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Business Risk and Simulation Modelling in Practice: Using Excel, VBA and @RISK

Book Description

The complete guide to the principles and practice of risk quantification for business applications.

The assessment and quantification of risk provide an indispensable part of robust decision-making; to be effective, many professionals need a firm grasp of both the fundamental concepts and of the tools of the trade. Business Risk and Simulation Modelling in Practice is a comprehensive, in-depth, and practical guide that aims to help business risk managers, modelling analysts and general management to understand, conduct and use quantitative risk assessment and uncertainty modelling in their own situations. Key content areas include:

  • Detailed descriptions of risk assessment processes, their objectives and uses, possible approaches to risk quantification, and their associated decision-benefits and organisational challenges.

  • Principles and techniques in the design of risk models, including the similarities and differences with traditional financial models, and the enhancements that risk modelling can provide.

  • In depth coverage of the principles and concepts in simulation methods, the statistical measurement of risk, the use and selection of probability distributions, the creation of dependency relationships, the alignment of risk modelling activities with general risk assessment processes, and a range of Excel modelling techniques.

  • The implementation of simulation techniques using both Excel/VBA macros and the @RISK Excel add-in. Each platform may be appropriate depending on the context, whereas the core modelling concepts and risk assessment contexts are largely the same in each case. Some additional features and key benefits of using @RISK are also covered.

  • Business Risk and Simulation Modelling in Practice reflects the author's many years in training and consultancy in these areas. It provides clear and complete guidance, enhanced with an expert perspective. It uses approximately one hundred practical and real-life models to demonstrate all key concepts and techniques; these are accessible on the companion website.

    Table of Contents

    1. Preface
    2. About the Author
    3. About the Website
    4. PART I An Introduction to Risk Assessment – Its Uses, Processes, Approaches, Benefits and Challenges
      1. CHAPTER 1 The Context and Uses of Risk Assessment
        1. 1.1 Risk Assessment Examples
        2. 1.2 General Challenges in Decision-Making Processes
        3. 1.3 Key Drivers of the Need for Formalised Risk Assessment in Business Contexts
        4. 1.4 The Objectives and Uses of General Risk Assessment
      2. CHAPTER 2 Key Stages of the General Risk Assessment Process
        1. 2.1 Overview of the Process Stages
        2. 2.2 Process Iterations
        3. 2.3 Risk Identification
        4. 2.4 Risk Mapping
        5. 2.5 Risk Prioritisation and Its Potential Criteria
        6. 2.6 Risk Response: Mitigation and Exploitation
        7. 2.7 Project Management and Monitoring
      3. CHAPTER 3 Approaches to Risk Assessment and Quantification
        1. 3.1 Informal or Intuitive Approaches
        2. 3.2 Risk Registers without Aggregation
        3. 3.3 Risk Register with Aggregation (Quantitative)
        4. 3.4 Full Risk Modelling
      4. CHAPTER 4 Full Integrated Risk Modelling: Decision-Support Benefits
        1. 4.1 Key Characteristics of Full Models
        2. 4.2 Overview of the Benefits of Full Risk Modelling
        3. 4.3 Creating More Accurate and Realistic Models
        4. 4.4 Using the Range of Possible Outcomes to Enhance Decision-Making
        5. 4.5 Supporting Transparent Assumptions and Reducing Biases
        6. 4.6 Facilitating Group Work and Communication
      5. CHAPTER 5 Organisational Challenges Relating to Risk Modelling
        1. 5.1 “We Are Doing It Already”
        2. 5.2 “We Already Tried It, and It Showed Unrealistic Results”
        3. 5.3 “The Models Will Not Be Useful!”
        4. 5.4 Working Effectively with Enhanced Processes and Procedures
        5. 5.5 Management Processes, Culture and Change Management
    5. PART II The Design of Risk Models – Principles, Processes and Methodology
      1. CHAPTER 6 Principles of Simulation Methods
        1. 6.1 Core Aspects of Simulation: A Descriptive Example
        2. 6.2 Simulation as a Risk Modelling Tool
        3. 6.3 Sensitivity and Scenario Analysis: Relationship to Simulation
        4. 6.4 Optimisation Analysis and Modelling: Relationship to Simulation
        5. 6.5 Analytic and Other Numerical Methods
        6. 6.6 The Applicability of Simulation Methods
      2. CHAPTER 7 Core Principles of Risk Model Design
        1. 7.1 Model Planning and Communication
        2. 7.2 Sensitivity-Driven Thinking as a Model Design Tool
        3. 7.3 Risk Mapping and Process Alignment
        4. 7.4 General Dependency Relationships
        5. 7.5 Working with Existing Models
      3. CHAPTER 8 Measuring Risk using Statistics of Distributions
        1. 8.1 Defining Risk More Precisely
        2. 8.2 Random Processes and Their Visual Representation
        3. 8.3 Percentiles
        4. 8.4 Measures of the Central Point
        5. 8.5 Measures of Range
        6. 8.6 Skewness and Non-Symmetry
        7. 8.7 Other Measures of Risk
        8. 8.8 Measuring Dependencies
      4. CHAPTER 9 The Selection of Distributions for Use in Risk Models
        1. 9.1 Descriptions of Individual Distributions
        2. 9.2 A Framework for Distribution Selection and Use
        3. 9.3 Approximation of Distributions with Each Other
      5. CHAPTER 10 Creating Samples from Distributions
        1. 10.1 Readily Available Inverse Functions
        2. 10.2 Functions Requiring Lookup and Search Methods
        3. 10.3 Comparing Calculated Samples with Those in @RISK
        4. 10.4 Creating User-Defined Inverse Functions
        5. 10.5 Other Generalisations
      6. CHAPTER 11 Modelling Dependencies between Sources of Risk
        1. 11.1 Parameter Dependency and Partial Causality
        2. 11.2 Dependencies between Sampling Processes
        3. 11.3 Dependencies within Time Series
    6. PART III Getting Started with Simulation in Practice
      1. CHAPTER 12 Using Excel/VBA for Simulation Modelling
        1. 12.1 Description of Example Model and Uncertainty Ranges
        2. 12.2 Creating and Running a Simulation: Core Steps
        3. 12.3 Basic Results Analysis
        4. 12.4 Other Simple Features
        5. 12.5 Generalising the Core Capabilities
        6. 12.6 Optimising Model Structure and Layout
        7. 12.7 Bringing it All Together: Examples Using the Simulation Template
        8. 12.8 Further Possible uses of VBA
      2. CHAPTER 13 Using @RISK for Simulation Modelling
        1. 13.1 Description of Example Model and Uncertainty Ranges
        2. 13.2 Creating and Running a Simulation: Core Steps and Basic Icons
        3. 13.3 Simulation Control: An Introduction
        4. 13.4 Further Core Features
        5. 13.5 Working with Macros and the @RISK Macro Language
        6. 13.6 Additional In-Built Applications and Features: An Introduction
        7. 13.7 Benefits of @RISK over Excel/VBA Approaches: A Brief Summary
    7. Index
    8. EULA