Risk Modeling for Determining Value and Decision Making by Glenn KollerRisk Modeling for Determining Value and Decision Making by Glenn Koller

Risk Modeling for Determining Value and Decision Making

byGlenn KollerEditorGlenn Koller

Hardcover | May 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 Manufacturing
Environmental assessment Pricing
Identification of business drivers Production sharing
Insurance Scheduling and optimization
Investing Security
Law

Emphasizing 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.

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Title:Risk Modeling for Determining Value and Decision MakingFormat:HardcoverDimensions:336 pages, 9.21 × 6.14 × 2.6 inPublished:May 17, 2000Publisher:Taylor and FrancisLanguage:English

The following ISBNs are associated with this title:

ISBN - 10:1584881674

ISBN - 13:9781584881674

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Table of Contents

INTRODUCTION
Scope Realism
Models, Validation, and Precision
Value
TWO APPROACHES TO SOLVING DECISION TREES-A CLASS-ACTION SUIT EXAMPLE
Introduction
Building the Decision Tree
What is the Question?
Interpretation of the Probabilistic-Branching Model
So, So What?
TERRORISM RISK MODELS-RELATIVE AND ABSOLUTE RISK
Terrorism Relative-Risk Model
What is the Question?
Building the Contributing-Factor Diagram for the Relative-Ranking Terrorist-Threat Risk Model
Category Weights
Relative-Risk Model Equations
Relative-Risk Model Applied to Terrorist Organization #1
Relative Risk Model Results from Evaluation of Terrorist Organization #1
Relative-Risk Model Applied to Terrorist Organization #2
Relative-Risk Model Results from Evaluation of Terrorist Organization #2
Comparison of the Two Terrorist Organizations
Building the Terrorism Absolute-Cost Risk Model
Absolute-Cost Risk Model Equations
Application of the Absolute-Cost Risk Model to Terrorist Organization #2
Absolute-Cost Risk Model Results for Evaluation of Terrorist Organization #2
So, So What?
GATHERING INFORMATION CONSISTENTLY IN AN INCONSISTENT WORLD
Introduction
The Problem
The Solution
So, So What?
NEW MANUFACTURING FACILITY- BUSINESS-JUSTIFICATION MODEL
Introduction
What is the Question?
Construction of the Contributing-Factor Diagram
Populating the Model with Data
Risk Model Equations
Results from Model Execution
So, So What?
OIL-FIELD-DEVELOPMENT INVESTMENT-OPPORTUNITY RISK MODEL
Introduction
What is the Question?
Categories and Variables
Field-Development Risk Model Equations
Populating the Model with Data
Results from Model Execution
So, So What?
USING CHANCE OF FAILURE AND RISK-WEIGHTED VALUES TO REFLECT THE EFFECT OF "SOFT" ISSUES ON THE VALUE OF AN OPPORTUNITY
Introduction
Accurate Estimates of Value are Essential
Types of Chance of Failure
How to Express and use Chance of Failure
Risk-Weighted Values and the Value of a Portfolio Element
Value of a Portfolio Composed of Dissimilar Elements
So, So What?
PRODUCTION-SHARING AGREEMENT RISK MODEL
Introduction
What is the Question?
Building the Contributing-Factor Diagram
Risk Model Equations
Populating the Model with Technical Data
Chances of Abject Failure
Populating the Model with Financial Data
Results from the Model
So, So What?
SCHEDULING AND OPTIMIZATION RISK MODEL
Introduction
The Problem
Design of the Model and the Contributing-factor Diagram
The Risk Model Code
Results from Model Execution
So, So What?
DECISION/OPTION-SELECTION RISK MODEL
Introduction
The Current Situation
The Problem
Results from Model Execution
So, So What?
RISK PROCESS TO IDENTIFY BUSINESS DRIVERS, MAXIMIZE VALUE, AND DETERMINE THE VALUE OF POTENTIAL EXPENDITURES
Introduction
The Problem
The Risk/Uncertainty Model
Populating the Model with Data
Results from Model Execution
Determining Business Drivers and Maximizing Value
Determining the Value of New Information/Services
So, So What?
SUMMARY
Other Applications
It is Mostly the Process - Not the Technology
Accomplishment of Vision Generates Real Returns
