International Journal of Risk Assessment and Management (18 papers in press)
Economic and mathematical modelling of food security in Ukraine
by Oksana Kardash, Liubomyr Hladun
Abstract: The economic and mathematical model of food security in Ukraine was made in the form of regressive dependence of the integral index of food security on the singled out factors: provision, independence, physical accessibility, quality and safety. For this, the set of indicators of food security was replaced by fewer of the most significant uncorrelated components (factors). A component analysis was taken as a scientific and methodological basis of this replacement. The results obtained following the verification of the model indicate its adequacy to statistical data, the significance of the model as a whole and its parameters, the close direct linear relationship between the factors, and the integral index of food security. Validation of the constructed food security model was based on the method of element-by-element cross-validation.
Keywords: food security; food security indicators; economic and mathematical model; factor analysis; normalisation; factor loadings; the method of principal components; inverse factor axes; varimax normalized method; verification of the model; cross-validation statistics.
Mathematical modelling of grain production profitability in Ukraine taking into account risks
by Petro Mykhailovych Hrytsiuk, Tetiana Babych
Abstract: Ukraine is an agrarian state. One of the most important brunches of the agriculture sector is grain production. A high yield of grain is a basis of Ukrainian food security. Therefore the task of developing a reliable mathematical model forecasting the grain production profitability is important. Regression analysis and fuzzy simulation principles have been used for building a grain production profitability model from crop production in the last two years, using the average price of grain in the country and grain production costs. The values profitability forecasting for 2015 obtained by three different methods are convergent to each other. The contributions of factors such as yield, the price of grain and the cost of grain production to the fluctuation of grain production profitability have been also analysed.
Keywords: mathematical modelling; grain production; profitability; regression analysis; yield; crop production; statistic model; fuzzy logic; membership function; risk; trend; variation.
General physical principle in dynamic model of reliability
by Vladimir Prourzin
Abstract: The general approach to the description of dynamic models of reliability is offered for variable loads. The approach is based on a general physical principle of reliability offered by us for dynamic systems. The dynamic system presents a change of vector of state variables of a system, depending on initial states and loads. The physical principle of reliability postulates the existence of such a set of state variables for which reliability of an engineering system at the current time is determined only by the current values of these variables and does not depend on their previous history. As a consequence, the non-negative hazard of failure function is defined in the state system space. As a result, examination of the reliability of an engineering system with variable loads is reduced to solution of a system of ordinary differential equations. Expressions for reliability indexes are obtained. Results of the work can have applications in the reliability, safety and risk theory, in accelerated tests, in the area of fatigue damage accumulations at variable loads, in diagnostics, and in medicine.
Keywords: reliability; physical principle; variable loads; dynamic model; diagnostic variables; accelerated tests; physics of failures; damage accumulation; heat ageing of a winding insulation.
Current volatility as a measure of market risk
by Kussy Mikhail
Abstract: This paper describes an approach to the definition of market risk and specifies its differences from the economic and financial risks. The necessity of taking into account the social component in the analysis of market risk is shown. Two different types of market risk are identified. Convincingly, the article shows the inconsistency of the use of the existing methods for measuring volatility as a measure of market risk, as defined in the article. The article puts forward a new kind of market volatility, which is qualitatively different from the types of volatility considered here. By means of the Grassberger-Procaccia entropy we prove that the proposed measure of current volatility can be adequately used as a measure of market risk. The algorithms of the use of the current volatility measure as a quantitative measure of market risk of both types are offered.
Keywords: volatility; current volatility; economic risk; financial risk; market risk; quantitative measure of market risk; entropy; market price; Japanese candlestick.
Strategic supply risk. Exploring the risks deriving from a buying firm being of low importance for its suppliers
by Mauricio Reichenbachs, Holger Schiele, Petra Hoffmann
Abstract: This paper merges two important concepts: preferred customer and supply risk. As not all customers are of the same strategic importance to a supplier, some customers are treated preferentially. Thus, a new type of supply risk can be observed, describing the risk for buyers of not being a preferred customer of their supplier(s) and as a consequence receiving less privileged treatment from a common supplier than its competitors. This risk is called strategic supply risk. This qualitative study uses the world caf
Keywords: strategic supply risk; supply chain management; risk management; preferred customer.
