The decision support model for risk management

Abstract

Risk management decisions often demand the allocation of scarce resources in mitigation of different hazards. A quantitative basis for decision-making can be provided by a detailed risk assessment, in which the current risk and those that obtain under proposed projects can be evaluated. The average annual loss, or expected value, is not a useful measure of extreme risk. The conditional expected value, calculated for a series of probability ranges, provides measures of the risk that can be assembled into a decision table so that informed decisions can be made. The conditional expected value can be calculated even when the losses are only available in terms of a cumulative probability function.