Both qualitative and quantitative risk assessment methodologies have received much attention recently. Reviews of projects or activities in manufacturing plants, refineries, and chemical plants that had experienced "unintended consequences" reveal that design teams often failed to clearly identify downside risks prior to initiating action. In many cases, the teams had sufficient collective knowledge or information to identify these risks in advance, but did not take or have the time to consider the potential downside of their actions. In other cases where risks were well understood, the level of risk which leadership was willing to tolerate was not clear to either the project teams or the leaders.

Stratos, LLC believes that companies need to focus on the desired outcomes from the use of any risk analysis processes. In many cases, good work done on a risk assessment is wasted because managers are uncertain how to use the results of that assessment in subsequent decision-making. Understanding several key concepts is essential to effective risk management. These concepts include the following:

• Differentiation between hazard and risk,
• Common understanding of risk concepts,
• Choice of qualitative versus quantitative methodology, and
• Determination of management risk tolerance.

These two concepts are often confused, leading to problems in both hazard identification and risk analysis. Many definitions for these terms are currently in use. In general, a hazard is an inherent property of a situation, substance, or operation that can have unwanted, adverse effects. A risk is the product of the probability of an adverse event occurring under specified circumstances and the possible impact of that event.

Having a clear definition of what is meant by an assessment can also be important. A good working definition of assessment is a combined analysis of available facts and inferred possible consequences for a particular subject.

Quantitative risk assessment generally refers to an analysis that utilizes a certain amount of statistical rigor. This type of assessment has the advantage of being more precise in its analysis and the disadvantage of being somewhat inaccessible to general management decision makers. Qualitative risk assessment simplifies some of the statistical analysis in order to achieve clarity in risk tolerance among management decision makers. Stratos consultants are experienced in the implementation of a qualitative risk assessment process.

A qualitative risk assessment is a structured process intended to address issues through achieving clarity on the specific risks presented by an activity and leadership's level of risk tolerance. The initial step in this process is for the design team to achieve clarity on the objectives or intent of an activity or process. Threats and associated risks are then identified as the basis for a qualitative assessment of internal and external factors impacting the proposed activity. The results of that assessment are shared with the sponsoring leaders. This review of specific risks is a key catalyst in clarifying leadership's tolerance for risks and the understanding of those risks by the design team. Appropriate mitigation steps are then developed to assure alignment between management and staff prior to implementation.

A key attribute of this process is that the qualitative approach permits easy application by a diverse team regardless of background or experience base (business, technical, operating, administrative, etc.). Additionally, the process stimulates a constructive dialogue between management and staff on risk tolerance and moves the organization from individual risk taking to collective risk sharing.

The qualitative risk assessment process can produce these benefits:

• Identify previously hidden or unknown risks,
• Achieve clarity and in-depth understanding of the underlying premises for a project, and
• Enable management and project teams to more effectively manage risks.