We read about the recent pit failure at Codelco Ministro Hales in Chile. We have also read that there will be no impact on the mining operations in this particular case, but that is not significant in today’s proposed discussion.
This failure is particularly interesting for Riskope as we recently performed a ORE2_Slopes quantitative risk assessment on a large open pit mine in southern Africa. The client mining company and the mine location are confidential, but we will use this assessment as a case study.
We will use Codelco’s accident and considerations from our study to explore some liabilities deriving from possible errors and omissions (E&O) claims against a consultant performing risk assessments, both common practice qualitative and quantitative, for a client.
Setting the Scene
Nowadays, clients use risk assessments as decision-making support. For instance, in the case of a pit, the client’s engineers present two or more cut alternatives and ask Riskope to develop a comparative quantitative risk assessment. Generally, the alternatives explore various degrees of “aggressiveness” in the design. The idea is to reach valuable levels, assuming more or less downward risks.
Downward and Upward Risks
Downward risk is usually the combination of probability of a certain failure (volume, position, etc.) and its consequences. These are multi-dimensional, like health and safety, harm to life, loss of production, loss of infrastructure, or environmental.
For each design, Riskope can evaluate an optimum buffer stock as well as other mitigations. This type of analysis cannot be performed using qualitative risk assessment.
Another type of analysis includes the upward risk, i.e. the “gain” produced by reaching the valuable levels more quickly. Here again, qualitative approaches lead nowhere.
What Was the Client Asking and What Did We Deliver?
Going back to the study we recently carried out, the client wanted to explore the downward risks only for two alternatives, a “base” and an “aggressive” case.
Our analysis showed that the aggressive case would generate almost twice the number of small failures over the next ten years than the base case. It also showed that large volumes failures, similar to the one at Codelco’s pit, had a roughly double probability of occurrence (approx. 2%) with the aggressive cut against 1% with the base case, for similar potential volumes.
We do not know which alternative the client selected, but the occurrence at Codelco triggered our discussion on what constitutes E&O in the context described above.
What Does a Quantitative Risk Assessment Give?
First of all, a quantitative risk assessment delivers probabilities of failure (and consequences) which encode the knowledge on the considered system (the slope, a dam, etc.) obtained through archival information (studies, reports, inspections, losses, etc.), third-party document review, public information, satellite observation and past monitoring (if available) and, when possible, site visits and key personnel interview.
Our scope of work never includes re-analyzing slopes, stability, or deformations. Because this information is fraught with uncertainties, the dam or slopes’ conditions evolve with time and possibly construction, and we live in an era of climate change, the results brought by ORE2_Tailings™ and ORE2_Slopes™ are structured and codified professional opinions/estimations only. They have relative value (among each other and with respect to the worldwide benchmark) and not absolute value.
Second, there are uncertainties even in the most sophisticated numerical models and probability evaluation techniques. We wrote on this at Tailings and Mine Waste 2020, and we strongly recommend that interested parties read The Factor Of Safety And Probability Of Failure Relationship paper in order to gain better understanding of the uncertainties related to the estimation of the probability of failure using any approach. Thus, it would be wrong to consider the results of ORE2_Tailings or ORE2_Slopes as absolute truth.
Third, the value of such a risk assessment lies in relative judgements supporting clients in making decisions in an uncertain and shifting world. The client remains the decision-maker!
What Does a Qualitative Risk Assessment Give?
As we have discussed many times in our papers, blogposts, publications and books, qualitative risk assessments deliver wording qualifying the “feelings” of the analyst and the group participating in the study related to probabilities and consequences.
These can be: words such as small, medium, large, catastrophic; indices like 1, 2, 3, 4, 5 and ranges of consequences and likelihood “out of experience” such a probability between 0.1 and 0.5 or consequences >100M$. There is ample literature describing how misleading and mistaken these approaches can be.
What is a Risk Assessment Error and Omission?
The question about what constitutes E&O in a quantitative or qualitative risk assessment is not a trivial one. The results should always exclude certainties like nil: failure cannot ever happen or one: failure is certain. The reports should state that the estimates are time-sensitive as conditions may change due to various causes including construction, alterations, climate change. An second disclaimer is that the third-party data used in the assessment are unverified and the scope of work does not include checking those data, or rerunning the analyses. Any event that takes place during the life of the structure should not and cannot be taken as a “faulty result” of the risk assessment. As a result, it should not lead to E&O claims.
However there are cases where clients may lay claims against a consultant even if the risks were known.
What is Risk Misrepresentation?
A client may sue a consultant arguing, for example, that the risks were misrepresented. On this point, we encourage you to watch this excerpt of a lecture we gave in Minas Gerais, Brazil, in 2013.
Qualitative risk assessment, indexed risk assessment, any failure modes and effects analysis and probability impact graphs are based on verbiage and evaluations not based in fact. As a result, we believe qualitative approaches are more vulnerable to E&O and misrepresentation claims than a quantitative approach. In addition, there is an ample body of literature declaring these approaches to be faulty.
Benchmarking to historical performances, using a clear glossary and a well-established, repeatable quantitative methodology and clear communication with the client are all valid proactive mitigations against this type of claim pertinent with a quantitative approach.
Let’s close by noting that in more concrete areas, for example in construction, the discussion is more clear-cut. For example, an engineer may have miscalculated a structure, leading to damages or underperformance. These cases are more clear-cut, despite leading to complex litigations due to the number of actors (engineer, contractor, etc.).
Closing Remarks
We have all read and seen cases where someone decided to use vague or misleading language to hide reality from stakeholders. The best practice is always to prevent beforehand rather than fix afterwards. Preventing E&O and misrepresentation claims against risk assessment requires analysts to follow a number of rules and guidelines so as to not inadvertently mislead stakeholders.
