MATHEMATICS, SIMULATION AND MODELLING
4 December 2006
The Need for Risk Analysis
Businesses make decisions every day. Where to invest, what to produce, which vendor to use, what price to charge - the list is endless.
Risk analysis need not be a daunting task, because software tools are available to simplify and speed the process—for example, @RISK software produced by Palisade.
Palisade’s @RISK is the world’s most widely used risk analysis tool. Users replace values in their spreadsheet with @RISK distributions to represent uncertainty and then simulate the model using powerful Monte Carlo simulation methods.
What is "Monte Carlo Simulation?" When we use the word simulation, we refer to any analytical method meant to imitate a real-life system, especially when other analyses are too mathematically complex or too difficult to reproduce.
Without the aid of simulation, a spreadsheet model will only reveal a single outcome, generally the most likely or average scenario. Spreadsheet risk analysis uses both a spreadsheet model and simulation to automatically analyse the effect of varying inputs on outputs of the modelled system.
@RISK recalculates the spreadsheet hundreds (or thousands) of times. The results: distributions of possible outcome values. This not only tells you what could happen, but how likely it is it will happen. Results are displayed graphically and through detailed statistical reports. Sensitivity and scenario analysis identify critical factors which drive risk.
- Factoring in all variables
- Show all possible outcomes
- Minimises uncertainty
- Identify opportunities and avoid pitfalls
- Apply Monte Carlo simulation to see all possible outcomes in your Excel models
- Works in Excel where you’re comfortable
- Uncover the risks in your research, business or activity
- Use historical data to describe uncertain factors
- Instantly examine different scenarios with stress analysis
- Identify key risk drivers with sensitivity analysis
- Extensive chart and reports communicate results
- Easy to use and navigate