The Classification of Risk

Using the above operating point as a reference, it is possible to set up five risk classes, based on the economic consequences of the occurrence of specific individual risks:

Figure 2-1 Costs of Quality Control vs. Costs of Risks

1. Prevented risks: risks whose cost of occurrence is higher than their cost of management and whose occurrence may invoke additional legal sanctions. This class would include intentional torts and injuries caused by gross negligence.

2. Normally prevented risks: risks whose cost of occurrence is greater than the cost of their management but whose occurrence will be considered only as negligent. This class includes most negligent injuries and most types of product liability actions.

3. Managed risks: risks whose cost of occurrence is only slightly greater than their cost of management. The plaintiff usually has the burden of showing that the defendant owed the plaintiff a special duty to recover for one of these risks.

4. Unprevented risks: risks whose cost of occurrence is less than their cost of management. The classic example of this class is the cost of railroad crossing barriers compared to the cost of people being hit by trains.

5. Unpreventable risks: risks whose occurrence is unmanageable.

The assignment of a risk to one of these classes is a major problem in quality control, because the class of a risk determines how much effort must be expended to prevent the risk. The misclassification of a prevented or normally prevented risk as a managed or unprevented risk can result in large financial losses. For example, a hospital that does not update obsolete equipment, such as inaccurate oxygen monitors in the premature nursery, would be liable for any injuries attributable to the obsolete equipment. The classifications of risk must be reviewed periodically to determine if the cost of the risk-taking behavior has changed, thereby altering the classification.

The classification of risks is also complicated by the dependence upon the historical treatment of the risk by similar providers and any limitations of the provider making the classification decision. For example, a small hospital in a rural area would not be expected to have as sophisticated equipment as a major hospital in a city. If an accident victim is brought into the rural facility, the hospital's duty may be to transfer the patient to a better-equipped facility. The patient will face the risk of dying because of the delay in treatment, but the risk of insufficient treatment outweighs the risk of transfer. If the same victim were brought into a hospital in a major metropolitan center, the duty would be to treat the patient without a transfer. The risk of transfer has not changed, but the risk of insufficient treatment has disappeared. The following detailed discussion of each class of risks illustrates these points.