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

CHAPTER 1 The Context and Uses of Risk Assessment

This chapter provides a general discussion about the uses of risk assessment. We start by describing some simple examples; these demonstrate that risk assessment is a natural process that is conducted by most people in day-to-day situations, albeit informally and often implicitly. We also present some prominent examples of risk management failures in business-related contexts. We then describe some contextual challenges in decision-making processes, including that of achieving an appropriate balance between rational considerations and intuition, as well as the presence of biases. In the latter part of the chapter, we present key drivers of the need for structured, explicit and formal approaches to risk assessment in some contexts, and present the main uses and objectives of such activities.

1.1 Risk Assessment Examples

This section presents some simple examples of the use of risk assessment in everyday situations. From these, we aim to draw some general conclusions, including that the conducting of risk assessment is quite natural to most of us (and not something unusual, in principle). Indeed, in situations that are fairly simple or that are encountered frequently, the process is usually implicit; our plans automatically incorporate some element of risk mitigation and contingency planning based on experience, without us being particularly aware of it. For situations faced less frequently (or where the situation does not closely ...