Safety management and the use of expected values

Abstract

In this article we discuss a fundamental principle of decision-making under uncertainty; the use of expected values to support decision-making is the fundamental principle of decision-making under uncertainty. This principle is supported by the portfolio theory and is a ruling principle among economists. Also among some safety experts it is seen as a rational framework for decision-making. In this article we discuss the appropriateness of this thinking for the safety area. To what extent is the portfolio theory applicable for decision situations related to safety? The issue is important as it relates to the value of safety. Are investments in safety on the basis of application of principles such as robustness, precautionary, and risk aversion in conflict with the economic theory? Our starting point is the offshore oil and gas industry, but our discussion is to large extent general and could also be applied in other areas.

Keywords:

• safety management
• risk assessment
• cost-benefit analysis
• portfolio theory
• statistical expected values

Acknowledgments

The work was funded by the Norwegian Research Council. The support is gratefully acknowledged. A preliminary version of this paper was presented at the PSAM 7/ESREL 2004 conference in Berlin, June 2004.