Chances and risks

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Some (coastal) events cause damage to properties; e.g. erosion of dunes during a severe storm surge if close to the brink of the dunes houses or hotels have been built.

Given the position of e.g. a house on top of the dunes, there exists a certain chance [per year] that the house will be destroyed during a storm surge. This destruction might be called consequence [expressed in money and/or losses of life in some serious cases]. Chances as well as consequences might vary from case to case.

Intuitively one might understand that an event with a rather large chance, but with small consequences could be more or less similar and comparable with an event with a rather small chance, but with large consequences.

The notion risk takes this similarity into account, viz.:

       risk = chance x consequence

The unit of risk is in simplified form: [amount of money per year].

In management issues the notion risk is a far better parameter than e.g. chance. The outcome of a risk calculation might serve as a first rough estimate of the money one has to save on a yearly basis (and put that money on a safe bank!), in order to be able to pay the costs of rebuilding of the property involved from time to time. (Average period between two rebuilding operations is equal to the return period [unit: year]:

      return period = 1/chance

Consider a house (value: EURO 500,000) on top of the dunes at a position that the chance of destruction is 1/500 per year. The risk for the owner of that house is then ≈ EURO 1000 per year. The owner of the house has to make a quite personal choice whether a nice sea view is worth about EURO 3 per day!

If the same house, assuming having the same value (but that is quite questionable, since sea view houses are much more expensive than comparable non-sea view houses), is situated at a position with a chance of destruction of 1/5000 per year the risk is only EURO 100 per year.

The main author of this article is Jan van de Graaff
Please note that others may also have edited the contents of this article.

Citation: Jan van de Graaff (2007): Chances and risks. Available from [accessed on 5-06-2020]