Petroleum Department Fourth Stage Risk Analysis

Ass. Lect. Waseem Ali

Risk Analysis
Risk and Uncertainty

Risk - a probabilistic estimate of how likely an event or exposure will be. If we

can calculate the risk and the potential damage from exposure, then we can
calculate the amount of money or effort we should expend to control that risk.

Uncertainty - a broad range of possible outcomes and complexity makes it

impossible to define a set of probabilities.

We can create and use scenarios to describe the different paths that may happen in
the future, but we have no way of knowing which future will actually happen.
Indeterminacy - there is some information that we will not be able to know.
Sometimes our actions actually increase indeterminacy because as we focus our
energy and mobilize resources to address a problem, we create a fundamentally
bigger set of outcomes .This larger set may include "surprises," which are
qualitatively different outcomes that are unexpected.

Types of Risk
1- Real risk: determined eventually by future circumstances when they develop
fully.
2- Statistical risk: determined by currently available data, typically measured
actuarially.
3- Predicted risk: predicted analytically from systems models structured from
historical data.
4- Perceived risk: seen intuitively by individuals.

Statistical risk and predicted risk are often called objective estimates whereas
perceived risk is known as a subjective estimate or sometimes, a personal
probability. Both statistical risk and predicted risk are derived from historical
information.
Petroleum Department Fourth Stage Risk Analysis
Ass. Lect. Waseem Ali

Real risk is often never able to be evaluated. It can only be determined in the
future if the risk is well defined temporally. This temporal element is very
important in any form of risk analysis since risk is oriented towards the future.

Difference Between Risk Assessment and Risk Analysis

Risk assessment is just one component of risk analysis. The other components of
risk analysis are risk management and risk communication. Risk management is
the proactive control and evaluation of risks while risk communication is the
exchange of information involving risks. Unlike risk analysis, risk assessment is
primarily focused on safety and hazard identification Fig ( 1 ).

Fig ( 1 )
Petroleum Department Fourth Stage Risk Analysis
Ass. Lect. Waseem Ali

Risk assessment is one of the major components of a risk analysis. Risk analysis
is a process with multiple steps that intends to identify and analyze all of the
potential risks and issues that are detrimental to the business. This is an ongoing
process that gets updated when necessary. These concepts are interconnected and
can be used individually.
Risk communication is the process of exchanging information and opinion on risk
to concerned parties. Risk management is the proactive control and evaluation of
threats and risks to prevent accidents, uncertainties and errors. Together with risk
assessment, these are all vital elements that help make informed decisions such as
mitigating risks.

It can be defined as the possibility of an event occurring and the likely adverse effects on
people, animals, property, facilities, and the environment. In other words, risk is a function
of the incident’s probability and its con sequences.

Risk = Probability + Consequences

Example
An oil industry spill study researched a tanker route and concluded that the risk of
spills of >10,000 bbls is 1 for every 110,000 bbls transported . In this case, risk
was defined as a function of probability of an oil spill incident occurring. An
assessment of the consequences of the event was not conducted. In this example,
risk was defined as:
Risk = Probability of Spill Occurring

A different risk study identified the impact of potential major oil spill incidents
(greater than 100,000 bbls) on surrounding geography such as sensitive habitats.
In this case, the risk assessment was based on the consequences of oil spill
incidents with little or no determination of the likelihood of an event actually
occurring. In this example, risk was defined as:
Risk = Consequences of Spilled Oil

We use the term experiment to refer to any process whose outcome is not known
in advance. Generally speaking, probability is a concept to measure the uncertainty
Petroleum Department Fourth Stage Risk Analysis
Ass. Lect. Waseem Ali

of an outcome of an experiment. (Classical simple experiments are to flip a coin

or roll a die.) With the experiment we associate a collection (set) of all possible
outcomes, call it sample space, and denote it by S . An element s in this set will be
denoted by s ∈ S and called a sample point. Intuitively, an event is a statement
about outcomes of an experiment. More formally, an event A is a collection of
sample points (a subset of S , written as A ⊂ S ) for which the statement is true.
Events will be denoted by capital letters A, B, C ; sometimes we will use indices,
e.g. Ai , i = 1,..., k, to denote a collection of k events.
The probability function is then used as a measure of the chances that a statement
about an outcome of an experiment is true. This measure is intended to help in
decision making in situations with uncertain outcomes.

Currently, the most common method of calculating the probability of discovery

for many petroleum companies is to use historical success ratios, which assumes
the subsequent chance of discovery is a series of independent events.
Unfortunately, while the concept is definitely useful for initial approximate
guidelines, it is not realistic in the “real” world of petroleum exploration.
Consequently, some explorationists prefer to adopt an alternative method of
geological risk evaluation that is more rational and practical by incorporating the
geological factors and geophysical evidence in the probability evaluation process.