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Assess the Risk
- Assessing risk is determining which, if any, are present.
- Risks stem from hazards, which are anything that can cause harm.
Categorize the Risk
- A risk can be minor or severe. A risk can also be common or rare.
- The following exhibit illustrates these principals. Notice there are four quadrants numbered one through four. The vertical axis measures the probability that the risk will occur and the horizontal axis measures the severity of the risk.
- If a risk has a high likelihood of occurring and if the consequence of it occurring would be severe, it would be in category four.
- Risks which are both unlikely and minimally harmful would be in category one.
Consider Your Options
- After determining the appropriate category for a risk, the next step is to select the proper method to address it.
- The following exhibit illustrates the four primary methods for dealing with risk. They can be remembered with the simple acronym: ATRR or AT Railroad. Can the risk be avoided? Can it be reduced? Can the risk be transferred? All remaining risks must be retained.
- Certain risks can be avoided. For example, if you never drive drunk or skydive or bungee jump, these risks pose no threat.
- Can the risk be reduced? For example, if you eat right, get plenty of sleep, exercise, avoid unhealthy habits, etc., you may be able to reduce your chance of a premature demise. We also realize that smoking causes lung cancer. Therefore, if we quit smoking, we can reduce the chance of getting lung cancer.
- Transferring risk involves strategies such as buying insurance or lowering our deductible. By paying a premium, we can transfer all or part of a risk to the insurance company.
- For those risks which cannot be avoided, reduced, or transferred, we have no option but to retain them. You should never spend a lot of money to manage a risk which has a minimal consequence. In fact, it may be best to ignore risks which fall into category one.
Implement Your Strategies