Principles of Risk Analysis: Decision Making Under Uncertainty

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    • Provides the necessary information to oversee, implement, and work within a risk analysis framework
    • Integrates risk management, risk assessment, and risk communication tasks
    • Addresses the role of uncertainty in the various stages of risk analysis
    • Explains how to identify a problem, conduct an analysis, and communicate results
    • Incorporates extensive sidebars, figures, and examples to enhance the text
    • Includes appendices on the risk language of ISO 31000 and on using Palisade Corporation DecisionTools® Suite software


    In every decision context there are things we know and things we do not know. Risk analysis uses science and the best available evidence to assess what we know—and it is intentional in the way it addresses the importance of the things we don’t know. Principles of Risk Analysis: Decision Making Under Uncertainty lays out the tasks of risk analysis in a straightforward, conceptual manner that is consistent with the risk models of all communities of practice. It answers the questions "what is risk analysis?" and "how do I do this?"

    Distilling the common principles of the many risk tribes and dialects into serviceable definitions and narratives, the book provides a foundation for the practice of risk analysis and decision making under uncertainty for professionals from all walks of life. In the first part of the book, readers learn the language, models, and concepts of risk analysis and its three component tasks—risk management, assessment, and communication. The second part of the book supplies the tools, techniques, and methodologies to help readers apply the principles. From problem identification and brainstorming to model building and choosing a probability distribution, the author walks readers through the how-to of risk assessment. Addressing the critical task of risk communication, he explains how to present the results of assessments and how to develop effective messages.

    The book’s simple and straightforward style—based on the author’s decades of experience as a risk analyst, trainer, and educator—strips away the mysterious aura that often accompanies risk analysis. It describes the principles in a manner that empowers readers to begin the practice of risk analysis, to better understand and use the models and practice of their individual fields, and to gain access to the rich and sophisticated professional literature on risk analysis.

    Additional exercises as well as a free student version of the Palisade Corporation DecisionTools® Suite software and files used in the preparation of this book are available for download.

    Table of Contents

    The Basics
    What is Risk?
    What Is Risk Analysis?
    Why Do Risk Analysis?
    Who Does Risk Analysis?
    When Should We Do Risk Analysis?
    Organization of Book

    Uncertainty from 75,000 Feet
    The Uncertainty on Your Desk
    Being Intentional About Uncertainty

    Risk Management
    Identifying Problems and Opportunities
    Risk Estimation
    Risk Evaluation
    Risk Control
    Risk Monitoring
    Risk Management Models

    Risk Assessment
    What Makes a Good Risk Assessment?
    Risk Assessment Activities
    Risk Assessment Models
    Risk Assessment Methods

    Risk Communication
    Internal Risk Communication
    External Risk Communication

    Problem Identification for Risk Management
    What’s a Problem? What’s an Opportunity?
    Becoming Aware of Problems and Opportunities
    Problem and Opportunity Identification Techniques
    The P&O Statement

    What Can You Brainstorm?
    Avoid Problems in Your Process
    A Few Good Techniques
    3× Yeah
    Group Evaluations with Colored Dots
    Do You Need a Facilitator?

    Opportunity Costs and Trade-Offs
    Economics for Risk Managers
    Economics and Decision Making
    Economic Basis for Interactions among People
    Principles of the Economy as a Whole
    Making Trade-Offs
    Economic Analysis

    Qualitative Risk Assessment
    Risk = Probability × Consequence
    A Generic Process
    More or Less Risk
    Risk Narratives
    Evidence Maps
    Ordering Techniques
    The Risk Matrix
    Qualitative Risk Assessment Models
    A Semiquantitative Risk Assessment Example

    The Art and Practice of Risk Assessment Modeling
    Types of Models
    A Model-Building Process
    Simulation Models
    Required Skill Sets

    Probability Review
    Two Schools of Thought
    Probability Essentials
    How Do We Get Probabilities?
    Working with Probabilities
    Why You Need to Know This

    Choosing a Probability Distribution
    Graphical Review
    Strategy for Selecting a Probability Distribution
    Example 1
    Example 2
    A Dozen Useful Probability Distributions for Risk Assessors

    Probability Elicitation
    Probability Words
    Subjective Probability
    When to Do an Elicitation
    Making Judgments under Uncertainty
    Responding to Heuristics
    The Elicitation Protocol
    Multiple Experts

    Monte Carlo Process
    A Two-Step Process
    How Many Iterations?
    Sampling Method
    An Illustration

    Probabilistic Scenario Analysis
    Common Scenarios
    Types of Scenario Analysis
    Scenario Comparisons
    Tools for Constructing Scenarios
    Adding Probability to the Scenarios
    An Example

    Sensitivity Analysis
    Qualitative Sensitivity Analysis
    Quantitative Sensitivity Analysis
    The Point

    Presenting and Using Assessment Results
    Understand Your Assessment Output Data Before You Explain It
    Examine the Quantities
    Examine the Probabilities
    Examine Relationships
    Answer the Questions
    Visualization of Data
    Decision Making under Uncertainty

    Message Development
    Communication Models
    The Need for Message Strategies for Risk Communication
    Crisis Communication
    Message Mapping
    Impediments to Risk Communication
    Developing Risk Communication Messages

    Appendix A: The Language of Risk and ISO 31000
    ISO 31000
    Enterprise Risk Management

    Appendix B: Using Palisade’s Decision Tools Suite


    All chapters include an introduction, summary, and references.


    Author Bio(s)

    Downloads / Updates

    Resource OS Platform Updated Description Instructions
    Cross Platform May 24, 2012 Tools Appendix B provides an introduction to Palisade Corporation’s DecisionTools® Suite software that was used in the preparation of this book. Files used in the creation of this book and additional exercises as well as a free student version of the software are available at