On the Difference Between Risk as Seen From the Perspectives of the Analysts and Management

In its general form, risk is quantitatively described by analysts by identifying a set of consequences $C$ of an activity and using a measure $Q$ to express the uncertainties related to these consequences. This risk description $(C,Q)$ is based on a background knowledge $K$⁠, including assumptions on which the $(C,Q)$ assessment was found. The purpose of the present paper is to draw attention to the fact that risk from the perspective of the decision-maker necessarily needs to see beyond $(C,Q)$⁠; judgments of the background knowledge $K$ of the analysts are an integral part of the management’s and the decision-maker’s risk description and evaluation. Thus, this risk description of the analyst is $(C,Q|K)$⁠, whereas the management and the decision-maker need to reflect on the unconditional description $(C,Q,K)$⁠, seeing $K$ as containing potential risk sources. Ways of characterizing this risk are presented and discussed. An example from the oil and gas industry is used to illustrate the discussions and show the importance for the practice of risk assessment and management.