What role for social scientists in risk expertise?

When it comes to risks – health and environmental risks, like those linked to the use of nanotechnologies, pesticides, etc. – three main groups of actors are easily identified, brought together through boundary organisations such as environmental and sanitary risk agencies: the natural and technical scientists, who provide their expertise to assess risks (especially toxicologists, epidemiologists and microbiologists); the policy makers, who take decisions regarding risk management and risk regulation; the lay public, who are more and more involved in participatory frameworks. Sometimes three other groups of actors are added: the ‘economists’ who can for instance conduct cost–benefit assessments or multi-criteria analyses (especially ecological economists, public economists, political economists and social economists); the ‘philosophers’/‘ethicists’ who can use ethics to highlight moral choices and responsibilities in face of risks; and the ‘jurists’/‘legal experts’ who can justify authorisation or interdiction according to law. Inversely, there is a group of actors which is not clearly identified, that of social scientists, even though a considerable quantity of social science knowledge on risk has been produced. Why is there such a discrepancy? This article, based on a critical review of the literature, aims to make sense of the fuzziness surrounding the involvement of social scientists when it comes to risk expertise. The article shows that one reason for this puzzling situation is to be found in the gap between what social scientists often want to do when they are called in as risk experts and what natural scientists and public policy makers actually expect from them.     

A note on asset management and market risk

The textbook view on risk in asset management companies is summarized by Hull (Risk Management and Financial Institutions, p. 372, 2007): “For an asset manager the greatest risk is operational risk.” Using evidence from various panel regression models, we show that asset management revenues carry substantial market risks, a finding that challenges not only academic risk management literature on the predominance of operative risks, but also the current industry practice of not hedging market risks that are systematically built into the revenue-generation process. For asset management companies to return to an annuity model, these risks need to be managed more actively. Shareholders do not want to be exposed to market beta by investing in asset management companies; they want to participate in these companies’ alpha generation and take advantage of their fund-gathering expertise as financial intermediaries.     

APX: An Integrated Knowledge-Based System to Support Audit Planning

Auditors who must express an opinion on the financial statements of publicly held enterprises must perform a series of risk assessments as the basis for selecting appropriate audit procedures to be performed. Although many auditing expert systems have been developed for individual components of the audit risk assessment process such as inherent and control risk assessment, none integrate these assessments to arrive at the ultimate objective of assessing the allowable level of detection risk which drives audit procedure selection. This paper discusses critical design concerns for audit planning expert systems in light of the integrated nature of the steps involved in the audit planning process. The design and development of an integrated audit planning expert system called APX (Audit Planning eXpert) is also discussed. A distinguishing feature of APX is that it not only performs the individual types of risk assessments but it also integrates the resulting assessments to arrive at allowable detection risk. The knowledge acquisition and system development process are described to illustrate some of the mechanics of developing such a system.     

Modeling current and emerging threats in the airport domain through adversarial risk analysis

Airports are critical infrastructures entailing intense human, commercial and economic activity. As such, they are preferred targets for criminal and terrorist groups, who are attracted by the promisingly high revenues they might get from an attack. Every year, airport authorities worldwide have to face, with limited resources, attacks arising from different adversaries. There are several sensible areas within an airport organization that are especially vulnerable to the terrorist threat, including, among others: (1) those related to human lives (of passengers or staff); (2) airport infrastructure (airport perimeter, main terminal, Air Traffic Control Tower, runways, hangars, etc.); (3) aircrafts and other ground vehicles; and (4) IT systems and services. Besides the more traditional ones, we are particularly concerned with attacks launched against the last type of targets, an emerging and increasingly worrisome threat. Specifically, we analyze the impact of cyber-attacks launched by organized groups whose main goal is to take hold of airport operations. In some cases, in order to have more chances to achieve their purpose (and take advantage of its eventual success), cyber attackers may be backed up by a terrorist group who will try to interfere with the Air Traffic Management network. In this paper, we aim at supporting airport authorities in their fight against both threats, by devising a security allocation plan. We provide an adversarial risk analysis model to address the problem, and apply it to obtain the optimal portfolio of preventive measures in an illustrative case study. The model is open to extensions, as e.g. larger and more complex technical infrastructures, new threats, or additional recovery measures deployed by different defensive agents.     

