(94c) The Application of Peak Risk Concepts within a Corporate Risk Program

Typically corporate risk criteria are designed for the evaluation of risks associated with ongoing activities, and are normally expressed in units consistent with an annual basis, such as events per year. This approach generally aligns well with routine activities and normal operating conditions. However, for one time events or periodic events this approach can be misapplied in that the short time period (exposure time, time at risk) for the occurrence of the event, may skew the results. More concerning is that this skewing of results can create an environment where high risk, short-term activities are viewed as being acceptable. For example, if an event occurs only once per year with a duration of one week (approximated as 1/50th of a year) then the inclusion of this 1 in 50 factor within a risk assessment may result in the risk associated with this activity being deemed acceptable even if the peak risk associated with this time period is as much as 50 times greater than that which would normally be accepted. As such a hypothetical facility that produces a different product each week of the year could have an aggregate risk level that is 50 times higher than that which would be allowed if the facility were to be involved in the production of only one product over the course of the entire year. Not including the exposure time/time at risk factor within the risk assessment process can effectively solve this problem, however, this will result in a situation where considerable risk resources may be directed at one time events. As such this approach likely does not deploy corporate capital in an efficient manner. It is therefore being proposed that organizations construct a second risk criterion to address peak risk. This second criterion will attempt to balance the need to protect the organization from high risk activities while recognizing that the deployment of capital towards onetime events also has an impact on the business. This paper will discuss the development of a peak risk criterion and its application to short-term and one time activities.