Various Events
Risk Management Examples
ISBN: 978-620-2-91949-4
Author: Vojo Bubevski (Independent Researcher)
Abstract
This chapter presents a stochastic model for cost assessment considering multiple possible events throughout the year. A simulation model is designed to resolve the cost assessment. Any number of events (up to a maximum) can occur during the year, and a discrete distribution over the months indicates when each of the events occurs. Then for each of these events, a discrete distribution generates the month of occurrence. Also, the costs for all events are generated from a probability distribution. The event’s costs are correlated, so the model applies specified correlations among these costs. The model calculates the outputs including the number of events each month, the total cost each month, and the NPV of costs, using a 10% discount rate.
Keywords: Risk Assessment and Management, Cost Assessment of Possible Events, NPV, Financial Risk, Sensitivity Analysis; Monte Carlo simulation; Stochastic model.
The Results
The calculated Monthly Events (i.e., the number of events that occur in a month) are presented in Table 4.
Table 4: Monthly Events Results
Month |
Events |
1 |
0 |
2 |
1 |
3 |
1 |
4 |
0 |
5 |
0 |
6 |
0 |
7 |
0 |
8 |
1 |
9 |
0 |
10 |
0 |
11 |
0 |
12 |
0 |
Table 5: Monthly Costs Results
Month |
Costs ($) |
1 |
0 |
2 |
547,225.71 |
3 |
254,160.25 |
4 |
0 |
5 |
0 |
6 |
0 |
7 |
0 |
8 |
188366.18 |
9 |
0 |
10 |
0 |
11 |
0 |
12 |
0 |
Table 5 shows that the event costs in months 2, 3, and 8 are $547,225.71, $254,160.24, and $188,18 respectively. In the other months, the costs are zero.
The Monthly Costs Mean is graphically presented in Figure 3.
Note: The Mean results, which involve a probability distribution calculation, are not equal to the calculated results. For example, the cost Mean approximation is $100,000 in Month 1, $200,000 in Month 2, $250,000 in Month 3, etc.
Chapter 6: Predicting Operational Risk of Events;
In Book6: Comprehensive Sensitivity Analysis of Risk for Businesses
ISBN: 978-620-2-91949-4
Author: Vojo Bubevski (Independent Researcher)
Abstract
The Results
The comparison of the five simulation results, considering the Total Actual Impact, which is calculated with the respective five parameters of the Probable Occurs per Year Vector, and the Total Average Impact, which is calculated with the Probability Occurring per Year Vector, is presented in Table 2.
Table 2: Comparison of Simulation Results ($)
Comparison of Results |
Sim#1 |
Sim#2 |
Sim#3 |
Sim#4 |
Sim#5 |
Total Actual Impact Mean |
0.0 |
5998999 |
12747626 |
18597430 |
24146875 |
Actual Standard Deviation |
0.0 |
1348655 |
2030436 |
2445578 |
2793234 |
Total Average Impact Mean |
226000 |
226000 |
226000 |
226000 |
226000 |
Average Standard Deviation |
4427 |
4427 |
4427 |
4427 |
4427 |
The Total Actual Impact Mean starts with zero in Sim#1, and then logarithmically is increased to $24,146,875 in Sim#5. Similarly, the Standard Deviation starts with zero in Sim#1, and then logarithmically is increased to $2,793,234 in Sim#5
The Total Average Impact Mean is constant and equal in all five simulations, i.e., from Sim#1 to Sim#5. Similarly, the Standard Deviation is equal in all five simulations, i.e., from Sim#1 to Sim#5.