SCENARIO GENERATION FOR OPERATIONAL RISK

Operational risk is an increasingly important area of risk management. Scenarios are an important modelling tool in operational risk management as alternative viable methods may not exist. This can be due to challenging modelling, data and implementation issues, and other methods fail to take into account expert information. The use of scenarios has been recommended by regulators; however, scenarios can be unreliable, unrealistic and fail to take into account quantitative data. These problems have also been identified by regulators such as Basel, and presently little literature exists on addressing the problem of generating scenarios for operational risk. In this paper we propose a method for generating operational risk scenarios. We employ the method of cluster analysis to generate scenarios that enable one to combine expert opinion scenarios with quantitative operational risk data. We show that this scenario generation method leads to significantly improved scenarios and significant advantages for operational risk applications. In particular for operational risk modelling, our method leads to resolving the key problem of combining two sources of information without eliminating the information content gained from expert opinions, tractable computational implementation for operational risk modelling, improved stress testing, what‐if analyses and the ability to apply our method to a wide range of quantitative operational risk data (including multivariate distributions). We conduct numerical experiments on our method to demonstrate and validate its performance and compare it against scenarios generated from statistical property matching for comparison. Copyright © 2013 John Wiley & Sons, Ltd.     

Expert judgement and lethal toxicity of inhaled chemicals

The application of formal expert judgement for assessing quantitative data of the toxicity of large amounts of inhaled chemical substances after a potential major hazards incident is described. In this particular application, the expert assessments were used to derive probit relations for the acute lethal effects of five hazardous substances: ammonia, acrylonitrile, hydrogen fluoride, sulphur trioxide and azinphos-methyl. The purpose of the study was to develop a protocol for selecting experts and the elicitation and analysis of expert assessments, to apply this protocol to generate probit relations for representative substances, and to evaluate the overall performance of the protocol. The use of formal expert judgement includes quantitative estimates of variables, calibration of experts and representation of uncertainty on the variables. This enables analysts to optimize combined experts' assessments for establishing quantitative results for further use in probit relations. Twenty-seven experts, distributed over the five substances, gave medians and 90% central confidence bands of the lethal dose-response relations under several conditions. The calculated dose-response relations are shown and compared to existing probit relations with respect to its impact on risk assessment outputs. The calculated relations can be applied in quantitative risk assessments, for example, under the Dutch law on major hazards installations. The scientific and practical efforts and costs of using the expert judgement technique are described.     

Risk assessment of highway bridges under multiple hazards

The aim of this paper is to provide a rational framework for the quantitative risk assessment of highway bridges under multiple hazards. Risk is a crucial indicator to be considered when managing structures of great importance such as highway bridges. It associates the consequences of a structural failure or malfunction with the probability of bridge failure. Time-dependent total risk is computed and the effect of structural redundancy is investigated and implemented. The proposed framework includes the estimation of the effects of multiple common hazards such as abnormal traffic loads, environmental attacks, scour, and earthquakes. The failure probabilities associated with the considered hazards are evaluated separately using different approaches. Time-dependent failure probabilities, hazard functions, and probability density functions of the time-to-failure are also assessed for each hazard. These assessments contribute to the evaluation of risk considering the traffic flow and the local economy at the bridge location. Both epistemic and aleatory uncertainties are considered in this approach. Time-dependent profiles of risk, accounting for direct and indirect consequences, are obtained for an existing highway bridge.     

How to deal with dissent among experts. Risk evaluation of EMF in a scientific dialogue

This article describes the results of a scientific discourse which aimed at exploring the reasons for differences in expert health risk assessment of radio frequency electromagnetic fields of mobile telephony.

