Costs of risk reduction

Tolerable risk if the cost of risk reduction would exceed the improvement gained. 

Risk reduction actions need to be cost effective. To assess whether this is the case, the risk reduction leverage can be calculated as (REbefore — REafterV(cost of risk reduction), where REbefore is the risk exposure before the risk reduction action and REafter is the risk exposure that will remain after the risk reduction. Both risk exposures are expressed in terms of money. A risk reduction leverage greater than 1.00 indicates that the avoidance/reduction activity is financially worthwhile. Risk reduction activities with values above but still close to 1.00 would need to be considered very carefully. 

A risk evaluation can be defined as a quantification of the risks at hand and an evaluation of the cost of risk reduction and benefits derived from reducing or eliminating risks. It is basically a cost-benefit analysis to determine which risks can be reduced, the benefit of risk reduction, and the cost of risk reduction. 

By taking the risk score, equating it with the percentage of risk reduction, and comparing the cost of risk reduction to the benefits, a thorough evaluation can be made of whether or not the risk reduction justifies the effort. 

The ALARP principle is applied for events in the intermediate area. For those near the broadly acceptable limit, the risks are considered tolerable if the cost of risk reduction would exceed the improvement gained. For those near the maximum tolerable hmit, the risks are considered tolerable only if risk reduction is impracticable or implementation of risk reducing measures would lead to disproportionate costs compared with safety benefits gained. 

Investments in safety require a trade-off between the costs of risk reduction and the benefits obtained. Social cost-benefit analysis (SCBA) and standard... 

The Dutch societal risk criterion of 10 /n per installation per year was initially developed for LPG-fiielling stations. It was later applied to all Seveso establishments. Similar societal risk criteria thus apply to hazardous establishments of different character and size, despite considerable differences between the marginal costs of risk reduction in different cases (see Jongejan (2008) for further discussion). 

The unmitigated risk is "undesirable" on a scale with a target level of safety of 10 (1.00 E-8) being at the top end of the ALARP region. Such risks are only tolerated if further risk reduction is impracticable or the cost of risk reduction... 

Avoid the cost of risk reduction retrofitting as the project moves forward... 

Prioritize Safety Improvements. This uses the detailed analysis (2) to identify items having high risk importance. Engineering analysis identifies and costs candidate improvements which are selected on the bn. o of risk reduction for a given cost. ... 

Display of risk levels for various subpopulations under various applications of technological or regulatory control of releases into the environment in order to relate social costs to risk reduction. 

Management can use a variety of criteria to select and prioritize corrective actions and safety improvements. They include costs, other competing priorities, implementation schedules, the effectiveness of risk reduction, and technical feasibility. These criteria, as well as management decisions about corrective actions, must be documented. If after evaluating an action item, management chooses to take no further action, that decision must also be documented. In addition to requiring documentation of management decisions, the PSM Rule requires a system to track implementation of corrective actions to be made. 

Avoiding one risk may create a new risk net risk is always a consideration. Thus, the risk assessment analyses trade-off in risk, compares risk levels, and evaluates cost-effectiveness of risk reduction alternatives. 

One useful tool of risk assessment is to compare the risk before and after prevention or mitigation to determine the difference in risk. A cost benefit analysis can be completed that determines the cost of the mitigation versus the amount of risk reduction. All costs need to be calculated to determine a cost per year. These costs would include fire damage, injury or fatality, insurance cost increases, loss of profits, etc. The cost of the mitigation, including capital and maintenance costs, needs to be determined. 

In the fire risk assessment, it is important to reevaluate the risk once options for mitigation are determined. The amount of risk reduction should be calculated for each option or combination of options. Often, the results indicate that some options do not provide much, if any, risk reduction. The use of cost benefit analysis can help management in deciding which option to select. Facilities that depend exclusively on the local fire department for fire protection should complete a fire hazard analysis to determine the appropriate fire protection. 

Command-and-control regulation is a rather blunt instrument for achieving an efficient level of public exposure. Its primary defect is its inability to allow emissions to vary across emitters in proportion to their marginal costs of abatement. That inability raises the cost of any specific level of ambient exposure reduction. Empirical analysis of regulatory decisions suggests that agencies are sensitive to the costs and benefits of risk reduction but demand far more reducfion in public exposure risks than individuals require for private risks. 

Occupational and consumer protection are seen as technical exercises in France. The National Institute of Research and Security (INRS) and the Institute for the Industrial Environment and Safety (INERIS) may be aptly described as state apparatus to control costs to the state of poor regulation. INERIS plays little part in the development of risk-reduction strategies (RRS) because consumer protection and environmental protection follow directly from the risk assessment process. INERIS feeds relevant information directly to the MEDD. Because MESA acts only as a statistical and economic branch of occupational protection, responsibility for the development of occupational RRS is left to the INRS. 

The Swedish expression of the principle is that actors should replace chemicals with less harmful ones when the costs are not unreasonable. While this may appear to be a little more than common sense, the principle and its application are quite controversial. The principle is not mentioned in the Rio Declaration and is not considered to be an established principle in international environmental law, although Agenda 21 (19.41) refer to the substitution of hazardous substances for less hazardous substances as the classical example of risk reduction. So why is the principle not established in international environmental law Several reasons exist. The application of the principle has several limitations. Apart from the cost issue, it can of course be difficult to evaluate whether a chemical is a better option than another one if none of them are properly tested, or if only one of them have been properly tested. 

This is why the decision analysis should be the form through which the risk information is communicated, stating the available options, risks, costs, benefits, and their distribution within the society. Risk management involves an evaluation of cost/effectiveness of risk reduction measures so that priorities can be made. Evaluating the measures in order to reduce the risk and implementing the cost-effective ones, is to manage the risk. 

As these parameters are monitored and changes in risk identified, critical issues can be escalated for more detailed review. Once several risk reduction strategies are identified, the same types of risk evaluation criteria (e.g., risk index, risk matrix, or other quantitative measures) described earlier in this book can be used to assess the relative benefits of each proposed risk mitigation option. Risk reduction can thus be defined as the process of evaluating and identifying options available to reduce risk, that achieve the desired level of risk reduction, and can be justified on a cost-benefit basis. 

In addition to the risk reduction benefits, the costs of risk mitigation options need to be evaluated. Due to the uncertainties associated with semi-quantitative and quantitative risk analysis results, a relative risk comparison, as compared to absolute measures of risk and benefits, is recommended. To conduct this type of relative comparison, incremental risk analysis can be used to evaluate the cost effectiveness of risk mitigation options, or determine the optimal combination of risk mitigation options. Figure 7.4 illustrates example results of this type of analysis, and uses the options from the F-N curve in Figure 7.3 as the basis for comparison. 

Since this is a profitable business for XYZ Chemical, a separate analysis was commissioned to review the bulk pesticide operation and all potential risk reduction options, and combination of options that can be implemented to manage the risk of this operation. An incremental risk method (described earher in the chapter) will be applied to identify which combination of risk reduction options provides the greatest benefit for the cost. Additionally, since XYZ Chemical s management has implemented and embraces the TRM framework, management will wait for the results of this additional study before making a final decision regarding bulk pesticide shipments. This may include a suite of risk mitigation options, or the ultimate desire of XYZ Chemical to exit the pesticide business for this facility. 

Cost Includes tangible items such as money and equipment as well as the operational costs associated with the implementation of risk reduction options. There are also intangible costs such as loss of productivity, moral considerations, political embarrassment, and a variety of others. Costs may be borne by the... 

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