I wasn't around the first time this thread was discussed and found it highly thought-provoking. My question is "why tie the values to an arbitrary 10 point scale?" A severity of 10 is generally more than 10 times worse that a severity of 1. I know it would a big challenge to get the numbers, but why not come up with a score that really matters to management - some sort of cost/benefit analysis.
importance = (cost per occurrence) x (probabilty of occurrence) / income
If you can come up with good estimates, this seems to work wonderfully.
So for example:
1) Paracute school: with no backup chute, 1/10,000 jumps has a fatal error, which would cost $5.1 million (lawsuits and loss of future income). You make $200 profit per jump.
importance of main chute failure
= ($5,100,000) x (1/10,000) / ($200) = 2.55 = 255%
ie the expected cost of the failures is 2.55x your income and your net profit is $200 - $200*2.55 = -$310 per jump
with backup chute, 1/1,000,000 has a fatal error, but added expenses cut $40 out of your profit. Also, the lawsuit is less because you took appropriate precautions
importance of both failing
=($1,100,000) x (1,000,000) / ($160) = 0.0069 = 0.69%
importance of main failing
= ($10,000 in lost income) x 1/10,000 / $160 = 0.62%
i.e cost of failure = 1.3% of income, and your net profit is $160 - 0.013x$160 = $158 per jump.
2) Lug nuts: with 1 lug nut, you make $1000 profit per car, but you have a 1/10,000 chance per car that the wheel falls off and you loose a $5 million lawsuit. With 5 lug nuts per wheel, you only make $995 per car, but the odds of a lawsuit drops to 1/1 billion. You do the math.
Basically, change the severity scale from 1-10 to cost per failure, and change the occurrence scale from 1-10 to 0-1 (odds of failure).
Tim Folkerts
P.S. Two additional points. 1) The cost is not necessarily proportional to the # of failures. It probably costs Goodyear ~$100 to deal with one bad tire, but I'm sure it costs a lot more than $1,000,000 to deal with 10,000 bad tires. 2) Putting a price on human life can be difficult and politically incorrect, as Ford learned with Pinto gas tanks.