Risk levelling: an organised risk management approach
by Shahid Rasheed, Faiza Yaqub, ChangFeng Wang, Suhail Memon, Bruno Lucena
Abstract: Macro environments occupy ever more significance in the growing business worlds. Whereas industrial enterprises assume greater controls in managing their internal environs, the evident responsibility of governments is to regulate the risks surrounding business, to optimise the external environments, and to deliver conditions that are conducive to business. In such a context, this paper presents a specialised approach risk levelling that embraces a focused risk management concept as well as an explicit risk management methodology. Risk levelling accentuates organised and efficient consumption of available resources to achieve balanced risk postures in the business environment. The ultimate intentions of risk levelling are not only to cut the risks to business acceptability limits but also to ensure that mutual risk parities are conserved. Such intent is pursued through an organised procedure that employs a mix of analysis tools and philosophies, including the AHP and the ALARP. By settling the contextual risks to business acceptability bounds, risk levelling aims to facilitate the regimes in regulating the macro business environments for the wellbeing of business.
Keywords: risk management; macro business environment; risk levelling; organised approach.
Risk management in small and micro construction firms undertaking repairs and modernisation of residential houses: a case study from India
by Milind Phadtare, Anand Gosavi, Tapash Kumar Ganguli
Abstract: This paper identifies risk factors and suggests their mitigation in small and micro construction firms undertaking repairs and modernisation projects in residential houses. It uses a case study approach with a combination of work breakdown structure and fault tree analysis to identify risk factors in repairs and modernisation projects. Fifty two risk factors have been identified. Risk factors such as damage to household goods during shifting, injury to the labourers during shifting household goods, damage to household goods during packing, damage to household goods during unpacking and accidents during shifting of household goods have been found typical for small to micro construction firms involved in repairs and modernisation of residential houses. The suggested risk treatment reflects the lite version of project management and is validated by discussing with construction professionals and owners of small and micro construction firms. Risk retention, risk sharing and risk prevention are recommended for treatment of risks. This study is qualitative in nature and its scope is limited to Indian context only.
Keywords: small firms; micro firms; repairs; modernisation; residential; construction; risk; India.
An agent-based model of rational optimism
by Pedro J. Gutierrez, Carlos Rodriguez-Palmero
Abstract: We prove that, in standard insurance markets, rational agents have an incentive to choose as subjective probabilities those incurring in an optimistic bias, since they imply real and objective net gains. Our agent-based model of insurance markets thus clarifies how rational optimism naturally appears and persists in insurance markets, opening up the possibility to explain the optimism bias observed in other environments on the basis of the theory of salient perturbations. Our findings are consistent with the empirical evidence, showing a systematic and coherent moderate optimistic bias of agents in the assessment of probabilities.
Keywords: agent-based stochastic model; dynamical optimisation in economics; general equilibrium model; Arrow-Debreu securities; subjective probabilities; rationality; optimism bias; game theory.
Economic impacts of avian influenza disease control strategies in USA due to Texas outbreaks
by Jianhong Mu, Bruce McCarl
Abstract: We compared the economic consequences of imposing a quarantine with and without adding vaccination in controlling Avian Influenza (AI) outbreaks. We evaluated the benefits of using a partial equilibrium, the US agricultural sector model, and found that the strategies were not significantly different in their benefits if consumer demand was not reduced by concerns over the outbreak. However, we did find impacts differed when the outbreak was associated with a consumer demand reduction. Specifically, under a scenario where consumers reduced demand by 20%, the quarantine with vaccination strategy was found to dominate the quarantine-only strategy. In contrast, we found the quarantine-only strategy was relatively more cost-effective when there was no demand reduction.
Keywords: avian influenza; vaccination; quarantine; demand reduction; economic evaluation.
