Principles and Limitations of Cost–Benefit Analysis for Safety Investments

Abstract

Any type of company or public organization might face many operational risks, which are usually classified into three categories: very small risks where no further investment in risk reduction is necessary, very large risks with an outcome so unacceptable that these risks need to be reduced immediately, and intermediate risks that fall between the previous two risk categories. Focusing on the ALARA‐area (between unacceptable and negligible risk), several models based on cost‐benefit analysis (CBA) are described in this chapter to support safety investments decision‐making. These models are grouped into two categories depending on the type of accident, I or II, and its severity. Each scenario might trigger major consequences with injured people or fatalities. One should bear in mind that depending on the type of risk, there always exist maximum and minimum safety levels, which can both be seen as a kind of economic constraint varying over time within an organization or even within society. Safety levels and economic constraints are different from organization to organization. A proper trade‐off is thus to be made by decision‐makers by using CBA to compare the costs of additional risk reduction and the potential benefits that an investment could potentially bring. Limitations and weaknesses of these approaches are also discussed in this chapter.