Understanding risk assessment

Good risk assessment can help decision-makers see more clearly, writes Roelof Bezuidenhout.

Understanding risk assessment
To buy or not to buy? To sell or not to sell? Because they can drastically affect other activities on the farm in unexpected ways, important decisions need to be based on risk assessments.
Photo: FW Archive

Farmers spend many restless nights asking themselves questions such as “Should I go into game ranching?” or “How much should I pay for the property next door?”

As the decision to take a certain action, or pass an opportunity by, could have profound consequences, it makes sense to tackle any big step in a structured way.

Even a small change in the way things are done can drastically affect other activities – even the lifestyle – on the farm in unexpected ways. Doing a proper risk assessment can go a long way towards preventing expensive mistakes.

The value of assessing risk

‘Climate Change: A risk assessment,’ recently released by the University of Cambridge’s Centre for Science and Policy (csap.cam.ac.uk), gives valuable guidelines that can be applied to any activity.

A true risk assessment is not an exercise in negativity. It will improve your understanding of the problems you might face, and, at the same time, point to possible solutions.

At least try to get a rough idea of the big picture and what the consequences of your decisions might be. What do I want to do? What could go wrong? How likely is that?

Two other questions are critical, notes the report:

  1. How will I know if my plan is working or not in time to change it?
  2. If I’m wrong, how high would the cost be? Often the answer to this is far from obvious.Of course, no risk assessment is infallible, but it does allow decision-makers to weigh up choices for action in an uncertain environment. At the same time, it has to pay attention to low probability, high-impact risks – that is, to identify scenarios that could have the greatest impact, even if the probability is low. 

In other words, good decisions are often based on exploring worst-case scenarios and then using this information to mitigate the risk.

The military constantly deals with decision-making based on imperfect information and uncertainty. General Gordon Sullivan, former Chief of Staff of the US Army, put it well: “We never have 100% certainty. If you wait until you have 100% certainty, something bad is going to happen on the battlefield.”

Or as the old adage has it: plan for the worst, hope for the best, and accept anything in between – and act.

Some Guidelines
The time period for which a risk assessment can be meaningful depends on the quality of information available and the degree of complexity of the risks. You cannot look further ahead than available information or reasonable judgement will allow.

This is why risk assessments need to be made on a regular and consistent basis, so that any changes or trends in areas of uncertainty are spotted. Here are some guidelines:

  • Identify risks in relation to objectives. Ask what might happen that could most affect your interests, and then how likely that would be to occur;
  • Identify the biggest risks. The more a risk can affect your objectives, the more important it is in your decision-making. In practice, the risks of most concern are usually those with the greatest impact, especially when there is potential for irreversible consequences;
  • Consider the full range of probabilities. When a probability of something going wrong cannot be meaningfully quantified, consider a ‘plausible worst case;’
  • Use the best available information. Even where there is deep uncertainty, a best estimate – based on available information – is usually better than no estimate at all. If there is no information available at all, that in itself might be relevant to your decision-making, as it would be to a man walking along a cliff-top in a heavy fog;
  • Take into account all relevant factors as far as possible, including human behaviour and the complex interactions between different parts of a farming operation;
  • Be aware of value judgements. Subjective value judgements are inherent both in identifying what constitutes a risk (that is, what it is that we might wish to avoid), and in deciding how much we care about the issue.

Once a risk has been identified, however, the assessment of its likelihood should be entirely objective, based on the best available information.