It starts with describing the structure of the discourse. Then, the reasons for the conflicting risk assessments are discussed. Differences are due to the selection and evaluation of relevant scientific studies by applying different scientific quality standards, to the methods used for generating a research synthesis and an overall risk evaluation. Consensus could be achieved regarding the selection of and the quality requirements for the scientific studies used for risk assessment as well as their significance for risk evaluation. However, dissent remained about the synthesis of scientific evidence into an overall risk evaluation and about the relevance of the precautionary principle for risk evaluation and its implications for the risk assessment framework.

Based on the analysis of these problems, a transparent, consistent and rational procedure for risk assessment is suggested to facilitate a risk characterization which better meets the demands of policy making and the public for an appropriate risk evaluation.     

Consumer versus Expert Hazard Identification: A Mental Models Study of Mutation‐bred Rice

Novel foods have been the object of intense public debate in recent years. Despite efforts to communicate the outcomes of risk assessments to consumers, public confidence in the management of potential risks has been low. Various reasons behind this have been identified, chiefly a disagreement between technical experts and consumers over the nature of the hazards on which risk assessments should focus, and perceptions of insufficient openness about uncertainties in risk assessment. Whilst previous research has almost exclusively focused on genetically modified foods, the present paper investigates plant varieties developed by means of mutation breeding, a less‐debated class of novel foods. Two studies were conducted that investigated the mental models of experts and laypeople. The results revealed that the mental models of both groups differed in terms of scope, depth and the role of uncertainty. Furthermore, a number of misconceptions became apparent in the study of laypeople's mental models, often related to the regulatory system governing risk assessments of novel foods. Critical issue are outlined and communication needs are discussed.     

Risk regulation,community pressure and the use of management accounting in managing climate change risk: Australian evidence

This exploratory study is amongst the first to investigate how companies perceive the regulation of carbon emissions and the pressure exerted by the community in an environment characterised by risk and uncertainty. Semi-structured interviews were conducted among 39 executives who were directly involved in carbon emissions management in 18 large listed Australian companies. Consistent with Prospect Theory, we find that decision-makers are threat biased and are more likely to take immediate actions when climate change issues are framed as threats as opposed to opportunities. From the interview data, it is seen that managers use management accounting techniques as a risk management tool in mitigating risks associated climate change issues. Furthermore, this use of management accounting appears to be driven primarily by the protection of economic interests, regulatory pressure and reputational pressure. The study provides insights into how perceptions of climate change uncertainties and external pressure for disclosure of emissions information influence companies to use management accounting in managing climate change risk.     

How (not) to talk about the uncertain: siting geological disposal for highly radioactive waste in the Czech Republic

There is an ongoing controversy in the Czech Republic over where to site a deep geological repository for the country’s radioactive waste. Recently, the negotiations between municipalities and state authorities responsible for radioactive waste management experienced a sharp turn: after several years of dialogue guaranteed by the promise of the state authorities not to start site investigations at preselected sites without the consent of affected municipalities, the state authorities suddenly decided not to keep this promise, and to start site investigations without the municipalities’ consent, saying that time for dialogue will come after the site investigations will have been completed. This article explores the period of the failed dialogue with respect to how risks and uncertainties were treated in the negotiations. Drawing on two strands of scholarship on risk and uncertainty, the risk governance school and the STS perspectives on sociotechnical controversies, two paradigms for dealing with risk and uncertainty are outlined. These are used as a framework to analyse how implementers and local stakeholders articulated possible risk or uncertainty issues in negotiations about the Czech geological disposal between 2009 and 2013. The analysis shows that whereas the implementers adopt (sometimes even an extreme version of) the risk-based paradigm, the positions of the local stakeholders seem to be mixed. These observations lead to two conclusions: first, at the theoretical level, perhaps some of the STS literature was too quick to assume that people ‘want’ uncertainty. Second, at the practical level, it is suggested that in the light of the failed dialogue, it might be worth for the implementers to take a lesson from the uncertainty-based paradigm, and consider the possibility that perhaps still more work needs to be done in order to turn uncertainty into risk.     

