNICATION
HEALTH
A product that is known to be unhealthy is required to display a warning
on its label in a particular country, province or state.
ENVIRONMENT
A city warns of forecast poor air quality and communicates restrictions
put in place to mitigate the situation.
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11. SAFETY
A construction company conducts mandatory annual safety training for all
employees that includes a breakdown of the most common safety risk related to
different types of constructions sites. Training is aimed at crating awareness of
common risk and communicates actins that can be taken ton reduce risk
FINANCIAL RISK
A financial advisor accurately communicates investing risks to clients
including factors such as volatility, liquidity risk, concentration risk and the risk
profile of an asset r security.
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12. PROJECT RISK
A project manager communicates a risk management to stakeholders .
All stakeholders are given an opportunity to identify risks and provide ideas for
reducing risk. Risk owners are asked to sign off on the risk management plan.
As new risk are identified, the process repeats.
BUSINESS RISK
A purchasing manager at a manufacturing company warns operations and
marketing teams of a possible shortage of parts due to supply chain
disruptions.
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13. RISK MANAGEMENT
• Risk management is the consideration of social, economical and political
factors in the decision-making process of controlling risks. The basic task of a
risk manager is to take a risk assessment and integrate it with the best
available sociological, economical and political information.
• In reality, the reliability of the data on which risk and cost calculations are
based on often leads risk management to cross the line of risk assessment.
• Theoretically, however, a risk assessor should stick to his or her scientific
approach and present the reliable and objective information to the risk
manager while the risk manager should take the assessment at its face value
for integrating other factors and making decisions.
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14. A risk manager should start with setting priorities on the factors
below:
• The degree to which the risk can be controlled;
• The costs of control;
• The social and political feasibility and acceptability of the control;
• The benefits of the product;
• The degree to which the risk-taking activities is voluntary or involuntary.
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15. • Usually, the law, the nature of the regulator, public perceptions and external
pressures determine the extent whether the risk manager is able to control
the agenda.
Control techniques can be:
• a ban on the manufacture or a limit on the product's use. It can be
accomplished by setting a de minimis risk level below which risk is
considered trivial even with insignificant cost. Examples of which are the
emission level and the cost limit per case avoided or per life saved etc..
• a technological control of the manufacture or use. This is usually
accomplished by the Best Available Technology (BAT). Examples of which are
the Safe Drinking Water Act and the Clean Air Act.
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16. • Since the process of transmitting scientific information from database to
decision-making involves a complex balancing of positive and negative
factors, the more explicit the decision, the better.
• Risks, benefits and costs can be expressed quantitively (industrial cost or
profit, consumer cost or saving, job or lives saved or lost) or qualitatively
(environmental benefit or losses).
• In general, the outcomes of risk management usually depend on the
individual personalities, philosophies and experiences
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17. COMMONLY USED RISK MANAGEMENT EXAMPLES
RISK AVOIDANCE
The best way to explain risk avoidance would be to take the example of an investor
trying to manage his/her risk in the company that they invested in. If the company
they have invested in is going through losses and decide to sell their investment
(stock) in the company, they can exclude it from their list of investments, it is
considered risk avoidance.
ELIMINATION OF CONTRACT RISK
When investors make investments overseas, there can be external risks to the
company. The foreign exchange rates can fall, which can lead to losses, which is
considered to be a big threat to the investor. To deal with this risk, the investor can
make the contracts in USD and keep themselves safe.
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18. COMPLIANCE RISKS
Maintaining regulatory compliance is a really important aspect of any institution, which
can, in turn, become a huge risk. Companies need to ensure they have control to place to
monitor their organizations’ compliance on a regular basis. They need to monitor all their
existing processes, procedures, and technologies and stay compliant. This can be effectively
done with a risk management system.
SAFETY RISKS
There can be a risk to the safety of the operations within the company. This needs to be
analyzed and taken care of regularly as well. All maintenance processes need to be audited
regularly to check for latent human error in the processes. This can also be handled very
efficiently if companies implement a risk management system.
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19. COST BENEFIT ANALYSIS
• Calculate economic risk
• Define risk reduction measures
• Define cost of risk reduction measures
• Define characteristics
• Analyse cost benefits
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20. CONCLUSION
• It is recommended to use in our project`s management plan the
risk-benefit analysis in order to insure the quality of the project so
that the clients can trust using our product.
• This analysis is used to establish whether is worth assuming some
risks of the products comparing them with the resulting benefits.
• But we should not forget that perception of risk can vary!
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