Industrial risk assessment in the modern era – A new interpretation of the Black-Sholes-Merton

Abstract. Risk analysis methods have a rich history, evolving across diverse sectors such as insurance, finance and engineering, each contributing unique advancements tailored to their specific challenges. For instance, the insur-ance industry developed stochastic methods for managing uncertainty and forecasting future outcomes, while the financial sector introduced statistical practices to support economic growth and stability. However, the industrial establishments often lack sufficient historical data on the unexpected events or any other non-compliant event within the industrial system to make accu-rate risk analysis reports to assess the risk involved in the industrial process-es. Even when risk assessment methods are applied to develop reports, these processes are often perceived as a bureaucratic and formal obligation, rather than a meaningful contribution to improving organizational safety. There-fore, to address these issues, the research proposes adopting the mathemati-cal principles of the Black-Scholes-Merton model, originally developed for option pricing, for application in industrial organizations to support risk-related analyses. The manuscript presents a practical approach based on the Black-Scholes-Merton model by leveraging the similarities between the fi-nancial sector, where it is used to forecast option prices, and industrial safe-ty, where it can be applied to assess risk in industrial establishments. The case study has been grounded in the electrical facilities to demonstrate the validity of the model. The comparison results demonstrate that the new methodology offers a more intuitive and actionable framework for risk analy-sis, providing a closer reflection of actual conditions and enhancing industri-al safety.