The Devil Is in the. . .Whah?

Many commentators on the current financial woes in the U.S. have blamed the credit crunch on the “CDO”–collateralized debt obligation.  CDOs are an unregulated type of credit product, asset-backed securities constructed from portfolios of fixed-income assets. They come in many shapes and sizes, and they are rated in a similar way as bonds are rated. […]

What is Risk Management, Anyway? Who Can I Ask?

The financial crisis had led the media, regulators, even accountants screaming for better “risk management.”  OK, the need seems pretty obvious in 20/20 hindsight.  But what does that really mean? Lots of very smart people are attempting to answer that question.  A just-released report from Marsh Insurance Brokers outlines “how insurance and risk management strategies […]

Monte Carlo Simulation in Tolerance Design and Stack Analysis

The appeal of Monte Carlo Simulation lies in its applicability under very general settings and the unlimited precision that can be achieved. In particular, Monte Carlo can be used in all situations where other techniques (Linear and non linear propagation, and Numerical Integration) can be used but can yield more precise estimates. For this reason, […]

Tornado Graphs: Basic Interpretation

When using @RISK (risk analysis software for conducting Monte Carlo simulations in Microsoft Excel), one of the output graphs is a tornado graph. Such graphs have their most direct interpretation for linear models with independent input distributions, such as in most typical cost budgeting models. In these cases, the regression coefficients provide a measure of […]

Enterprise Risk Management: A New Look

The concept of Enterprise Risk Management, or the incorporation of risk assessment in all functional areas of an organization, is not especially new. In 2002, for example, Sarbanes-Oxley required internal controls on financial reports, usually including risk assessment. However, this tidbit from an article on “Smarter Risk Management” from Director of Finance Online caught our […]

Debt and Hope

Political scientist Ted Lowi once said, “Where there’s debt, there’s hope.”  And certainly that’s been the optimistic philosophy with which the financial powers-that-be operate.  But fundamentally I think Lowi was trying to get at the way we think about money and the future: we have always understood it is a trade-off between risk and reward.  […]

@RISK: A Tool for the Six Sigma Practitioner’s Tool Box

Last month, I attended a free webinar, Minitab Methods to Deal with “Bad” Data, which was given by Master Black Belt Rick Haynes of Smarter Solutions, which I previously wrote about.  If you didn’t attend or have a chance to read the article, or watch the archived video, I strongly suggest you do. Since then, […]