Risk Modeling for Determining Value and Decision Making

Contents......Page 10
Scope......Page 16
Realism......Page 17
Models, Validation, and Precision......Page 18
Value......Page 19
SECTION 1: EXAMPLES......Page 20
Introduction......Page 22
Building the Decision Tree......Page 24
What Is the Question?......Page 29
Interpretation of the Probabilistic-Branching Model......Page 34
So, So What?......Page 35
Terrorism Relative-Risk Model......Page 36
What Is the Question?......Page 37
Building the Contributing-Factor Diagram for the Relative-Ranking Terrorist-Threat Risk Model......Page 38
Category Weights......Page 42
Relative-Risk Model Equations......Page 43
Relative-Risk Model Applied to Terrorist Organization #1......Page 44
Relative-Risk Model Results from Evaluation of Terrorist Organization #1......Page 52
Relative-Risk Model Applied to Terrorist Organization #2......Page 54
Relative-Risk Model Results from Evaluation of Terrorist Organization #2......Page 63
Comparison of the Two Terrorist Organizations......Page 64
Building the Terrorism Absolute-Cost Risk Model......Page 68
Application of the Absolute-Cost Risk Model to Terrorist Organization #2......Page 70
Absolute-Cost Risk Model Results for Evaluation of Terrorist Organization #2......Page 76
So, So What?......Page 77
Introduction......Page 82
The Problem......Page 85
The Solution......Page 87
So, So What?......Page 90
What Is the Question?......Page 94
Construction of the Contributing-Factor Diagram......Page 97
Populating the Model with Data......Page 99
Risk Model Equations......Page 107
Results from Model Execution......Page 109
So, So What?......Page 110
Introduction......Page 116
What Is the Question?......Page 117
Categories and Variables......Page 118
Field-Development Risk Model Equations......Page 119
Populating the Model with Data......Page 122
Results from Model Execution......Page 128
So, So What?......Page 132
Introduction......Page 134
Types of Chance of Failure......Page 136
How to Express and Use Chance of Failure......Page 139
Risk-Weighted Values and the Value of a Portfolio Element......Page 143
Value of a Portfolio Composed of Dissimilar Elements......Page 146
So, So What?......Page 149
What Is the Question?......Page 150
Building the Contributing-Factor Diagrams......Page 152
Risk-Model Equations......Page 154
Populating the Model with Technical Data......Page 161
Chances of Abject Failure......Page 162
Populating the Model with Financial Data......Page 163
Results from the Model......Page 167
So, So What?......Page 173
Introduction......Page 178
The Problem......Page 179
Design of the Model and the Contributing-Factor Diagram......Page 181
The Risk-Model Code......Page 184
Results from Model Execution......Page 186
So, So What?......Page 190
Introduction......Page 194
The Current Situation......Page 195
The Problem......Page 197
Results from Model Execution......Page 200
So, So What?......Page 206
Introduction......Page 208
The Problem......Page 209
The Risk/Uncertainty Model......Page 210
Populating the Model with Data......Page 211
Results from Model Execution......Page 214
Determining Business Drivers and Maximizing Value......Page 216
So, So What?......Page 221
Other Applications......Page 224
It Is Mostly the Process — Not the Technology......Page 228
Accomplishment of Vision Generates Real Returns......Page 230
SECTION 2: FUNDAMENTALS OF RISK ASSESSMENT......Page 234
What Is the Question? — Most of the Time and Effort......Page 236
Consensus Model......Page 237
Group Dynamics......Page 238
Write It Down......Page 239
Sort It Out......Page 240
Group Dynamics Again......Page 241
Units......Page 242
Overarching Categories......Page 243
The Contributing-Factor Diagram — Getting Started......Page 244
Identify and Define Variables......Page 248
Ask the Right Question......Page 249
Double Dipping......Page 250
Fixing the Double Dipping and Counting-the-Chickens Problem......Page 251
CFD-Building Example......Page 252
Short List of Hints for Building a CFD......Page 256
A Bit of History......Page 258
Simple Monte Carlo Example......Page 259
How Many Random Comparisons Are Enough?......Page 260
Output from Monte Carlo Analysis — The Frequency and Cumulative Frequency Plots......Page 261
Interpreting Cumulative Frequency Plots......Page 262
Combining Monte Carlo Output Curves......Page 268
Just What Is a Distribution?......Page 270
Distributions — How to Approach Them......Page 275
Symmetrical Distributions......Page 276
Skewed Distributions......Page 277
Spiked Distributions......Page 278
Flat Distributions......Page 280
Discrete Distributions......Page 281
Bimodal Distributions......Page 283
Reading Data from a File......Page 285
Peakedness......Page 286
Specific Distribution Types......Page 288
Chance of Failure — What Is It?......Page 290
Failure of a Risk Component......Page 291
Chance of Failure That Does Not Affect an Input Distribution......Page 292
Incorporating Chance of Failure in a Plot of Cumulative Frequency......Page 293
Another Reason for Chance of Failure......Page 295
The "Inserting 0s Work Around"......Page 297
COF and Multiple Output Variables......Page 299
Time-Series Analysis — Why?......Page 300
Time-Series Analysis — How?......Page 301
Time-Series Analysis — Results?......Page 302
Some Things To Consider......Page 303
Dependence — What Is It?......Page 305
Degree of Dependence......Page 306
Multiple Dependencies and Circular Dependence......Page 309
Dependence — It's Ubiquitous......Page 310
Risk-Weighted Values — Why?......Page 314
Risk-Weighted Values — How?......Page 316
The Net Risk-Weighted Value......Page 318
The Economic Risk-Weighted Resource Value......Page 319
Risk-Weighted Values — The Answer......Page 320
Sensitivity Analysis — Why?......Page 321
Sensitivity Analysis — How?......Page 323
Sensitivity Analysis — Results......Page 326
Selected Readings......Page 328
C......Page 332
G......Page 333
O......Page 334
R......Page 335
Z......Page 336