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 hypthetical waste management PPP set years into the future. Risks arise
  • in transportation
  • whilst waste processing
  • from residual waste disposal
  • during the transition from current to future practices and
  • at corporate level.

    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.

  • Monte Carlo

    Click image to view
    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.

    Click image to view
    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.

    Click image to view
    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, see some sample chapters and to order the book you can visit the publisher's website and quote reference G8APP25 to claim 25% discount on the recommended retail price. (You have to go to the checkout, register and enter G8APP25 as the 'Promotional code'.)

    Or you can return to the main book page.

    If you can see only this page, go to the complete Risk Agenda website.