Question

Suppose the impact of a risk is judged to be serious, but the likelihood of it happening is judged to be very small

(a) If the computed expected value consequence is small, the risk can be ignored
(b) The risk should be taken seriously
(c) If the computed expected value consequence is lower than others in the project, it should be addressed only if time and funds allow
(d) A different opinion should be sought that would yield a reduced or not severe impact

Answer 1

Serious risks with low probabilities must be taken seriously due to their potential catastrophic impacts. Dismissal based on a small expected value is a strategic error, and the recognition and preparation for such risks are crucial for effective risk management.

Step-by-step explanation:

Even if a risk has a low likelihood, it must be taken seriously if the potential impact is serious. Dismissing a risk solely because its expected value consequence appears to be small can be a grave misstep, particularly if the potential impact is catastrophic. In such contexts, adopting a conservative approach to risk management is prudent, as ignoring significant risks could lead to irreversible outcomes. To ignore a risk just because it has a lower expected value compared to others could well be a strategic miscalculation.

Identifying and acknowledging challenges is critical to effective mitigation. Historically, humans have taken precautions against rare but devastating events by mechanisms such as insurance policies. Similar to a state's decision-making process, businesses and individuals must weigh the possible consequences, however unlikely, and decide appropriately. Consultation, risk awareness, and prepared contingency plans are part of a responsible approach to managing low-probability, high-impact events.