Wednesday, January 18, 2017

What do you mean, 'value'?

In risk analysis we sometimes multiply the probability of occurrence with the event loss to obtain an expected event loss for the risk. Thus, if the the probability of occurrence of cladding collapsing is 1%, and the cost of the collapse (clean up,  insurance premium, make good) is $10m, then the expected event loss is $100k. No much, and across a portfolio of risks it indicates the overall budget risk....of course you include that in a Monte Carlo analysis to introduce some objectivity.

Another page from Matthew's book, Chancing it bears consideration in this context.

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