Use of decision criteria based on expected values to support decision-making in a production assurance and safety setting

T. Aven and R. Flage

Reliability Engineering and System Safety, 2009, vol. 94, issue 9, 1491-1498

Abstract: We consider decision problems related to production assurance and safety. The issue is to what extent we should use decision criteria based on expected values, such as the expected net present value (E[NPV]) and the expected cost per expected number of saved lives (ICAF), to guide the decision. Such criteria are recognised as practical tools for supporting decision-making under uncertainty, but is uncertainty adequately taken into account by these criteria? Based on the prevailing practice and the existing literature, we conclude that there is a need for a clarification of the rationale of these criteria. Adjustments of the standard approaches have been suggested to reflect risks and uncertainties, but can cautionary and precautionary concerns be replaced by formulae and mechanical procedures? These issues are discussed in the present paper, particularly addressing the company level. We argue that the search for such formulae and procedures should be replaced by a more balanced perspective acknowledging that there will always be a need for management review and judgment beyond the realm of the analyses. Most of the suggested adjustments of the E[NPV] and ICAF approaches should be avoided. They add more confusion than value.

Keywords: Uncertainty; Risk; Decision criteria; Expected net present value; Cost–benefit analysis; Cautionary/precautionary principle (search for similar items in EconPapers)
Date: 2009
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Citations: View citations in EconPapers (11)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:reensy:v:94:y:2009:i:9:p:1491-1498

DOI: 10.1016/j.ress.2009.02.007

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