QUANTITATIVE REPRESENTATION OF RISK

BILAL M. AYYUB AND MARK P. KAMINSKIY

Center for Technology and Systems Management, Department of Civil and Environmental Engineering, University of Maryland, College Park, Maryland

1 INTRODUCTION

Risk representation is defined as the description of risk in an appropriate manner for a decision-making situation. The representation of risk that would retain an appropriate level of information is essential to decision makers, and should be tailored for specific applications and types of decision-making situations under consideration.

Risk is defined as the potential for loss or harm to systems due to the likelihood of an unwanted event and its adverse consequences. The term potential is used in the definition to imply uncertainty as a central notion to risk. Uncertainties are inherent in both the likelihood of the unwanted event and in the consequences including their nature and severity. Loss or harm includes all negative consequences, including both tangible effects such as human casualties and/or financial losses and less tangible impacts such as political instability, decreased morale, and reduced operational effectiveness. The term event represents the occurrence that triggers scenarios and the consequences. While consequences of an event can be both advantageous and/or adverse, risk considers only the adverse consequences—meaning that risk is a function of perspective. Risk to us is opportunity to our adversaries. The term likelihood refers ...

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