From precautionary inadequacy to participatory risk management

This paper examines the case of mobile telephone infrastructure as an example of a contemporary risk defined by a lack of scientific evidence and consensus as regards potential or future harm. This uncertainty has led to recourse to the precautionary principle at the European, national, regional and local level of EMF risk management. Local risk governance of mobile telephone infrastructures in Catalonia can be seen as an example of a socio-technical complex system linked to risk perception which highlights the limitations of the precautionary principle in a scientifically uncertain context. Active participation of stakeholders and the public in risk management arenas is required if current technocratic risk management strategies are to be superseded by transparent processes of decision-making in risk management spheres.     

A framework for risk criteria for critical infrastructures: fundamentals and case studies in the Netherlands

Critical infrastructures are complex societal systems. For that reason, risk criteria for critical infrastructures are also ‘part’ of the risk criteria for complex societal systems. The questions to be resolved are: (1) are the societal risk criteria of complex systems defined and quantifiable; and (2) is it known how the risk criteria of critical infrastructures relate to the risk criteria of the complex system as a whole. In other words, what certainty is there that the risk criteria of critical infrastructures meet the risk criteria of complex systems as a whole. A complex system in this respect may be a society as a whole, e.g. a nation.     

Risk Management and Insurance-Related Journals: A Survey of Risk and Insurance Academics

This research provides an assessment of the utility and quality of risk management and insurance (RMI)-related journals using professorial expert opinion. Although Social Science Citation Index (SSCI)-produced citation counts and article impact factors are widely available and commonly used methods of journal comparison, they are limited to very few generally premier journals in any field, including RMI, leaving stakeholders with substantial gaps when benchmarking journal factors. We bridge this gap by comparing RMI faculty opinion of quality to SSCI assessments for 13 journals with results indicating general consistency across these measures. The expert opinion approach is extended to assess quality across a sample of 30 RMI-related publications, along with assigning journal categories delineated based on reported academic utility, contributing to RMI boundary definitions. Posthoc analysis indicates only modest influences for some individual, institutional, and journal-related factors on professorial perceptions, evidence that expert opinions are reliable measures of RMI journal utility and quality. Additionally, only modest differences are found in journal quality assessments by academics relative to the teaching versus research institutional mission of their employers, as well as across perceived individual teaching versus research role expectations. Thus, the expert opinion approach to evaluating utility and quality, coupled with regression and subsample analysis, aids RMI academics and other stakeholders in journal assessment and boundary definition issues. These contributions to the advancement of journal assessment methodologies in general may also prove useful across academic disciplines.     

The tests of a prince

When a CEO takes office, stakeholders dissect his or her intellectual, physical, and emotional capacities as they try to gauge whether the new leader will help them fulfill their aspirations and protect them from trouble. For the heir to a family business, the challenge of turning stakeholders into followers is particularly thorny: He or she must manage many constituencies--family members, directors, senior executives, investors, trade unions--that may not be convinced the successor has earned the right to hold the top spot. Making matters worse, says Lansberg, a family business expert, corporate scions usually ignore or greatly underestimate stakeholders. They don't realize that, particularly after they are formally anointed as CEOs, they must establish their credibility with and authority over these spheres of influence. Smart CEOs understand that their success depends on how well they respond to the iterative testing process that stakeholders use to make judgments about would-be leaders. This article offers a road map for managing the four kinds of tests that constitute iterative testing: Qualifying tests are assessments based on criteria--such as formal education, work experience, and professional awards--that executives can cite as evidence of suitability for the top job. Self-imposed tests are expectations that leaders themselves set and against which they assume stakeholders will measure their performance. Circumstantial tests are unplanned challenges or crises, during which stakeholders can observe the leader coping with the unexpected. And political tests are challenges from rivals who want to enhance their own influence, often by undermining the leader.     

