Strategic Decision Making with Data Analytics (Monetary Expected Value and Monte Carlo Simulation)

You work in a medium size construction company. You have been asked to assess a particular project at your company with respect to risk.You have been given a set of known risks for the project and you have been asked to find out how much money the company should expect to spend to handle the impacts of the risks (the estimate of the impact of the risks in the long run).The risks are as follows:

Risk A: impact of $35,000 +/- $4,000 at a 30% +/- 5% chance of occurrence

Risk B: impact of $15,000 +/- $1,000 at a 40% +/- 10% chance of occurrence

Risk C: impact of $85,000 +/- $7,000 at a 10% +/- 5% chance of occurrence

Risk D: impact of $25,000 +/- $15,000 at a 45% +/- 10% chance of occurrence

Risk E: impact of $60,000 +/- $3,000 at a 20% +/- 8% chance of occurrence

Risk F: impact of $75,000 +/- $10,000 at a 35% +/- 12% chance of occurrence

Risk G: impact of $30,000 +/- $8,000 at a 15% +/- 5% chance of occurrence

Assess the risk exposure in two ways.First the analytical method, calculating the risk exposure and the standard deviation.Then, create a Monte Carlo simulation for the risk exposure.

Compare the two approaches.How do they compare when there are 10 Monte Carlo runs? 100 runs?500 runs?

Describe this and any other difference you see

Answer rating: 100% (QA)

First lets calculate the risk exposure and standard deviation using the analytical method Risk A Mean impact 35000 Standard deviation 4000 Probability ... View the full answer