Risk Modeling for Determining Value and Decision Making

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ISBN: 9781584881674 | 1584881674
Cover: Hardcover
Copyright: 5/17/2000

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Risk or uncertainty assessments are used as aids to decision making in nearly every aspect of business, education, and government. As a follow-up to the author's bestselling Risk Assessment and Decision Making in Business and Industry: A Practical Guide, Risk Modeling for Determining Value and Decision Making presents comprehensive examples of risk/uncertainty analyses from a broad range of applications.Decision/option selection ManufacturingEnvironmental assessment PricingIdentification of business drivers Production sharingInsurance Scheduling and optimizationInvesting SecurityLawEmphasizing value as the focus of risk assessment, this book offers discussions on how to make decisions using each risk model and what insights the model can provide. The presentation of each model also includes computer code that encapsulates its logic and direction on how to apply the model to other types of problems.The author devotes a chapter to techniques for consistently collecting data in an inconsistent world and offers another chapter on how to reflect the effect of "soft" issues in the value of an opportunity. The book's final chapters delineate the techniques and technologies used to perform risk/uncertainty analyses, including sections on distribution, Monte Carlo process, dependence, sensitivity analysis, time series analysis, and chance of failure.Visit RiskSupport.com for more information!

Introduction

(1)

Scope

(1)

Realism

(1)

Models, Validation, and Precision

(1)

Value

(3)

EXAMPLES

Two Approaches to Solving Decision Trees --- A Class-Action-Suit Example

(14)

Introduction

(2)

Building the Decision Tree

(5)

What Is the Question?

(5)

Interpretation of the Probabilistic-Branching Model

(1)

So, So What?

(1)

Terrorism Risk Models --- Relative and Absolute Risk

(46)

Terrorism Relative-Risk Model

(1)

What Is the Question?

(1)

Building the Contributing-Factor Diagram for the Relative-Ranking Terrorism-Threat Risk Model

(4)

Category Weights

(1)

Relative-Risk Model Equations

(1)

Relative-Risk Model Applied to Terrorist Organization #1

(8)

Relative-Risk Model Results from Evaluation of Terrorist Organization #1

(2)

Relative-Risk Model Applied to Terrorist Organization #2

(9)

Relative-Risk Model Results from Evaluation of Terrorist Organization #2

(1)

Comparison of the Two Terrorist Organizations

(4)

Building the Terrorism Absolute-Cost Risk Model

(2)

Absolute-Cost Risk Model Equations

(1)

Application of the Absolute-Cost Risk Model to Terrorist Organization #2

(6)

Absolute-Cost Risk Model Results for Evaluation of Terrorist Organization #2

(1)

So, So what?

(5)

Gathering Information Consistently in an Inconsistent World

(12)

Introduction

(3)

The Problem

(2)

The Solution

(3)

So, So What?

(4)

New Manufacturing Facility --- Business-Justification Model

(22)

Introduction

(1)

What Is the Question?

(3)

Construction of the Contribution-Factor Diagram

(2)

Populating the Model wit Data

(8)

Risk Model Equations

(2)

Results from Model Execution

(1)

So, So What?

(6)

Oil-Field-Development Investment --- Opportunity Risk Model

101

(18)

Introduction

101

(1)

What Is the Question?

102

(1)

Categories and Variables

103

(1)

Field-Development Risk Model Equations

104

(3)

Populating the Model with Data

107

(6)

Results from Model Execution

113

(4)

So, So What?

117

(2)

Using Chance of Failure and Risk-Weighted Values to Reflect the Effect of ``Soft'' Issues on the Value of an Opportunity

119

(16)

Introduction

119

(2)

Accurate Estimates of Value Are Essential

121

(1)

Types of Chance of Failure

121

(3)

How to Express and Use Chance of Failure

124

(4)

Risk-Weighted Values and the Value of a Portfolio Element

128

(3)

Value of a Portfolio Composed of Dissimilar Elements

131

(3)

So, So What?

134

(1)

Production-Sharing Agreement Risk Model

135

(28)

Introduction

135

(1)

What Is the Question?

135

(2)

Building the Contributing-Factor Diagrams

137

(2)

Risk-Model Equations

139

(7)

Populating the Model with Technical Data

146

(1)

Chances of Abject Failure

147

(1)

Populating the Model with Financial Data

148

(4)

Results from the Model

152

(6)

So, So, What?

158

(5)

Scheduling and Optimization Risk Model

163

(16)

Introduction

163

(1)

The Problem

164

(2)

Design of the Model and the Contributing-Factor Diagram

166

(3)

The Risk-Model Code

169

(2)

Results from Model Execution

171

(4)

So, So What?

