Expert Intuition and Risk Management

Saturday Morning Breakfast Cereal source

Risk management is a crucial aspect of any organization or project. However, it is often subject to human errors in subjective risk judgments. This is because most risk assessment methods rely on subjective inputs from experts. Without certain precautions, experts can make consistent errors in judgment about uncertainty and risk.

There are methods that can correct the systemic errors that people make, but very few organizations implement them. As a result, there is often an almost universal understatement of risk. We need to keep in mind a few rules about experience and expertise.

  • Experience is a nonrandom, nonscientific sample of events throughout our lifetime.
  • Experience is memory-based and we are very selective regarding what we choose to remember,
  • What we conclude from our experience can be full of logical errors
  • Unless we get reliable feedback on past decisions, there is no reason to believe our experience will tell us much.

No matter how much experience we accumulate, we seem to be very inconsistent in its application.

Experts have unconscious heuristics and biases that impact their judgment, some important ones include:

  • Misconceptions of chance: If you flip a coin six times, which result is more likely (H= heads, T= tails): HHHTTT or HTHTTH? They are both equal, but many people assume that because the first series looks “less random” than the second, it must be less likely. This is an example of representativeness bias. We appear to judge odds based on what we assume to be representative scenarios. Human beings easily confuse patterns and randomness.
  • The conjunction fallacy: We often see specific events as more likely than broader categories of events.
  • Irrational belief in small samples
  • Disregarding variance in small samples. Small samples have more random variance that large samples is considered less than it should be.
  • Insensitivity to prior probabilities: People tend to ignore the past and focus on new information when making subjective estimates.

This is all about overconfidence as an expert, which will consistently underestimate risks.

What are some ways to overcome this? I recommend the following be built into your risk management system.

  • Pretend you are in the future looking back at failure. Start with the assumption that a major disaster did happen and describe how it happened.
  • Look to risks from others. Gather a list of related failures, for example, regulatory agency observations, and think of risks in relation to those.
  • Include Everyone. Your organization has numerous experts on all sorts of specific risks. Make the effort to survey representatives of just about every job level.
  • Do peer reviews. Check assumptions by showing them to peers who are not immersed in the assessment.
  • Implement metrics for performance. The Brier score is a way to evaluate the result of predictions both by how often the team was right and by the probability the estimated for getting a correct answer.

Further Reading

Here are some sources that discuss the topic of human errors and subjective judgments in risk management:

Bow-Tie Diagram

The bow-tie method is a powerful tool for visualizing and managing risks. Named after its distinctive shape, this tool is used to analyze the causes and consequences of potential risks.

At the center of the bow-tie diagram is the “top event,” which represents the risk being analyzed. On the left side of the diagram are the potential causes of the top event, while on the right side are the potential consequences. The diagram also includes barriers or controls that can be put in place to prevent or mitigate the risk.

To create a bow-tie diagram identify the “top event” representing the risk being analyzed. This is placed at the center of the diagram.

Next, you identify the potential causes of the top event and place them on the left side of the diagram. These causes can be further broken down into sub-causes if necessary.

On the right side of the diagram, you identify the potential consequences of the top event. These can also be further broken down into sub-consequences if necessary.

Once you have identified the causes and consequences of the top event, you can then add barriers or controls to the diagram. These are measures that can be put in place to prevent or mitigate the risk. Barriers can be placed between the causes and the top event to prevent it from occurring, while controls can be placed between the top event and its consequences to mitigate their impact.

The bow-tie method works by providing a clear and concise visual representation of a risk and its potential impacts. This allows stakeholders to better understand the risk and identify areas where additional controls may be needed.

This tool also works nicely with desirable consequences.

This picture showed up when I typed bow-tie on my computer. It’s relevant

Detectability in Risk Management is a “Sort of” “Sometimes” thing

I’ve recently seen a few audits that point out something along the line of “Recommendation to revise Quality Risk Management Process/Procedure to include detectability as a variable in determining Risk Priority Numbers (RPNs).  The current process only includes the frequency and severity of impact in the calculation.  However, ICH Q9 also recognizes the use of risk management tools which include the ability to detect harm (detectability) in the estimation of risk (refer to the section titled “Risk analysis”).”

