risk management - a definition the process of weighing policy alternatives in the light of the...

Risk Management - A Definition

The process of weighing policy alternatives in the light of the results of risk assessment and, if required, selecting and implementing appropriate control options, including regulatory measures.

Risk Management• weighing policy alternatives and selecting the most

appropriate regulatory action, integrating the results of risk assessment with engineering data and with social, economic and political concerns to reach a decision

• whom should we protect• against what harms• at what cost• and by foregoing what other opportunities

Societal risk management

• a definable (measurable) phenomenon called risk

• concerned with minimizing probability and/or magnitude of undesired consequences without incurring excessive costs

• how safe is safe enough?– how fair is safe enough means debates based on

social conflicts of trust and equity rather than probability and magnitude of uncertain events

Cost-benefit analysis Cost if the vehicle is changed

• The manufacturer could expect to sell 400,000 compact cars at $4,250 each.

• Making the change to the vehicle would cost $11 per car, bringing the price of the vehicle to $4,261.

• Therefore, the total cost to consumers for making the change to the vehicle would be 400,000 X $11 = $4.4 million

Cost-benefit analysisBenefit if the vehicle is changed

• Each year, 500 people die from accidents associated with driving or riding in compact cars

• There are about 49 million drivers and passengers of compact cars in the U.S

• The chances of an individual being fatally injured in an accident while driving or riding in a compact car are: 1 chance in 98,000 (probability of 0.0000102).

• Changing the vehicle would reduce the chances of a driver or passenger being fatally injured to 1 chance in 99,000 (or a probability of 0.0000101). This represents a change of about 1 chance in 10 million.

Cost-benefit analysisBenefit if the vehicle is changed (cont’d)

• Change in fatalities:– predicted fatalities if the car is not changed: 0.0000102 X 49 million users = 500 fatalities– predicted fatalities if the car is changed: 0.0000101 X 49 million users = 494 fatalities– changing the vehicle results in a difference of six fatalities

• The costs per fatality were estimated to be: $400,000 per fatality.• Therefore, the total benefit of changing the vehicle would be: 6 fatalities X $400,000

= 2.4 million.

Decision-making approacheswhat’s required

• a perception of the quality of a method’s logic and reasoning

• a perception of a method’s sensitivity to moral and ethical concerns– expected value risk analysis was rated the most acceptable

– standard practices was rated the least acceptable

– methods that were judged better reasoned and more complete were also judged more acceptable, as were methods judged to have greater sensitivity to ethical and moral concerns

– People’s acceptance of risks may be determined, to a significant extent, by the way in which decisions about risks are made

• acceptable risk from an acceptable decision-making process?

What do people care about?

• is the procedure by which collective consent obtained for a course of action acceptable to those who must bear its consequences?

• is the principle that will be used to apportion liabilities for an undesired consequence acceptable to those affected?

• are the institutions that make the decisions that manage and regulate the technology worthy of fiduciary trust?

Steps in decision analysis• identifying decision alternatives and structuring the decision

problem• defining the decision objectives• defining performance measures or variables for quantifying

decision objectives• identifying critical uncertain variables• assessing probabilities• specifying value judgments, preferences and trade-offs• evaluating alternative actions or policies• conducting sensitivity analyses and value of information analyses

Decision analysis vs. cost-benefit Similarities

• represent a formalization of common sense for decisions that are too complex for the informal use of common sense

• seek a rational, logical, orderly, systematic framework for choosing among alternative actions or policies when the consequences of these alternatives are uncertain

• attempt to describe, quantify and clarify trade-offs among the relative advantages and disadvantages of alternative actions and policies

• decompose complex decision problems into their component, and more manageable, parts

• synthesize information produced by the analysis into a single number reflecting the overall value of a proposed action or policy

Decision analysis vs. cost-benefit Differences

• which alternative course will maximize expected value of utility, not just net benefits

• considers a multiplicity of objectives, economic efficiency being only one• considers all consequences judged important, regardless of whether that

can be measured in economic terms• treats uncertainties comprehensively and explicitly• values consequences on preferences of decision-makers, rather than simple

willingness-to-pay measures

Decision analysis vs. cost-benefit Differences (cont’d)

• paysattention to decision-maker’s attitude toward risk• interprets probabilities according to the Bayesian view• work closely with experts and decision-makers in

interactive, collaborative setting• translate all consequences into a single measure of

value (rather than money) or utility -- the value, worth or desirability of something

• equity is more than economics, treated as one among several consequences that need to be examined empirically