Mapping uncertainty in genomics

The relatively novel and dynamic science of genomics holds many unknowns for stakeholders, and in particular for researchers and clinicians, as well as for participants and patients. At a time when many authors predict a future in which genomic medicine will be the norm, it is particularly relevant to discuss the unknowns surrounding genetics and genomics, including the notions of risk and uncertainty. This article will present a discussion regarding the uncertainty pertaining specifically to high throughput sequencing approaches, including the topic of incidental findings. This discussion will be guided by a taxonomy of uncertainty conceptualised around three areas of uncertainty: the source of uncertainty, the issues of uncertainty and the loci of uncertainty. This taxonomy can be used as a tool by all stakeholders involved in genomics to help further understand and anticipate uncertainties in genomics. Furthermore, to better contextualize this information, and also because this contribution is born out of an international project titled ‘Mind the Risk’, which addresses risk information in genetics and genomics from many different disciplinary perspectives, another aim of this article is to briefly present the basic issues pertaining to the unknowns, risks, and uncertainties of genetics as well as genomics for an audience of non-geneticists. Ultimately, the mapping out of uncertainty in genomics should allow for a better characterization of the uncertainty and consequently for a better management and communication of these uncertainties to end-users (research participants and patients).     

The dispositif of risk management: Reconstructing risk management after the financial crisis

Despite its dubious role during the global financial crisis of 2008, risk management has continued its expansion. This paper addresses the question why risk management, in the face of its evident failure to manage risks during the crisis, has retained its importance even today. We build on the existing critical literature on risk management (Power, 2007) and advance it by introducing a more rigorous consideration of power. We refer to the notion of the “permanent state of exception” as conceptualized by the Italian social theorist Giorgio Agamben, 1998, Agamben, 2005 in order to argue that risk is a powerful social category as it reflects a potential exception, challenging norms as well as normalizing forms of control. We conclude that a dispositif of risk management, an assemblage of institutions, regulations and models, lies at the heart of risk management. This dispositif provides elites engaged in risk management with an argument that allows them – in exceptional situations – to take extraordinary measures which cannot be rescinded after the initial state of exception has ended. The logic of the state of exception can be used as a discursive resource and adds to, but also gradually replaces, other forms of management control. Our study contributes to management control theory by focusing on post-disciplinary forms of control and provides a novel focus on how elites use management control systems for their own interests.     

RETHINKING RISK MANAGEMENT

This paper presents a theory of corporate risk management that attempts to go beyond the "variance-minimization" model that dominates most academic discussions of the subject. It argues that the primary goal of risk management is not to dampen swings in corporate cash flows or value, but rather to provide protection against the possibility of costly lower-tail outcomes –situations that would cause financial distress or make a company unable to carry out its investment strategy. (In the jargon of finance specialists, risk management can be viewed as the purchase of well-out-of-the-money put options designed to limit downside risk.)
By eliminating downside risk and reducing the expected costs of financial trouble, risk management can also help a company to achieve both its optimal capital structure and its optimal ownership structure. For, besides increasing corporate debt capacity, the reduction of downside risk also encourages larger equity stakes for managers by shielding their investments from "uncontrollables."
The paper also departs from standard finance theory in suggesting that some companies may have a comparative advantage in bearing certain financial market risks–an advantage that derives from information acquired through their normal business activities. Although such specialized information may lead some companies to take speculative positions in commodities or currencies, it is more likely to encourage "selective" hedging, a practice in which the risk manager's "view" of future price movements influences the percentage of the exposure that is hedged.
But, to the extent that such view-taking becomes an accepted part of a company's risk management program, it is important to evaluate managers' bets on a risk-adjusted basis and relative to the market. If risk managers want to behave like money managers, they should be evaluated like money managers.     

An Application of Data Envelopment Analysis to the Evaluation of Audit Risk

This article demonstrates how data envelopment analysis can be used to weight audit risk factors. Data from a previously reported study applying the analytic hierarchy process is used to facilitate a comparison between these two methods. Data envelopment analysis (DEA) has several advantages, including the ability to accommodate a range of expert opinions on the importance of a specific risk factor, rather than using the median or mean value. DEA can be used to provide high-risk and low-risk assessments and provides benchmark audit units from which other units can be evaluated.