Risk Analysis, or Decision Analysis, is the analysis of uncertainty applied to decision-making. Many companies build business models to estimate future profitability and guide decision-making. These models often base profitability calculations on a single set of assumptions about the future, which understates, even ignores, future uncertainty. By varying your assumptions through a range of possibilities, you can generate significant insight about the risk and reward of future profitability, and focus your management on key issues that count.
Risk Detective tackles this often complex analysis of Risk Analysis through a two stage process:
Sensitivity Analysis prioritizes those assumptions that drive uncertainty. Typically, out of the 10-200 assumptions most models contain only a few are critical contributors to risk.
Scenario Analysis focuses on those critical assumptions, looking at all possibilities, to create a statistical distribution describing the range of possible profitability situations, both good and bad.
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