Risk is quite simply the gap created by our lack of understanding, and is removed when we have understood


Rational Realistic Risk Removal Remedy ( 5R )

Dr. Paul B. Appiah

Appiah & Associates International

Risk is quite simply the gap created by our lack of understanding, and is removed when we have understood. Rational Realistic Risk Removal Remedy ( 5R

KEYWORDS:) is a new risk management solution for the realistically minded and rationally driven decision maker. Removing the risk from an activity may once have been considered an impossible task even for the Hogwarts School of Witchcraft and Wizardry, but in rational realistic decision making, once the problem is realistically modelled and a decision maker preferred decision made, risk and all its associated mitigation costs are removed. 5R, TrueREALISM, Risk Management, Risk Minimisation, Paretomisation, Pareto Optimisation, Rational Realistic Decision Making, Recursive Stochastic Dynamic Programming, Monte Carlo Simulation, Multiple Dimensional Sensitivity Analysis, Optimal Clustering.

1.0 INTRODUCTION

Risk has traditionally remained obscure in its definition and quantification. Adam Greene’s paper on a process approach to project risk management presents an exhaustive review on the various definitions of risk. One definition is as follows:

Risk = Hazard x Exposure

- where hazard is  ".. the way in which a thing or situation can cause harm,"and exposure is  ".. the extent to which the likely recipient of the harm can be influenced by the hazard".

In principle, the degree of exposure determines the level of risk inherent in any decision. The level of risk for any decision is zero if there is every reason to believe that the actual outcome of that decision will equal the predicted. One of such instances is, supplier price fixing for a mineral commodity.

In the majority of cases, however, the decisions we make have inherent risks in them. In quantitative decision-making, the level of risk associated with that decision might tend to have some relationship with the gap between the expected and actual outcomes of that decision.

There is this inherent problem of not knowing what “actual” would be at the decision making stage, yet, several attempts have been made to formulate risk.

Risk is quite simply the gap created by our inability to understand, and is removed when you have understood.

It is recommended, for the purposes of rational decision making, Appiah 1993a & b, that whilst it is of immense benefit to understand risk values through their quantification, more attention should be given to movements from or trade-offs in risk values, as one decision is preferred to the other. In rational decision-making, one decision may be preferred to another because it provides a certain level of risk relief whilst the other would carry an additional level of risk burden.

                           

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