Two Sides of the Coin

Maybe it’s because of fallout from the past year’s financial crisis, but I have been noticing that almost all the press mention for risk analysis or Monte Carlo simulation is in connection with fending off the bad stuff–loss, adversity, or failure of various kinds.  So it was refreshing to come across a story of decision evaluation being used to analyze the good stuff, that is, innovation and opportunity.
In 2008, Dell sponsored a student team from the Tauber Institute at the University of Michigan to compare the opportunity scenarios for designing new laptops that would use emerging wireless technology.  Dell’s challenge to the engineering and business students was to determine the most profitable way to approach new laptops for new markets. 
Out came the laptops, out came the Monte Carlo software.  In went the inputs–the possible cards, the cost of components, retail discounts vs. direct sales, necessary changes in internal organization.  What was the value-at-risk? An already pretty profit picture from the laptop sales of the previous year. 
It was the most positive kind of problem to solve.  And what was the outcome of the team’s efforts?  "A Profit-Based Simulation Model for Laptop Planning"– an optimistic title if there ever was one.  But I suppose the title could have been "Modeling Potential Loss from New Laptop Design."  There were quite a number of good-news scenarios at the institute that year.  I mention the Dell team because of the intensive decision analysis element. 

As anyone who does risk analysis is aware, the flip side of opportunity is risk, or maybe opportunity is the upside of risk.  They are always there together, the two sides of chance, but it’s great to occasionally see the brighter side of the coin. 

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