Introduction to Water Infrastructure Asset Management - Global Drinking Water Management and Conservation - page 156

where, P(x) is the probability of severity x occurring, and C(x) is the cost of severity
x occurring.
S is the severity of the failure (the bar indicates the bounds of this failure)

Z S

P ð x Þ dx ¼ 1

S

The primary measure of risk can be supplemented by evaluating its variance. If
the variance is low relative to the expected value of risk, then the expected value is
a good measure and will be adequate much of the time. However, if the variance is
relatively high, it indicates that the risk is volatile and that the actual cost of the risk
may be very different from the expected cost. This is an important point, especially
if risk aversion is considered.

7.2.2.4 Protection Against Risk

There are three ways to seek protection from risk: transfer, avoidance, and reduc-
tion. Risk transfer refers to the practice of transferring the risk to another entity.
This can be accomplished through the use of insurance, outsourcing or other means.
Actual risk does not change; rather, it experiences a lateral move from one entity to
another.
Risk avoidance entails taking deliberate actions to eliminate risk. In the distri-
bution of water, this may involve utilizing nuclear or space travel technology.
Though these technologies may provide failure-proof water provision, the cost to
render the service would be prohibitive. The concept of risk avoidance in water
provision is contradictory in that the service is a necessity and avoidance is so
costly that it is impossible to entertain risk avoidance completely as the cost
becomes prohibitive. In effect, the only way to avoid risk completely in water
provision is to stop providing water! 2
The water utility may also choose to engage in risk reduction. This involves the
application of techniques and management principles to reduce the likelihood and
consequences of risk. In water provision, this involves the optimal combination of
maintenance and renewal that keeps risk at a minimal level. This third method is
superior to the former two. The

first method simply involves a lateral transfer. Some
social costs will be too great to transfer via insurance. It is very dif cult to put a

price on an epidemic claiming the lives of thousands. Risk avoidance is not realistic
in water provision. Nor can risk be eliminated completely. The best way to protect

2 The long-term Boil Water Advisories that some jurisdictions issue is nothing short of avoiding
responsibilities of a possible waterborne disease outbreak.