Risk Assessment and Decision Making in Business and Industry: A Practical Guide, Second Edition

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ISBN: 9781584884774 | 1584884770
Cover: Hardcover
Copyright: 3/30/2005

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Building upon the technical and organizational groundwork presented in the first edition, Risk Assessment and Decision Making in Business and Industry: A Practical Guide, Second Edition addresses the many aspects of risk/uncertainty (R/U) process implementation.This comprehensive volume covers four broad aspects of R/U: general concepts, implementation processes, technical aspects, and examples of application. Each section provides practical guidance, combining technical information with advice on how to implement R/U techniques and processes in real-world corporate environments. Following an examination of general principles involved in quantitatively assessing risks and their impact on value, the book describes the two main probabilistic measures of project value - Expected Value of Success (EVS) and the Expected Value for the Portfolio (EVP). The text clearly demonstrates how these metrics are used in individual-project and portfolio management.By presenting concepts in layman's terms and fully integrating advice related to technical and human characteristics of R/U-related corporate life, this book serves as a complete primer for professionals in any business environment.What's New in the Second Edition:· Provides guidance for implementation of R/U processes in modern corporations· Offers a crucial breakthrough by defining the terms "risk" and "uncertainty" in ways that can be applied in all aspects of science and business· Explores real-world impediments to process change and implementation· Addresses R/U from a corporate decision-maker's perspective, detailing how to employ R/U to set budgets, manage portfolios, value investments, and execute other critical tasks

About the Author

xiii

Preface

Acknowledgments

xvii

Introduction

xix

What Companies Really Want to Do

xix

Practical Risk Assessment

xxi

You Can Do It

xxiii

Chapter 1 About Risk and Uncertainty

(12)

Various Views on the Subject - Einstein Was Never Going to Get There

(2)

Definitions of Risk and Uncertainty

(5)

Two Values - The Expected Value of Success (EVS) and the Expected Value for the Portfolio (EVP)

(1)

Risk Assessment and Risk Management

(1)

What Questions Do I Ask and How Do I Integrate the Information?

(3)

Chapter 2 Risk Assessment: General Characteristics and Benefits

(14)

Why Risk Assessment?

(1)

Common Language

(2)

Holistic Thinking

(1)

Awareness

(1)

Consider Range of Possibilities

(1)

Establish Probabilities

(1)

Communication with Customers and the Public

(1)

Probabilistic Branching

(1)

Relationships between Variables

(1)

Linking of Disciplines

(2)

Checklist - Do Not Take It for Granted

(1)

Updating Estimates

(1)

To What Types of Problems Can Risk Assessment Be Applied?

(2)

Legal Model

(1)

Environmental Health and Safety Model

(1)

Pipeline Route Selection Model

(1)

Political Models

(1)

Capital Project Ranking and Portfolio Management Model

(1)

New Products Model

(1)

Fate/Transport Model

(1)

Chapter 3 Risk Assessment - A Process

(14)

Risk Assessment - The Process

(2)

The Time It Takes to Do It Right, and When to Get Started

(1)

What Is Typically Done

(2)

What Is Not Typically Done

(1)

What to Provide

(4)

Size Does Not Matter (Not That I Was Worried about That)

(1)

Stakeholders

(3)

Chapter 4 The Perception from Within - Why This Can Be So Darn Hard to Implement

(24)

Simple Resistence to Change and Momentum of Old Ways

(3)

If They Do Not Have a System, Find Out Why

(1)

Wisely Select Your Entry Point

(1)

Make a Strong Business Case

(1)

If They Have a System, They Are Proud of It

(1)

Have Upper-Level Support

(1)

Provide Help

(1)

Expect Initial Rebuff

(1)

Learning How the Organization Really Works

(3)

Practitioners Who Have Been Doing It for Years Are Difficult to Change - Newcomers Are Easier to Deal With

(1)

Not Invented Here

(1)

Instant Access to Executives - If You Are from Outside, You Are Smarter/Better

(1)

Turf Wars

(1)

Experts Who Are Not

(1)

Management That Has Limited Appreciation and the Deterministic Mindset

(2)

Coming from the Right Place

(1)

Establishing Credibility So You Are Not Just Another Voice in the Wilderness

(3)

Time for Preparation of the Organization - Who Benefits?