Integrated management systems: linking risk management and management control systems
by Thomas Berger, Werner Gleissner
Abstract: The success of a company basically depends on the quality of entrepreneurial decisions taken by the board of directors or the management in general, which means that the systems and tools for preparing such decisions are critical success factors for the quality of decision itself. A companys management systems and especially its procedures for preparing decisions must be in a position to enable the decision makers to weigh possible returns against the associated risks. This is necessary to predict the possible implications of a decision not only on the companys future rating grade but also on the companys value as a measure of success. When a decision is being prepared, their effects on enterprise value and rating grade must be made transparent as part of the decision-making. We argue that this is done best by means of integrated management systems which, in particular, link management control and risk management.
Keywords: risk management; management control system; performance management system; valuation; rating.
Risk assessment in the industrial radiography practice in India using a probabilistic approach
by Alok Pandey, Prashaunt S. Rawat, Avinash U. Sonawane
Abstract: Industrial gamma radiography uses appropriate radioisotopes housed in radiography devices that provide shielding from the ionising radiations, for imaging of the weld joints and castings. The radiography devices are operated manually by rotating the control unit to project the gamma source outside the shielding, in a projection sheath. Deviation from the standard operating procedures or malfunctioning of the gamma radiography equipment may result in potential exposure to occupational workers. Probabilistic safety assessment has been carried out to calculate the probabilities of potential exposure to occupational workers in industrial gamma radiography practice in India. Fault trees were designed for failure assessment of area monitoring instruments, the functionality of which is crucial to ensure safe industrial gamma radiography operations. Operational procedures leading to the potential exposure scenarios have been sequenced in the event tree. The probability of most severe potential exposure category is calculated as 3.506E-04 for open field radiography operations and slightly lower value of 1.293E-4 for enclosed radiography operations. Assessment results identify the contributory factors to potential exposure, with their relative contributions. Results indicate that the probability of potential exposure can be reduced by adopting safe work practice by operators and responsible attitude of radiological safety officers towards trainees and untrained persons.
Keywords: potential exposure; industrial gamma radiography; probabilistic safety assessment; Delphi survey; occupational exposure; radiation protection.
Special Issue on: Management of Safety in Socio-Economic Systems
Logical and probabilistic analysis of the reliability of the metallurgical complex electric supply
by Vadim Alexeev
Abstract: This paper deals with the problem of choosing a more preferable electric supply scheme of the metallurgical complex from the reliability problem of view. The algorithm of solving this problem using the logical probabilistic approach is presented. The structural, logical and probabilistic models of the systems reliability have been developed for three power supply connection options. Computational studies have been conducted, the contributions of the elements to the reliability of the system have been determined.
Keywords: reliability; logical probabilistic approach; structural model; logical model; probabilistic model; analysis of contributions.
Analysis of approaches to modelling of attitude to risk in normative decision making methods
by Oleg Uzhga-Rebrov, Ekaterina Karaseva
Abstract: There are many methods to make decisions under risk. They can be divided into two large classes: normative (or prescriptive) methods and descriptive methods. Normative methods appoint how individuals have to make optimal decisions based on certain decisive rules (selection criteria). Descriptive methods use empirical evidence about how individuals make optimal decisions in reality. There are a number of normative methods to make decisions under risk, which we mention in this paper as direct methods. The main feature of all direct methods is using information about criterion estimations of the outcomes of alternative decisions and the probabilities of their realisations only. Another popular tool to make decisions under risk is expected utility theory. In accordance with this theory, the utility function is constructed with the use of a set of criterion estimations of the outcomes of alternative decisions and, based on this function, criterion estimations of outcomes are transformed into estimations of utilities. Further relevant operations are performed in spaces of estimations of utilities and probabilities of outcomes. The attitude to risk of a decision-making person plays the main role in decision making under risk. Therefore, attitudes to risk have to be effectively modelled and considered in the decision-making procedure. In this paper, we consider and analyse approaches to the modelling of attitude to risk by the use of various normative methods of decision making under risk.
Keywords: risk; risk perception; risk attitude; risk aversion; risk-seeking; risk neutrality; decision making direct methods; utility; expected utility theory.
