This is the fourth post about the Companion and Self-Testing Question List for my recent book Business Risk and Simulation Modelling in Practice: Using Excel, VBA and @RISK. As mentioned in earlier posts, the complete list of questions posted in this series will also shortly be available for free on the John Wiley web-site.
As a reminder, the full series of posts correspond to the Chapters of the book as follows:
- Post I: Risk Assessment Context and Processes (Chapters 1 and 2 of book)
- Post II: Risk Assessment, Quantification and Modelling: Approaches, Benefits and Challenges (Chapters 3, 4 and 5)
- Post III: Principles of Simulation Methods (Chapter 6)
- Post IV: Core Principles in the Design of Risk Models (Chapter 7)
- Post V: Measuring Risk using Statistics of Distributions (Chapter 8)
- Post VI: The Selection of Distributions for Use in Risk Models (Chapters 9 and 10)
- Post VII: Modelling Dependencies between Sources of Risk (Chapter 11)
- Post VIII: Using Excel/VBA for Simulation Modelling (Chapter 12)
- Post IX: Using @RISK for Simulation Modelling (Chapter 13)
This is Post IV, Core Principles in the Design of Risk Models (Chapter 7):
- What are the main similarities between the design of risk models and that of traditional static (deterministic) models?
- What are the main differences between the design of risk models and that of traditional static (deterministic) models?
- What is meant by using sensitivity thought techniques to design models?
- What are possible roles for the uses of model switches?
- What is the difference between a decision-tornado diagram and an uncertainty tornado diagram (as defined in the book)?
- Give examples of the types of situations in which the formulae in risk models may need to be made more dynamic than in traditional static (deterministic) models.
- When conducting risk mapping process, what are the key questions that need to be addressed when considering the nature of the risks and their impacts?
- How should the results of a risk model be interpreted in relation to the stage of the risk assessment process at which such a model is built?
- What guidelines should be used to communicate the results of risk analysis to decision-makers?
- What forms of general dependency relationships exist in risk modelling?
- What are the key issues that need to be addressed when trying to add risk analysis to an existing traditional static (deterministic) model?
- To what extent can simulation and risk techniques be introduced into an existing traditional static (deterministic) model (which has been built so that individual inputs can be validly changed)?
- If an existing traditional static (deterministic) model requires other operations to be performed after any input is changed, how can such procedures be incorporated within a simulation process?
- Give examples of modelling situations in which additional procedures (i.e. beyond letting Excel recalculate) are required to be used whenever model inputs are changed.
- What may cause the running of such additional procedures within a simulation to create false or misleading results? What techniques are typically required to overcome these?
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