Risk Modeling for Determining Value and Decision Making

Abstract

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