2005 – Risk Management – Public Policy vs Corporate Liability

J S Marsden, P H Jacob, R Nathan and L A McDonald

This paper relates to the conference sub-themes of Dam Safety Upgrades – Management of Risk and Due Diligence and Dam Construction.Specifically, it relates to the changing willingness of governments to fund risk reduction indams compared with risk reduction in other areas.

The cost of dam safety upgrades is just one of a portfolio of risk reduction strategies affecting the general community that governments are required to underwrite.

This paper examines the variation in acceptable risk standards between dam safety and other areas. This may be explained in terms of what is acceptable to the community and the courts. For instance, a corporation is likely to attempt to minimise its liability (which may differ to minimising risk for the community).

We also examine:

• a portfolio approach to safety expenditure and the implicit cost-benefit relationship;
• the impact of the asymmetric relationship between expenditure and absolute size of potential loss; and
• the importance of a whole-of-government approach and reviewing apparent inconsistencies in approach to risk.

There is an increasingly well-established literature on the value of a human life and increasingly systematic approaches to the evaluation of risk and the setting of risk standards. Risk standards are particularly explicit in the area of dam safety – they set limits of tolerable risks for large-scale loss of life (eg. for existing dams, a loss of life of more than 10 persons with a probability of more than one in a ten thousand per annum is regarded as unacceptable under the Australian guidelines).

However, there are significant contrasts in what is tolerated as acceptable risk between different areas of government activity. To date,there appears to be no systematic evaluation of the portfolio of risks or a common view on what is acceptable levels.