Exploration Example
Maintenance/Construction Example
BUILDING A CONSENSUS MODEL
What is the Question? - Most of the Time and Effort
Consensus Model
Group Dynamics
Write it Down
Sort it Out
Group Dynamics Again
Units
Overarching Categories
BUILDING A CONTRIBUTING-FACTOR DIAGRAM
The Contributing-Factor Diagram - Getting Started
Identify and Define Variables
Ask the Right Question
Double-Dipping
Double-Dipping and Counting the Chickens
Fixing the Double-Dipping and Counting of Chickens Problem
CFD-Building Example
Short List of Hints for Building a CFD
MONTE CARLO ANALYSIS
A Bit of History
For What is it Good?
Simple Monte Carlo Example
How Many Random Comparisons are Enough?
Output from Monte Carlo Analysis - The Frequency and Cumulative Frequency Plots
Interpreting Cumulative Frequency Plots
Combining Monte Carlo-Output Curves
DECISIONS AND DISTRIBUTIONS
Decisions
Just what is a Distribution?
Distribution - How to Approach Them
Symmetrical Distributions
Skewed Distribution
Spike Distributions
Flat Distributions
Truncated Distributions
Discrete Distributions
Bimodal Distributions
Reading Data from a File
Peakedness
"Specific" Distribution Types
CHANCE OF FAILURE
Chance of Failue - What it It?
Failure of a Risk Component
Chance of Failure that does no affect and Input Distribution
Incorporating chance of Failure in a Plot of Cumulative Frequency
Another Reason for chance of Failure
The "Inserting 0s Work Around"
COF and Multiple Output Variables
TIME SERIES ANALYSIS AND DEPENDENCE
Introduction to Time-Series Analysis and Dependence
Time-Series Analysis - Why?
Time-Series Analysis - How?
Time-Series Analysis -Results
Some Things to Consider
Dependence - What is It?
Independent and Dependent Variables
Degree of Dependence
Multiple Dependencies and Circular Dependence
Effect of Dependence on Monte Carlo Output
Dependence - It's Ubiquitous
RISK-WEIGHTED VALUES AND SENSITIVITY ANALYSIS
Introduction to Risk-Weighted Values and Sensitivity Analysis
Risk-Weighted Values - Why?
Risk-Weighted Values - How?
The Net Risk-Weighted Value
The Economic Risk-Weighed Resource (ERWR) Value
Risk-Weighted Values - The Answer
Sensitivity Analysis - Why?
Sensitivity Analysis - How?
Sensitivity Analysis - Results

Editorial Reviews

"This book makes for some interesting reading and is notable for addressing important nontechnical issues related to modeling riskit provides insight into the way in which some nontechnical people think, thus offering a potential for better communication with business-oriented clients." - Technometrics, May 2001 "This book is based on the original work of the author, who is a well-known specialist in the field of decision and risk analysis. The narration of the issues of concern referring to making decisions is excellent and gives the proper atmosphere of a proper discussion to address decisions of large investments or important topics. the overall practical experience of the author adds value The book is important. It brings to the potential reader a challenging way of looking into the decision-making process by using direct approaches The advantage of the book is that it addresses the decision -making process in a direct and simple manner, following patterns given by the author in the contributing-factor diagram I f one is serious about using the knowledge of decision analysis in one's practical, everyday work, this book is worth the pricethis book is worth reading and, to the extent possible, integrating in various tasks for solving decision problems facing a corporation or a person." -JASA, September 2001 "An instructor should consider this book for class use, because it gives a direct approach to the decision-making process, uncertainty, and risk estimation and how to interpret such knowledge in assessing and determining the values of potential alternatives, which are not always explicitly expressed by managers, stakeholders, or decision makers." -JASA, September 2001