Decision analysis -- other features• an emphasis on the distinction between a good decision and a good outcome• a focus on the economic value of collecting additional data• an emphasis on being clear and explicit about decision alternatives• a focus on the decision-making perspective of a single decision-maker or a

small group of decision-makers• an emphasis on the use of graphic diagrams, such as flow charts, influence

diagrams and decision trees for representing decision problems

Problem is with the managers• regulators have adopted a short-term perspective, taking action quickly rather than

investing in research needed to improve understanding of future hazards

• a narrow view of the risks they regulate

• sometimes attempts to reduce one risk (burns from flammable children’s pajamas) have created others (the increased chance of cancer from fireproofing chemicals)

• ignored large risks while attacking small ones with vigour (Bruce Ames and food)

• lack of institutions for learning from experience in government

• magic bullets rather than multiple solutions

• lack of citizen involvement in decision-making

Risk Management FrameworkElements of Risk Management

• Risk Evaluation

– Identification of a food safety problem.– Establishment of a risk profile.– Ranking of the hazard for risk assessment and risk management– priority.– Establishment of risk assessment policy for conduct of risk

assessment.– Commissioning of risk assessment.– Consideration of risk assessment result.

[ I ]

Risk Management Framework (cont’d)

• Risk Management Option Assessment

– Identification of available management options.– Selection of preferred management option, including

consideration of an appropriate safety standard.– Final management decision.

[ II ]

Risk Management Framework (cont’d)

• Implementation of management decision

• Monitoring and review

– Assessment of effectiveness of measures taken.– Review risk management and/or assessment as necessary.

[ III ]

General Principles of Food Safety Risk Managment

• Risk management should follow a structured approach

• Protection of human health should be the primary consideration in risk management decisions

• Risk management decisions and practices should be transparent

• Determination of risk assessment policy should be included as a specific component of risk management

[ I ]

General Principles of Food Safety Risk Management (cont’d)

• Risk management should ensure the scientific integrity of the risk assessment process by maintaining the functional separation of risk management and risk assessment

• Risk management decisions should take into account the uncertainty in the output of the risk assessment

[ II ]

General Principles of Food Safety Risk Management (cont’d)

• Risk management should include clear, interactive communication with consumers and other interested parties in all aspects of the process

• Risk management should be a continuing process that takes into account all newly generated data in the evaluation and review of risk management decisions

[ III ]

References• Bradbury, J.A. 1989. The policy implications of differing concepts of risk. Sci., Tech. and

Human Values 14: 380-399.• Covello, V.T. 1987. Decision analysis and risk management decision making: issues

and methods. Risk Anal 7: 131-139.• Haimes, Y.Y., Barry, T., and Lambert, J.H. 1994. When and how can you specify a

probability distribution when you don’t know much? Risk Analysis 14: 661-703.• Jasanoff, S. 1993, Bridging the two cultures of risk analysis, Risk Analysis, 13: 123-129.• MacGregor, D. and Slovic, P. 1986. Perceived acceptability of risk analysis as a

decision-making approach. Risk Analysis 6: 245-256.• Morgan, M.G. 1993. Risk analysis and management. Sci. Am. July: 32-41.• Rayner, S. and Cantor, R. 1987. How fair is safe enough? The cultural approach to

societal technology choice. Risk Analysis 7: 3-9.• Starr, C. 1969. Social benefit versus technological risk, Science 165: 1232-1238.

Cost-effectiveness Ratios for Selected Lifesaving Measures (1995 $)

[Harvard Centre for Risk Analysis, Feb. 1999]

Intervention Comparator Target PopulationCost per QALY Saved*

Lap/Shoulder belts No Restraints Drivers of Passenger Cars <0(50% use)

Daytime Running LightsNighttime Lights All Motor Vehicles <0 Only

Promote Condom Use No Program Self-Identified Gay Men <0to prevent HIV Transmission

Restriction of Cigarette No Restrictions Children Less than Age 18 <0Sales to Minors

Adjuvant Tamoxifen No Such Women, Age 45, with $950Chemotherapy Therapy Early stage Breast Cancer

Coronary Angioplasty No Revasc- Patients w/Severe Angina $10,000ularization And One Vessel Disease



Intervention Comparator Target PopulationCost per QALY Saved*

Pap Smear Every 4 yrs No Screening Women Ages 20-75 $16,000

Annual Colorectal No Screening People Ages 50-75 $18,000Screening

Frontal Airbag System Manual Belts Drivers of Passenger Cars $24,000with Manual Belts (50% usage)

