Estimating Risk: A Management Approach – a taste of the content in detail
Estimating Risk: A Management Approach by Andy Garlick, Managing Director of The Risk Agenda, provides managers with a practical insight into the methods and benefits of using risk models. It also gives their advisors a broad view of the technical background and numerous examples of how to develop them. Some of this is repeated below.
Waste Management PPP
One of the examples is a completely hypothetical waste management PPP set years into the future. Risks arise
The book shows how these risks are quantified, how this affects the price bid, and gives a practical example of how the bid can be improved with appropriate risk transfer between the client and contractor.
The spreadsheet containing the risk model has been developed can be downloaded using the link at the bottom of the page.
As well as the practical examples like the waste management PPP, the book contains many simple or idealised illustrations of the theory and methods. For example, combining several distributions tends to give a normal distribution, even if the component distributions are completely different from normal. This is the celebrated Central Limit Theorem. The diagram shows the input which can be used in our Monte Carlo tool Natural Monte Carlo to demonstrate this using skewed triangle distributions.
You can download Natural Monte Carlo from our software page. The second picture shows the results. Even with only 3 input distributions the output is very close to normal, even quite far out in the tails of the distributions.
The so-called S-curves, or cumulative probability distributions are quite regular.
By contrast the final diagram shows the approximate probability density distributions obtained from the Monte Carlo process. This is an excellent illustration of the difficulties found with this randomised technique.
For more information, you can return to the main book page where there is information about how to view material on the publisher’s website.
The Waste Management PPP
You can open and save the waste management PPP example spreadsheet using the link below. However please note:
If you wish to run it you need the Monte Carlo tool @RISK, see the RiskBite on risk software. You do not need this to see how it works.
The Risk Agenda accepts no responsibility whatsoever for anything you do with it.