Mathematics for management of socio-economic system safety
by Ekaterina Karaseva
Abstract: In this paper, we are considering the mathematics that is useful for economists to manage socio-economic systems safety. Logical and probabilistic (LP) risk models, new mathematics, complex calculations and specialised software are considered. The concepts of invalidity in economics and top-economics are presented. New Boolean events-propositions and LP risk models are described. Techniques for the synthesis of casual event probability by one or several experts are stated. Specialised software Arbiter and Expa are described.
Keywords: risk; economics; management; safety; logics; probability; socio-economic system; invalidity; estimation; analysis; model.
Hybrid logical and probabilistic models for management of socioeconomic safety
by Eugene Solozhentsev, Vasily Karasev
Abstract: Hybrid logical and probabilistic (LP) models and software based on Top-Economics are presented. Hybrid LP risk models contain following subjects in problem decision: government, legislative authorities, business, scientists, public opinion and objects (tasks), which are the sense of the problem. Statements of Top-Economics, its features and advantages are stated. Concept 'invalidity' in the economics is developed by analogy with the reliability and safety in the engineering. New Boolean events-propositions and new LP risk models for economic safety management are described.
Keywords: hybrid risk LP model; socio-economic problems; corruption; drug addiction; innovation system; Top-Economics; invalidity.
Reputation aspects in investment decision making: contribution to corporate security
by Maria Bakumenko, Anatoliy Sigal
Abstract: This article deals with a substantial threat to corporate security a decline in corporate reputation. Corporate reputation is regarded as the most important intangible asset of corporations. Investment project implementation may greatly affect corporate reputation, both positively and negatively. Therefore, investment decision making requires consideration of how project implementation affects corporate reputation and application of ethics and social responsibility. We suggest an index to consider the impact of investment project implementation on corporate reputation at the pre-investment phase the Reputation Improvement Index. To evaluate weight numbers, which are part of the Reputation Improvement Index, the analytic hierarchy process is recommended. Also, we propose a model to evaluate weight numbers, based on solution of a respective matrix game, and give a case study. We conclude that the Reputation Improvement Index, along with traditional methods of investment decision making and risk consideration, lowers corporate threats at present and in the long term.
Keywords: corporate security; corporate reputation; investment project; investment decision making; corporate ethics; corporate social responsibility; model; Reputation Improvement Index; risk; matrix game.
Quantitative examples of safety assessment using logical-probabilistic methods
by Igor Ryabinin
Abstract: The article presents examples of solving the tasks of the analysis of the safety of complex technical systems by using logical-probabilistic methods (LPM). LPM are characterised by sufficient visualisation and simplicity of formalisation of the hazardous state of the object in the form of the shortest paths of the hazardous state or hazardous state scenario. Parametric representation of logical functions (Boolean sum and products of initiating events and initiating conditions) is carried out using the methods of orthogonalisation. Determination of individual and total contribution of events in the probability of realisation of a dangerous condition can allow one to plan the activities to ensure the safety state of the object. In this article, examples are solved with the use of ARBITR software.
Keywords: dangerous state; the shortest path of the dangerous state; an initiating event; an initiating condition; risk assessment; functional integrity schemes.
Top-economics. Management of socioeconomic safety
by Eugene Solozhentsev
Abstract: This paper suggests and develops a new scientific discipline 'Top-economics', and introduces invalidity in economy by analogy with failure in reliability in engineering. We adduce definitions of top-economics and invalidity in economics. We describe advantages and features of top-economics. The paper examines the components of top-economics: methods, models, technologies, problems, objects and special software. New types of Boolean events-propositions are introduced, and new types of logical and probabilistic risk models for management of the socioeconomic safety of social and economic systems are proposed. The synthesis method of event probabilities in logical and probabilistic risk models is discussed. An example of managing socioeconomic safety in Russia is provided. It illustrates the methods of risk analysis and management, as well as the management of the economic war with sanctions.
Keywords: top-economics; management; socioeconomic safety; events-propositions; logic; probability; hybrid; conceptual; indicative; invalidity risk model; social and economic systems.