Estimating Risk

Estimating Risk: A Management Approach

Andy Garlick’s book explores the role of quantitative techniques in modern risk management. Risk management has grown in importance in most organisations in the last 20 years, but in many remains simply a matter of processing lists of risks and actions. Andy argues that this fails to make the most of the techniques available and that organisations can improve their risk decision making by using risk models.

Mike Robertson, Managing Partner, Risk Solutions, says:

‘A comprehensive and critical overview of the risk management toolkit from both a theoretical and practical perspective. Risk professionals will find it an extremely useful resource. More importantly, it should be required reading for all managers who think they understand how to use the results of a risk assessment to inform business decisions’.

Alistair Kennedy, Director, Balfour Beatty Management, says:

‘Those used to more traditional corporate risk managers will find Garlick’s approach refreshing and informative, focusing on how the techniques can be used to help managers manage better rather than on compliance or loss prevention (although of course this remains an important part of any approach to risk).

‘This book provides a very readable insight into the author’s approach to risk and will inform both managers and practitioners alike. He has structured his book in a way that allows the reader to understand the subject in simple terms whilst separately providing the mathematical insight (and detail) required for a comprehensive analysis. The book will help managers avoid the many pitfalls in this complex subject and allow them to interrogate the models presented by practitioners and to challenge bad practice when it presents itself.

‘He quite rightly challenges some of the more mechanistic approaches to risk management. Readers of this book will quickly come to understand some of the myths and pitfalls surrounding a reliance on some of the more expensive corporate risk software for estimating risk and I suspect become significantly more demanding of their own risk processes. To use the author’s own words – “You have been warned”.’

His book describes a broad range of modelling techniques, all illustrated with business-relevant examples. The role of the models in decision making is also discussed with particular emphasis on what the risk premium – the price people charge for taking risk – is and should be.

In order to provide a self-contained account the underpinning material from probability and decision theory is also included, so the book will provide a handy reference guide for all practitioners. The discussion is consistently informal and the book provides a critical view of the accepted wisdom in risk management. This book will enable managers and their specialist advisors to improve thier approach to risk whilst removing the mystique.

For more information, see some sample chapters and to order the book you can visit the publisher’s website. At present we do not have a discount purchasing arrangement so please visit our publishing site to buy at a discount.

The following sections give you a more detail of the contents.

Part I: Risk Management Overview

This part of the book is aimed at the general reader. First it describes the context for risk and then provides a brief introduction to risk management. This sets the scene for the introduction of quantitative risk models which underlie the practical examples of how they can be used. This enables us to answer our 4 key questions:

  • what is quantitative risk estimation, and what do you need to know?
  • when should you do it, and when not?
  • how should you do it, and how not?
  • how do you make the decision?

    One of the examples is a waste management PPP. More details of this are included on our technical page.

    Part II: Risk Models

    The aim of this part is to illustrate the range of risk models which can be generated. These include reliability models, cost models, schedule models and more general decision models.

    The cost models include a detailed description of the waste management PPP and you can visit the technical page to understand its detailed working.

    Part III: Decisions and Risk

    Because risk models are used to support decision making, Part III talks about how this works in both the public and private sectors, and for safety.

    The topics covered include public sector appraisal (the Green Book, optimism bias, time preference), investor expectations (and what they actually get), risk-based safety regulation and much more.

    Part IV: Techniques

    Finally Part IV provides the underlying basics of risk modelling, including probability theory, Monte Carlo in theory and in practice, decision analysis and some other useful methods.

    Because Monte Carlo is the most common way of calculating risk models we have created an easy-to-use spreadsheet Natural Monte Carlo which you can download from our software page. The technical page has some of the results.