15.8 Risk Tolerance and Acceptability Thresholds
251
15.8 Risk Tolerance and Acceptability Thresholds
In Fig. 15.8 an orange line represents the corporate tolerance curve (see Sect. 13.2.1)
selected by the owner of the portfolio. For this particular corporation a 100 M$ loss
event with a frequency of one out of ten years is intolerable. Also intolerable is
an event generating a loss of 4500 M$ (4.5 B$) with a probability at the limit of
credibility (10
−6 ).
In Fig. 15.8 the yellow squares depict the C min scenarios (i.e., without the RD)
and the optimistic probability of failure (p fmin and C min ) for each dam. Only Dam
4 is intolerable under these conditions. However, as history has demonstrated in
various occurrences, neglecting the reputational damages is a flawed and unrealistic
approach.
Figure 15.9 only displays the blue squares, representing for each dam the c max
and the pessimistic probabilities of failure (p fMax and C max ).
As discussed above, out of prudence, from this point on we will focus the discussion on the results displayed in Fig. 15.9.
We immediately see that Dam 1A, Dam 2 and Dam 3 are below the selected
corporate tolerance. Also, Dam 4, Dam 1B, and Dam 2 interdependent on Dam 3 are
all above tolerance.
Figure 15.10 displays the total risk for each structure as the sum of the tolerable part—i.e., the portion below tolerance (blue)—and the intolerable portion
(orange)—i.e., the portion of the risk above the tolerance.
Figure 15.10 shows that prioritizing a portfolio mitigation plan based on total risk
(blue + orange)—i.e., without considering the corporate tolerance to risk—would
be far than optimal and lead to squandering of mitigation capital because:
• Dam 3, tolerable, would be mitigated before Dam 1B, which has an intolerable
portion of risk, and
Fig. 15.8 In blue p fMax and C max for each dam, and in yellow p fmin and C min for each dam.
Corporate tolerance is displayed in yellow
251
15.8 Risk Tolerance and Acceptability Thresholds
In Fig. 15.8 an orange line represents the corporate tolerance curve (see Sect. 13.2.1)
selected by the owner of the portfolio. For this particular corporation a 100 M$ loss
event with a frequency of one out of ten years is intolerable. Also intolerable is
an event generating a loss of 4500 M$ (4.5 B$) with a probability at the limit of
credibility (10
−6 ).
In Fig. 15.8 the yellow squares depict the C min scenarios (i.e., without the RD)
and the optimistic probability of failure (p fmin and C min ) for each dam. Only Dam
4 is intolerable under these conditions. However, as history has demonstrated in
various occurrences, neglecting the reputational damages is a flawed and unrealistic
approach.
Figure 15.9 only displays the blue squares, representing for each dam the c max
and the pessimistic probabilities of failure (p fMax and C max ).
As discussed above, out of prudence, from this point on we will focus the discussion on the results displayed in Fig. 15.9.
We immediately see that Dam 1A, Dam 2 and Dam 3 are below the selected
corporate tolerance. Also, Dam 4, Dam 1B, and Dam 2 interdependent on Dam 3 are
all above tolerance.
Figure 15.10 displays the total risk for each structure as the sum of the tolerable part—i.e., the portion below tolerance (blue)—and the intolerable portion
(orange)—i.e., the portion of the risk above the tolerance.
Figure 15.10 shows that prioritizing a portfolio mitigation plan based on total risk
(blue + orange)—i.e., without considering the corporate tolerance to risk—would
be far than optimal and lead to squandering of mitigation capital because:
• Dam 3, tolerable, would be mitigated before Dam 1B, which has an intolerable
portion of risk, and
Fig. 15.8 In blue p fMax and C max for each dam, and in yellow p fmin and C min for each dam.
Corporate tolerance is displayed in yellow