(1)

Ramifications of Implementing a Probabilistic Risk System

(4)

The Reward System

(1)

Cannot Easily Overlay the New Process on the Existing Business Model

(2)

Two Sets of Books

(1)

For This to Be Effective, Every Part of the Company Must Participate

(1)

Not Just One Time - This Must Be Done Over and Over, Like a Diet

(2)

Chapter 5 Consistency - The Key to a Risk Process

(18)

Biggest Bang from Assessing Multiple Opportunities

(1)

Type Consensus Models

(3)

Common Measure

(1)

Risk Assessment Vision

(2)

Sometimes Better to Be Consistent Than to Be Right

(2)

Locking the Model

(1)

Users Will Game the System - The Risk Police

(2)

Databasing Inputs and Outputs

(1)

Numbers That Reach Decision Makers

(2)

Forums

(1)

Language

(1)

Risk as a Corporate Function

(2)

Chapter 6 Communication

(14)

Communication - Just One Shot

(1)

Communication - Why Bother?

(1)

Know Your Clients

(1)

Focus on Impact and Mitigation

(1)

Mitigation Is Not Enough

(3)

Killing Projects

(1)

Diplomatically Handle Winners and Losers

(1)

Communicating the Value of Risk Assessment

(2)

It Starts at the Top

(1)

Create Success Story Presentation

(1)

Web Stuff

(3)

Chapter 7 Building a Consensus Model

(12)

What Is the Question? - Most of the Time and Effort

(1)

Consensus Model

(2)

Group Dynamics

100

(1)

Write It Down

100

(2)

Sort It Out

102

(1)

Group Dynamics Again

103

(1)

Units

103

(1)

Overarching Categories

104

(1)

No Such Thing as a Universal Model

105

(1)

Difficult to Get People's Time to Go Through All This

106

(3)

Chapter 8 Build a Contributing Factor Diagram

109

(16)

The Contributing Factor Diagram - Getting Started

109

(4)

Identify and Define Variables

113

(1)

Ask the Right Question

114

(1)

Double-Dipping

115

(1)

Double-Dipping and Counting the Chickens

116

(1)

Fixing the Double-Dipping and Counting the Chickens Problems

116

(2)

CFD-Building Example

118

(4)

Short List of Hints for Building a CFD

122

(3)

Chapter 9 Education - Critical at Three Levels

125

(12)

Education for Management

125

(2)

Introductory Class for Risk-Model Builders

127

(1)

Advanced Training for Risk-Model Builders

128

(1)

Organizational Attitude and Training Centers

129

(1)

Time Demands and Organization of the Education Effort

130

(3)

Difference between Education and Training

133

(4)

Chapter 10 Risk Assessment Technologies

137

(20)

Different Approaches

137

(1)

Discriminant Function Analysis

137

(1)

Bayesian Analysis

138

(3)

Decision Trees

141

(6)

Factor Analysis

147

(2)

Neural Nets

149

(2)

The Risk Matrix

151

(2)

Risk Registers

153

(4)

Chapter 11 Monte Carlo Analysis

157

(14)

A Bit of History

157

(1)

What Is It Good For?

157

(2)

Simple Monte Carlo Example

159

(1)

Buckets

159

(2)

How Many Random Comparisons Are Enough?

161

(1)

Output from Monte Carlo Analysis - The Frequency and Cumulative Frequency Plots

162

(3)

Interpreting Cumulative Frequency Plots

165

(4)

Combining Monte Carlo Output Curves

169

(2)

Chapter 12 Decisions and Distributions

171

(26)

Decisions

171

(1)

Just What Is a Distribution?

