Introduction to Risk Terminology

The world of risk management has a unique set of risk terminology.

Your ability to incorporate reliability concerns into risk discussions hinges on understanding the terms in use.

Let’s explore a few terms and how they relate to reliability engineering.

Risk

The effect of uncertainty on expected results or objectives. The article Definition of Risk Related to Reliability has a complete discussion about this term.

Upside risk

This generally refers to the financial or investment opportunity of a better return than otherwise available.

For reliability, this includes unexpectedly lower warranty costs due to a product performing better than expected.

The funds set aside to pay unrealized warranty claims could have served the organization if otherwise invested.

Downside risk

The unwanted or undesirable loss due to unexpected results.

For reliability, this is often the unexpected product recall or higher-than-expected field failure rate.

Despite our work to forecast warranty rates, there is a downside risk more failures will occur than predicted.

Risk control

The active management of risk is done with controls.

Statistical process control is a technique to mitigate the risk of an out-of-control process.

Objective

According to ISO 9001:2015, an objective is a ‘result to be achieved.” Reliability goals is an example.

Risk inventory

The output of a risk inventory.

The risks are to the organization or entity under consideration. The FMEA process is a form of risk assessment and results in a prioritized list of risks facing the system, design, or process.

Risk event

An unexpected occurrence of a particular set of circumstances.

The event may result in upside or downside risk manifesting.

Interested parties

Stakeholders come to mind.

Formally, ISO 9001:2015 describes interested parties as “a person or organization that can affect, be affected by, or perceive themselves to be affected by a decision or activity.”

From suppliers to customers, there are plenty of interested parties when considering reliability.

Inherent risk

The baseline existing set of risks before any explicit risk management activities or controls.

We take steps, such as design for reliability activities, to mitigate inherent risk with a design.

Risk appetite

At an organizational level, this is the desired or acceptable amount and type of risk.

This may be part of an organization’s strategy and may include a portfolio of different projects or programs, each with a different level of associated risk.

Risk tolerance

Like risk appetite, risk tolerance is the acceptable level of variation concerning the desired objectives.

For example, if we have a reliability goal of 98% reliable over 2 years, we may quantify our risk tolerance as a lower and upper bound to the percent surviving.

Risk management

The explicit decisions and activities that result in mitigating inherent risks.

ISO 31000 states risk management is the “coordinated activities to direct and control an organization with regard to risk.”

Our work as reliability professionals concerning the understanding and mitigation of field failures is a part of the larger risk management system.

Summary

What other terms are you hearing concerning risk?

Add your terms and definitions to the comments section below.