Why Legal Negligence Test is not a Critical Test for an Operation?
Feb 23rd, 2011
Why Legal Negligence Test is not a Critical Test for an Operation ? Isn’t that an interesting question to discuss?
Many recognize that, in its simplest form,
Risk= (probability of a hazard occurring) x (Cost of consequences of the hazard hitting)
The definition is available in Hiromitsu Kumamoto and Ernest J. Henley, Probabilistic Risk Assessment and Management for Engineers and Scientists, 2nd edition (New York: Institute of Electrical and Electronics Engineers, Inc., 1996), p. 2.).
Therefore a company-wide risk can be expressed as the aggregation of individual risks. However such an aggregation may actually incur in unfortunate misjudgments in terms of selecting where to invest mitigative funds. The National Bureau of Standards, Guideline for Automatic Data Processing Risk Analysis, FIPS PUB 65(Washington, DC: U.S. General Printing Office, 1979 states that.
As a matter of fact, unfortunately, the earlier formulation has the disadvantage of being unable to distinguish between high-frequency, low-impact events and low-frequency, high-impact events. In many situations, the former may be tolerable while the latter may be catastrophic.
Ignoring the distinction may indeed put the company in a legal hazardous condition. That’s because tort law often uses the somewhat vague standard of the “reasonable man” to judge liability of negligence. We report below a definition.
As discussed in our BP case study adding to this vague standards the test of tolerance clearly brings value to the discussion. Indeed it adds “foreseeability and controllability” to management.
As a matter of fact it is often impossible to act “simultaneously on all required mitigations”. Thus it might be necessary to prove that the “efficacy and efficiency” were considered.
P= Probability of injurious event
C= Gravity (Consequences) of the resulting injury
M= Burden, or cost, of adequate precautions (Mitigations)
Injurer (Company) is negligent if and only if M<P x C
Legal Negligence Test is not a Critical Test for an Operation
In other words a Judge may deem a Company negligent only if Mitigative moneys spent (per annum) are less than the annualized risks. Clearly transparency and rationality constitute a strong a priori defence in case something would go wrong.
Let’s look at a two summarized case studies to prove the point made in the title.
A tailings dam in Canada
A tailings dam in a Canadian mine in Manitoba was assessed with a likelihood of failure of 10-5 per annum. After an interview with the personnel, we defined a costs of consequences within a 95% confidence level to 10 millions dollars. By strict application of the negligence criteria, the company would be negligent if and only if they spend less than 100 dollars for mitigative measures per year.
Of course the company would be the object of intense media and regulatory scrutiny should an accident occur. Even if the company is spending way above the threshold value it is difficult to imagine it would emerge unscathed from such a failure proving the point of the title.
Mine Access road in the Andes
In the Andes, a bus fleet shuttles the mine’s employees to different locations. After 10 years of regular services, a tragic accident took two lives. As management grew afraid of a crisis potentially ending into massive strikes, they asked Riskope to study possible alternatives to the system.
The review of existing road safety measures revealed that one millions dollars had already been invested in additional guard rails and buses were escorted, requiring an operational budget of 150 thousand dollars per year. For 10 years of operation it can then be said that the company was spending 0.25 millions dollars per year in mitigative measures.
Now, let’s assume that the probability of an accident is 0.001, an extremely high value, per year. A careful reader will indeed note that this value is absurdly high. For reference, in France or Switzerland where we have a strong data set, the value would be at least 2 orders of magnitude lower. The company would therefore be negligent if and only if the cost of consequences associated to that probability is 250 millions dollars or more.
This staggering value overcomes any accident scenario involving the shuttle buses. Consequently the company would not be negligent in the eye of the law. In the eye of the public and employees, however, it would most likely be a completely different story. Experience has shown that public outcry only explodes when a number of similar accidents occur. At that point the public perception shifts to “epideminc” mode.
In conclusion we have shown that the legal negligence test constitutes a bare minimum. It is not a critical factor for an operation’s safety, health and risk and crisis management. The negligence test is not an end, but only the start of a continuous process.
Tagged with: alternative, Analysis, assessment, catastrophe, cost, crisis, decision, development, Financial, holistic, management, operational, projects, risk, support, tolerance
Category: Consequences, Hazard, Mitigations, Probabilities, Risk analysis, Risk management, Tolerance/Acceptability