3. MEASURING RISK

Quantifying risks is as important to the farmer and his enterprise as identifying risks. This is an important activity as it assists in placing risks in some order of priority and highlights decisions to be made.

There are two elements of each risk which need to be quantified before any assessment can be made of the cost and economics of controlling it reliably. These are:

- the frequency of the risk occurring, and
- the cost and economic consequences of it occurring.

This quantification of risk is fundamental to almost all the commercial decisions which may be taken about an enterprise. Such decisions may include cancellation of the investment altogether if the risks are too great in relation to the expected financial return. If the decision is to go ahead, then the initial investment capital must be sufficient to start and operate the business and to cover the risks it faces or to divert the costs of the risks elsewhere, for example, to insurance. Unfortunately the record of the aquaculture industry shows that many farmers did not make this type of analysis, or have the right level of risk capital available at the start of their projects.

The principal decisions facing the farmer, the investor, can be sub-divided into three categories, namely:

- Commercial decisions. These are the basic decisions about business, and are made through financial comparison of the anticipated return on investment with the cost of any risk if it occurs. In the worst case, of course, it may be decided that the risks and uncertainty of doing business in the way proposed are too great, and the investment is not made.

- Mitigation and control decisions. These are the decisions specific for each risk which must be made if its impact is to be reduced or eliminated altogether. If the risk is only to be reduced, then it is important to decide to what acceptable level, and at what cost.

- Financing decisions. These are the decisions which deal with ways of financing the risk (for example, by insurance), and their acceptability.

Unfortunately, at the present time in the emergent status of the aquaculture industry, the quantification of risks remains very individualistic for the farmer and his farm. The modern aquaculture industry has developed far within the last two decades, but with little in the way of standards and codes of practice. This includes not only standards and codes for buildings, and installation and operation of equipment, but also professional standards for producers, as well as in the support services of education, training, and even the qualifications of consultants.

Observing national standards and codes of practice for construction of the major farm buildings and installing the major utilities are usually the limit of professional inputs into any farm site. After that, any internal fabrication, the construction of special rooms, the erection of tanks and units, the water distribution system, the internal electrical and water systems, etc., are invariably constructed by the farmer and his employees. Consequently there is little in the way of basic information which has been built up and recorded over the years which makes quantification a simple matter of reference. Quantification has to be done the hard way, through research and analysis by the individual concerned.

However, no matter how good the reference resources it is still very necessary to make the quantification specific to the farm in question. As the risks to the farm operations are site related, it is necessary that the quantification of those risks is also site related. It is therefore important that as much information as possible is assembled for each particular farming enterprise, and its local environment.

There is also information which must be assembled which is not site related. This information includes scientific data about biological species, such as life history cycles, reproduction, physiology, and pathology, as well as engineering data about materials. Unfortunately this information is either in scientific literature not readily available, in archives of organizations not associated with the industry, or simply not available at all. Moreover, the data may not have been "processed" in a way readily comprehensible to the work in hand, namely quantifying risk.

However, in spite of all the difficulties at the present time, quantification of the risks can be estimated intelligently if the appropriate information is assembled.

A simple check-list of the type of information which must be assembled includes the following:

(i) Environmental data
	- Climatology	Basic weather data, and incidences of extremes
	- Hydrology	Basic physical data of waterbodies (range of tides, wave direction, pitch, etc.), water chemistry, and all seasonal changes
	- Geology	Topography, soil composition, and chemistry
(ii) Biological data
	- Species data	Life history cycle, basic physiology, reproduction
	- Species pathology	Specific diseases, incidences, treatment, efficacy of treatment, known epidemics, regulations regarding diseases
	- Aquatic biology	Plankton profile and seasonal blooms
(iii) Production data
	- Carrying capacity	Stock densities, handling
	- Feeding	Feeding rates, feeding behaviour
	- Harvest	Size, methods, handling
(iv) Engineering data
	- Site works	Standards and codes of practice for facility construction (tanks, cages, rafts), water systems, moorages
	- Operations	Alarm systems
(v) Social data
	- Employees	Regulations for health and safety, working conditions
	- Non-employees	Local conditions, level of unemployment
(iv) Economic data		Costs of design services and construction, operating costs, marketing data, production profiles, internal rates of return

The list is not exhaustive, but it describes the principal areas of concern, and the type of information required.