2. Master rule
- Scale the rigor of every rule to (consequence of failure) × (uncertainty).
- Keep reducing risk until the cost of the next reduction is grossly disproportionate to the benefit (ALARP).
| Risk region |
Required action |
| unacceptable |
risk must be reduced, whatever the cost |
| tolerable |
reduce risk while it is reasonably practicable (ALARP) |
| negligible |
no further reduction is required |
In management, the same idea has three established names:
| Engineering term |
Management term |
Source |
| scale the rigor |
tailoring: adapt the method to the size, risk and context of the work |
PRINCE2 principle 7 "Tailor to suit the project"; PMBOK Guide 8th edition "Tailor for your context" |
| boundary between the unacceptable and the tolerable region |
risk appetite: the amount and type of risk the governing body accepts in pursuit of its objectives |
COSO ERM 2017, principle 7 "Defines Risk Appetite" |
| consequence |
impact on people, money, legal position, reputation and objectives; irreversibility raises the consequence |
ISO 31000:2018; Amazon 2015 shareholder letter (one-way doors) |