The role of risk measures in making seismic upgrading decisions

Risk measures are tools that enable consistent measurement of financial risk and quantify the risk exposure to an associated hazard. In finance, there is a broad spectrum of risk measures which reflect different asset performance goals and the risk appetite of the decision-maker. In this study, the authors leverage advancements in financial risk management to examine the role of risk measures to quantify the seismically induced financial risk, measure the benefit of seismic upgrading, and relate the benefit of seismic risk reduction to a degree of the implemented seismic upgrade. The findings demonstrate that the relation between the financial benefits of a seismic upgrade, quantified using risk measures that consider the full range of earthquake events, and the degree of the seismic upgrade are concave, that is, the incremental financial benefit reduces gradually with increasing degree of seismic upgrading. The opposite holds if the risk measures consider only the high-severity low-likelihood events. Therefore, the study shows that the selection of the risk measure plays a crucial role in determining the target degree of seismic upgrading. Equivalently, quantifying the financial benefits of seismic risk mitigation using different risk measures might lead to different seismic upgrading decisions for the same structure.