Rodan Mitigation in No Testing or Home Residents w/Radon $57,000Homes Mitigation Levels above 20pCi/L

Dual Passenger Driver-Only Front-Right Passengers $61,000Airbags Airbags

Autologous Bone Std. Chemo- Women, Age 45, w/ $110,000Marrow transplantation therapy metastatic Breast Cancer



Intervention Comparator Target Population Cost per QALY Saved*

Coronary Angioplasty No Revasc- Patients w/Severe Angina $10,000ularization And One Vessel Disease

Annual Mammography Annual Clinical Women Ages 55-65 $150,000Breast Exam

Methylene Chloride Limit of 500 ppm Workers Exposed to $190,000Exposure Limit of 25 ppm Methylene Chloride

Annual Mammography Annual Clinical Women Ages 40-50 $240,000Breast Exam

Solvent-Detergent to No Solvent- Patients Undergoing Plasma- $310,000Eliminate AIDS Virus or Detergent TransfusionOther Infectious Disease



Intervention Comparator Target Population Cost per QALY Saved*

Screening to PreventUniversal Health Care Workers in $ 449,000HIV transmission to Precautions Acute Care SettingPatients

Annual Pap Smear Pap Smear Women Ages 20-75 $ 1,600,000Every Two Years

Lap/Shoulder Belts No Restraints Rear-Center Seats of $ 2,400,000(9% use) Passenger Cars

Screening and Treatment No Screeing Surgeons Every 10 Years $ 4,100,000to Prevent HIVTransmissions

Prophylactic Intravenous No Prophylaxis Patients w/Chronic $ 7,400,000Immunoglobulin Lymphocytic-Leukemia

INTRODUCTION TO RISK ANALYSIS

CHAPTER 3

REGULATION

The regulatory process (1)

• Why have regulations at all? To show us how we should behave in socially desirable ways

• The U.S. regulatory process is complex and fragmented.

• In our representative democracy, Congress has regulatory authority and delegates it to the Executive Branch, which creates agencies.


• Congress passes legislation, and some agencies have responsibility for several of these statutes.

• Congress responds to public wishes but is ill-equipped to create regulations and set or enforce standards.

• Regulatory agencies provide scientific data, technical expertise, and policy making skills.


• Check out the U.S. Code—our nation’s laws.• The Congressional Record captures much of what

happens in floor debate on legislation.• Congress provides oversight and budgets.• Some legal constraints: FOIA, APA, FACA• Informal rulemaking; advanced notice, proposed

rule, public comments, final regulations, law suits—often take years—but get voluntary compliance.


• Three periods of environmental activism: (1) Theodore Roosevelt and natural resource conservation, (2) New Deal and conservation projects such as TVA, CCC, PWA and SCS, (3) Nixon era: EPA and NEPA

• Volume of environmental regulations has spawned environmental auditing.


• Command-and-control regulation• Code of Federal Regulations and the Federal

Register• U.S. has controlled most major visible sources of

pollution.• Now moving to more difficult risks to regulate:

genetic engineering, radon, indoor air, acid rain, stratospheric ozone, nuclear power, and cryptosporidium.

The regulatory process (6)• New regulatory approaches: pollution

prevention, pollution trading, pollution bubbles, carbon taxes, pollution credits, and tax incentives

• Trying to balance federal, state and local statutes

• Worker, drug, food, and consumer regulations have their own histories. Agencies have constituencies.

Why have regulatory agencies? (1)

• Three branches of government: legislative delegates responsibilities through laws to executive, and judicial referees inevitable political and policy conflicts.

• Criminal offense is violation of someone’s obligations to society. Tort law relates to the civil obligations of one party to another.

• Enforcement and penalties

Why have regulatory agencies? (2)

• Regulatory agencies can issue positive or negative lists

• Negative list: substances not allowed above a given standard, e.g., EPA list of drinking water standards

• Positive list: can’t use substance, if not on list - e.g., FDA list of food additives

• Licenses and permits

Food safety (1)

• U.S. food supply is “safe” due to interlocking monitoring system for food production and distribution—local, statewide, national. and international/

• Inspectors, microbiologists, epidemiologists, food scientists.

• Laws, guidelines, customs, contracts and other directives dictate duties.

Food safety (2)

• Some agencies monitor one kind of food, others work in geographic areas, some on imports and exports, others for restaurants, meat-packing plants, …

• Under tort law anyone can obtain compensation for bad food by suing—adulterated, contaminated

• Fragmented authority for food regulation

Food safety (3)

• 1938 Federal Food Drug and Cosmetic Act, amended in 1954 for tolerances for pesticides and in 1958 for food additives

• The standard is ‘a reasonable certainty of no harm’—not an absence of risk.