175

(4)

Decision/Option-Selection Risk Model

179

(14)

Introduction

179

(1)

The Current Situation

180

(2)

The Problem

182

(3)

Results from Model Execution

185

(6)

So, So What?

191

(2)

Risk Process to Identify Business Drivers, Maximize Value, and Determine the Value of Potential Expenditures

193

(16)

Introduction

193

(1)

The Problem

194

(1)

The Risk/Uncertainty Model

195

(1)

Populating the Model with Data

196

(3)

Results from Model Execution

199

(2)

Determining Business Drivers and Maximizing Value

201

(5)

Determining the Value of Potential Expenditures

206

(1)

So, So What?

206

(3)

Summary

209

(12)

Other Applications

209

(4)

Insurance Example

209

(1)

Pricing Example

210

(1)

Environmental Applications

211

(1)

Legal Applications

211

(1)

Security Applications

212

(1)

It Is Mostly the Process --- Not the Technology

213

(2)

Accomplishment of Vision Generates Real Returns

215

(6)

Exploration Example

215

(1)

Maintenance/Construction Example

216

(5)

FUNDAMENTALS OF RISK ASSESSMENT

Building a Consensus Model

221

(8)

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

221

(1)

Consensus Model

222

(1)

Group Dynamics

223

(1)

Write It Down

224

(1)

Sort It Out

225

(1)

Group Dynamics Again

226

(1)

Units

227

(1)

Overarching Categories

228

(1)

Build a Contributing-Factor Diagram

229

(14)

The Contributing-Factor Diagram --- Getting Started

229

(4)

Identify and Define Variables

233

(1)

Ask the Right Question

234

(1)

Double Dipping

235

(1)

Double Dipping and Counting the Chickens

236

(1)

Fixing the Double Dipping and Counting-the-Chickens Problem

236

(1)

CFD-Building Example

237

(4)

Short List of Hints for Building a CFD

241

(2)

Monte Carlo Analysis

243

(12)

A Bit of History

243

(1)

For What Is It Good?

244

(1)

Simple Monte Carlo Example

244

(1)

How Many Random Comparisons Are Enough?

245

(1)

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

246

(1)

Interpreting Cumulative Frequency Plots

247

(6)

Combining Monte Carlo Output Curves

253

(2)

Decisions and Distributions

255

(20)

Decisions

255

(1)

Just What Is a Distribution?

255

(5)

Distributions --- How to Approach Them

260

(1)

Symmetrical Distributions

261

(1)

Skewed Distributions

262

(1)

Spiked Distributions

263

(2)

Flat Distributions

265

(1)

Truncated Distributions

266

(1)

Discrete Distributions

266

(2)

Bimodal Distributions

268

(2)

Reading Data from a File

270

(1)

Peakedness

271

(2)

Specific Distribution Types

273

(2)

Chance of Failure

275

(10)

Chance of Failure --- What Is It?

275

(1)

Failure of a Risk Component

276

(1)

Chance of Failure That Does Not Affect an Input Distribution

277

(1)

Incorporating Chance of Failure in a plot of Cumulative Frequency

278

(2)

Another Reason for Chance of Failure

280

(2)

The ``Inserting 0s Work Around''

282

(2)

COF and Multiple Output Variables

284

(1)

Time-Series Analysis and Dependence

285

(14)

Introduction to Time-Series Analysis and Dependence

285

(1)

Time-Series Analysis --- Why?

285

(1)

Time-Series Analysis --- How?

286

(1)

Time-Series Analysis --- Results

287

(1)

Some Things To Consider

288

(2)

Dependence --- What Is It?

290

(1)

Independent and Dependent Variables

291

(1)

Degree of Dependence

291

(3)

Multiple Dependencies and Circular Dependence

294

(1)

Effect of Dependence on Monte Carlo Output

295

(1)

Dependence --- It's Ubiquitous

295

(4)

Risk-Weighted Values and Sensitivity Analysis

299

(14)

Introduction to Risk-Weighted Value and Sensitivity Analysis

299

(1)

Risk-Weighted Values --- Why?

299

(2)

Risk-Weighted Values --- How?

301

(2)

The Net Risk-Weighted Value

303

(1)

The Economic Risk-Weighted Resource Value

304

(1)

Risk-Weighted Values --- The Answer

305

(1)

Sensitivity Analysis --- Why?

306

(2)

Sensitivity Analysis --- How?

308

(3)

Sensitivity Analysis --- Results

311

(2)

Selected Readings

313

(4)

Index

317

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Risk Modeling for Determining Value and Decision Making

Summary

Table of Contents

Supplemental Materials