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Why risk acceptance criteria need to be defined by the authorities and not the industry?

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  • Abrahamsen, Eirik Bjorheim
  • Aven, Terje

Abstract

In various industries it is common to use risk acceptance criteria to support decision-making. The criteria are seen as absolute in the sense that measures need to be implemented if the criteria are not met. In Norway the petroleum regulations state that the operator has a duty to formulate risk acceptance criteria relating to major accidents and to the environment. This practice is in line with the internal control principle, which states that the operator has the full responsibility for identifying the hazards and seeing that they are controlled. In this paper we discuss the rationale for this practice. The expected utility theory, which is the backbone for all economic thinking, is used as a basis for the discussion. We show that if risk acceptance criteria are to be introduced as a risk management tool, they should be formulated by the authorities, as is the common scheme seen in many countries and industries, for example in the UK. Risk acceptance criteria formulated by the industry would not in general serve the interest of the society as a whole.

Suggested Citation

  • Abrahamsen, Eirik Bjorheim & Aven, Terje, 2012. "Why risk acceptance criteria need to be defined by the authorities and not the industry?," Reliability Engineering and System Safety, Elsevier, vol. 105(C), pages 47-50.
    • Handle: RePEc:eee:reensy:v:105:y:2012:i:c:p:47-50
    DOI: 10.1016/j.ress.2011.11.004
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    References listed on IDEAS

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    1. Eirik Bjorheim Abrahamsen, 2011. "On the rationality of using risk acceptance criteria based on the expected utility theory," International Journal of Business Continuity and Risk Management, Inderscience Enterprises Ltd, vol. 2(1), pages 70-78.
    2. Aven, Terje & Vinnem, Jan Erik, 2005. "On the use of risk acceptance criteria in the offshore oil and gas industry," Reliability Engineering and System Safety, Elsevier, vol. 90(1), pages 15-24.
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    Cited by:

    1. Liu, Peng & Zhang, Yawen & He, Zhen, 2019. "The effect of population age on the acceptable safety of self-driving vehicles," Reliability Engineering and System Safety, Elsevier, vol. 185(C), pages 341-347.
    2. Xin Ruan & Zhiyi Yin & Dan M. Frangopol, 2015. "Risk Matrix Integrating Risk Attitudes Based on Utility Theory," Risk Analysis, John Wiley & Sons, vol. 35(8), pages 1437-1447, August.
    3. Oliver Henk, 2020. "Internal control through the lens of institutional work: a systematic literature review," Journal of Management Control: Zeitschrift für Planung und Unternehmenssteuerung, Springer, vol. 31(3), pages 239-273, September.
    4. Aven, Terje, 2016. "Risk assessment and risk management: Review of recent advances on their foundation," European Journal of Operational Research, Elsevier, vol. 253(1), pages 1-13.

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