So, first of all, that’s not what Q9 says. Q9 (R1) is actually pretty clear here, stating “Risk analysis is the estimation of the risk associated with the identified hazards. It is the qualitative or quantitative process of linking the likelihood of occurrence and severity of harms. In some risk management tools, the ability to detect the harm (detectability) also factors in the estimation of risk.”

Q9 later goes on to state “Quality risk management supports a scientific and practical approach to decision-making. It provides documented, transparent and reproducible methods to accomplish steps of the quality risk management process based on current knowledge about assessing the probability, severity and sometimes detectability of the risk.”

Q9 clearly recognizes that detectability is useful sometimes, with specific tools in specific cases. This is in alignment with risk management thinking in general, for example ISO 31000:2018 states that Risk analysis should consider factors such as:

— the likelihood of events and consequences;
— the nature and magnitude of consequences;
— complexity and connectivity;
— time-related factors and volatility;
— the effectiveness of existing controls;
— sensitivity and confidence levels.

Detectability is then one of several methods to consider in risk analysis. The selection criteria for tools should take into account situations when detectability is desired and drive to use of those tools, for example, the FMEA which is built to determine how and when a failure can be detected. In other tools, detectability is usually built into the evaluation of current controls and is often captured in likelihood or somewhere else

When it comes to risk, avoid a one-size fits all. Think of what the intent is and use the right tool for the job.

Computer Software Assurance Draft

The FDA published on 13-Sep-2022 the long-awaited draft of the guidance “Computer Software Assurance for Production and Quality System Software,” and you may, based on all the emails and posting be wondering just how radical a change this is.

It’s not. This guidance is just one big “calm down people” letter from the agency. They publish these sorts of guidance every now and then because we as an industry can sometimes learn the wrong lessons.

This guidance states:

  1. Determine intended use
  2. Perform a risk assessment
  3. Perform activities to the required level

I wrote about this approach in “Risk Based Data Integrity Assessment,” and it has existed in GAMP5 and other approaches for years.

So read the guidance, but don’t panic. You are either following it already or you just need to spend some time getting better at risk assessments and creating some matrix approaches.

The Risk Question

The risk question established the purpose and scope – the context of the risk assessment. This step is critical since it sets the risk assessment’s direction, tone, and expectations.  From this risk question stems the risk team; the degree, extent, or rigor of the assessment; the risk assessment methodologies; the risk criteria; and levels of acceptable risk.

The risk problem needs to be clear, concise, and well understood by all stakeholders. Every successful risk assessment needs a tightly defined beginning and end, so the assessment team can set good boundaries for the assessment with internal (resources, knowledge, culture, values, etc) and external (technology, legal, regulatory, economy, perceptions of external stakeholders, etc) parameters in mind.

To ensure the risk team focuses on the correct elements, the risk question should clearly explain what is expected. For example:

  • For a risk assessment of potential emergencies/disasters, should the assessment be limited to emergencies/disasters at facility sites or include events off-site? Should it include natural, manmade, or technological emergencies/disasters, or all of them?
  • If the hazards associated with the job of repairing a porch as to be assessed, would it just cover the actual porch repair, or would it include hazards like setting up the space, bringing materials on site, and the hazards associated with use/not-use of the porch?
  • If the risk assessment covers getting a new family dog does it include just those associated with the dog, or does it include changes to the schedule or even next year’s vacation?

Setting the scope too narrow on the risk question might prevent a hazard and the resulting risk from being identified and assessed or making it too broad could prevent the risk assessment from getting to the real purpose.

Risk questions can be broken down in a tree structure to more define scopes, which can help drive effective teams.

For example, if we are doing a risk assessment on changing the family’s diet, it might look like this:

The current draft of ICH Q9 places a lot of importance on the risk question, rightfully so. As a tool it helps focus and define the risk assessment, producing better results.