• In the U.S., food safety requires extensive coordination.

Food safety (4)• EPA registers pesticides, FDA regulates bottled

water, some wines, residues of animal drugs in meats, animal feeds, milk, shellfish, retail foods, ATF is responsible for alcohol, EPA for drinking water, USDA for meat or poultry and processed egg products, HHS for food-borne disease outbreaks, NOAA for inspections of fishing vessels and seafood processing, Customs regulates all foods entering and exiting the country,

Food safety (5)

• Justice prosecutes violations, the Trade Commission for deceptive advertising, CPSC enforces the Poison Prevention Packaging Act, the FBI enforces Federal Anti-Tampering Act and the Postal Service laws relating to mail fraud involving foods

• In the U.S., the National Governors Association, state and local governments, and private organizations are involved.

Ethics (1)

• In a representative democracy like the U.S., one problem is the lurching, erratic attention brought to regulation.

• Usually some highly visible, emotional incident focuses attention, and Congress writes regulatory laws in a spasm.

• We regulate environmental pollution because we think it is the right thing to do.

Ethics (2)

• Humans have an anthropogenic view— expressed by Aldo Leopold in A Sand County Almanac—his land ethic

• Fairness is an important public value. The costs of environmental regulation should be borne in an equitable way.

• Two ethical principles—utilitarian and libertarian

Ethics (3)

• Utilitarian: Do the most good for the most people in society. Deliberately sacrificing a few for interests of all requires a decision maker, who may degenerate into a tyrant.

• Libertarian: Each person is the sole arbiter of their own behavior. It leads to minimal government and personal freedom, but life becomes dominated by market forces, which are hard to control and self-interested.

Ethics (4)

• The U.S. has an uneasy equilibrium between libertarian and utilitarian.

• For health and safety we believe the government must protect us.

• The regulatory agency serves as the dictator, but we also want to observe personal and property rights.

Legislation (1)• Members of Congress must cooperate with each

other to get anything done.• House members perpetually campaign, plus have

budgets, press and public interaction responsibilities.

• Few members have technical skills or staff scientists.

• Must react rapidly to “crises” like Bhopol (EPCRA), toxic waste (CERCLA), or pollution in New Orleans’ water (SDWA)

Legislation (2)

• Regulatory agencies have research arms and associated agencies, and can contract research.

• Congress conducts oversight—has multiple committees and subcommittees for each agency.

• Congressional concern is how much discretion and money to give each agency.

Legislation (3)

• Many new regulatory laws allow citizen suits and have “list and hammer” provisions.

• Three models of agency discretion: coercive, proscriptive, and ministerial

• Coercive: agency has discretion – proscriptive: agency must follow detailed criteria – ministerial: deadlines

Administration (1)

• President controls regulatory process through appointees, executive orders, and managerial controls (OMB).

• Offbudget spending: ~ $180 billion/yr in public funds for environmental regulation.

• Limits are information, personnel and funds.• Most data are anecdotal. Only regulatory agency

without a statistics bureau is EPA.

Administration (2)

• EPA has separate fiefdoms for air, water, solid waste, pesticides, chemical substances, policy, and research.

• Use risk to set priorities – often opposite of public and Congressional perception.

• APA requires public notice, opportunity for public comment, and publication of final rule. (Compare other systems.)

Administration (3)

• “Red border” review• Contractors may screen public comments.• Over 80% of legal deadlines have been

missed by EPA.• Ossification(?) • Negotiated rulemaking (RegNeg) • Eliminate regulations that do not work?

Courts

• Review regulations as part of the rule-making process.

• Follow Congressional intent.

• Agencies must make rule-making records available.

• Standard of review is fact finding ….

• Courts defer to agency expertise.

Summary of regulation

• The U.S.regulatory process involves interactions between the three branches of government and the public.

• Regulatory agencies provide greater technical and policy making expertise.

• Regulation involves ethics.• Regulation often involves risk reduction.

So,risk analysis provides useful inputs.

More information

• Internet sites, e.g., Resources for the Future - www.rff.org • Email listservers, e.g., FDA-NEWSDIGEST-L@LIST.

NIH.GOV• Journals, e.g., Regulation magazine, published by the Cato

Institute.• Books, e.g., F. FUKUYAMA, The Great Disruption : Human

Nature and the Reconstitution of Social Order (ISBN: 068484530X) The Free Press, NY (1999).

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