Chapter 9 - Costs of Accidents, Costs of Safety, Risk-Based Economic Decision Making: Risk Management

Abstract

Major accident events do not seem to diminish and one disastrous event can ruin a company. After giving an example of such company, a method is presented to calculate and express the costs of safety measures. These costs must be weighed against the risk-reduction benefit achieved by the measures. The calculation may involve the value of statistical life or rather the amount to avert the possibility of a fatality (or willingness to pay). Next, decision making is considered based on the derived information. Methods such as Balanced Scorecard, Analytic Hierarchy Process, Multi-Attribute Utility Theory, Optimal Budget Allocation and Game Theory, and Economic Utility of Risky Investments are briefly reviewed. But straightforward cost–benefit optimization and decision analysis and decision trees offer the best perspective. The chapter is closed by looking at methods for decision making under deep uncertainty.