171

(4)

Distributions - How to Approach Them

175

(2)

Symmetrical Distributions

177

(2)

Skewed Distributions

179

(1)

Spiked Distributions

180

(1)

Flat Distributions

180

(1)

Truncated Distributions

181

(2)

Discrete Distributions

183

(1)

Bimodal Distributions

184

(1)

Reading Data from a File

185

(2)

Peakedness

187

(1)

Triangular Distributions

188

(1)

Specific Distribution Types

189

(1)

Speaking Distributions

190

(4)

Flexibility in the Decision-Making Process

194

(3)

Chapter 13 Chance of Failure

197

(16)

Chance of Failure - What Is It?

197

(1)

Failure of a Risk Component

198

(2)

Chance of Failure that Does Not Affect an Input Distribution

200

(1)

Incorporating Chance of Failure in a Plot of Cumulative Frequency

201

(2)

Another Reason for Chance of Failure

203

(2)

The Inserting Zeroes Work-Around

205

(2)

Chance of Failure and Multiple Output Variables

207

(1)

A Clear Example of the Impact of Chance of Failure

207

(6)

Chapter 14 Time-Series Analysis and Dependence

213

(16)

Introduction to Time-Series Analysis and Dependence

213

(1)

Time-Series Analysis - Why?

213

(1)

Time-Series Analyisis How?

213

(2)

Time-Series Analysis - Results

215

(2)

Time-Series Analysis That Is Not

217

(1)

Some Things to Consider

217

(2)

Dependence - What Is It?

219

(1)

Independent and Dependent Variables

219

(1)

Degree of Dependence

220

(4)

Multiple Dependencies and Circular Dependence

224

(1)

Effect of Dependence on Monte Carlo Output

224

(2)

Dependence - It Is Ubiquitous

226

(3)

Chapter 15 Risk-Weighted Values and Sensitivity Analysis

229

(16)

Introduction to Risk-Weighted Values and Sensitivity Analysis

229

(1)

Risk-Weighted Values - Why?

229

(3)

Risk-Weighted Values - How?

232

(1)

The Net Risk-Weighted Value

233

(1)

The Economic Risk-Weighted Resource (ERWR) Value

234

(2)

The Expected Value of Success (EVS) and the Expected Value for the Portfolio (EVP)

236

(2)

Risk-Weighted Values The Answer

238

(1)

Sensitivity Analysis Why?

238

(2)

Sensitivity Analysis How?

240

(3)

Sensitivity Analysis - Results

243

(2)

Chapter 16 What Companies Really Want to Do

245

(14)

The Portfolio Effect Sometimes You Just Do Not Get It

245

(3)

Estimate Budgets

248

(4)

Estimate Project Value - Two Types: The Expected Value of Success (EVS) and the Expected Value for the Portfolio (EVP)

252

(1)

Ask the Right Questions to Determine the Quality of the Information Being Conveyed

253

(6)

How Does This New Information Impact the Decision or the Decision-Making Process?

254

(1)

What Assurance Do I Have That the Process That Generated This New Information Is Practical and Credible?

255

(1)

How Can This New Information Be Integrated Into the Existing Decision-Making Process?

256

(3)

Chapter 17 Risk Assessment Examples

259

(58)

Introduction

259

(1)

Qualitative Model

259

(2)

Semi-Quantitative Model

261

(3)

Mini Time-Series Model

264

(6)

Fate-Transport (Process/Health) Model

270

(4)

Decision-Tree Conversion

274

(4)

Legal Model

278

(7)

Comprehensive Risk Assessment Example

285

(23)

EVS/EVP Example

308

(9)

The Corporate View

308

(4)

The Business-Unit-Leader View

312

(5)

Index

317

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Risk Assessment and Decision Making in Business and Industry: A Practical Guide, Second Edition

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