(Palisade: Ithaca, NY) -- When building simulation models with @RISK, consider the following best practices suggested by Palisade's director of training and consulting, Michael Rees, Ph.D.:
* A risk model may need to be built at an appropriate level of detail. A model which is too detailed will be more complex to add risk distributions to and will require more effort to capture the dependencies between the variables. In many practical cases, key dependencies will simply not be captured, and the result will have an excessively narrow range (for additive type models e.g., cost budgeting) or an excessively wide range (for subtractive models e.g., profit as the difference between uncertain revenues and costs).
* Consider whether or not to include event risks. Generically, a static model of a situation in which there are event risks (e.g., something adverse happening in 20 percent of cases in a reserve estimation model) would not include such a risk as a line item (because the most likely outcome is its nonoccurrence), whereas a risk model would.
* The prioritization of event risks to include may be non trivial, and depends on the decision maker's risk profile (i.e., tolerance and decision-making criteria), as well as the potential total number of event risks under consideration. For example, in a retirement planning model where a decision is to be based on the P90 outcome (i.e., the worst or best 10 percent of cases), it would be more important to include an event with an impact of 1 (with 100 percent probability) than an event with impact of 100 with 1 percent probability, as this latter event in isolation would have very little effect on the P90 of the output distribution. Were decisions to be made on the P99.5 value, we would have a different situation.
The best models help you make better decisions in your own specific situation. Structuring your model so that it accurately reflects your problem while simultaneously being useful to others in your organization can be a challenge. Palisade Custom Solutions can help create a model for your unique industry needs. We can automate model definition, simulation, and reporting so that your model can leverage @RISK technology and be scalable for large work groups.
Palisade is pleased to announce @RISK 5.5 and DecisionTools Suite 5.5, the latest release of these best-selling risk and decision analysis tools.
Current @RISK 5.0 users will benefit from faster simulations—two times to a remarkable 20 times faster than before—as well as new scatter plots from scenario analyses, an interactive distribution artist, and an Excel-style insert function dialog and graphs. @RISK 5.5 brings a range of new features to improve your analysis, save time, and encourage systematic adoption of risk analysis across your organization.
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