Risk Analysis Software

Risk Analysis Software

Submitted by our tutor Liam Dillon from Turlon & Associates

Traditional analysis is deterministic (that without using probabilities) and in general most project software can be labelled as deterministic (i.e. Microsoft Project). As product professionals become competent in spreadsheet or project modelling software, came the advent of software that can represent uncertainty. Coupled with the deterministic software are the stochastic (probability and statistical) software packages. This has led to the inclusion of decision analysis software tools and techniques. The following lists five different stochastic software tools that are used for decision analysis, Monte Carlo simulation and recording project risks and actions:

Spreadsheets: –

Powerful for many types of calculations including payoff matrices, calculation of expected value and expected monetary value. It is easy to develop templates for small-to-medium sized decision trees. Can also be used to model and graph sensitivity analysis. Microsoft Excel provides various add-ins that can accommodate many of the stochastic tools. Examples are precision tools (for decision trees) and simulation ready (Monte Carlo simulation).

Monte Carlo Simulation: – For spreadsheets, there are two vendor choices available:Crystal Ball by Decisioneering Corporation (http://www.decisioneering.com): – Includes optimisation programs and information and is based on neural networks and heuristics.

• @RISK by Palisade Corporation (http://www.palisade.com): – Widely known tool that can be used as an add-in for all leading spreadsheet packages (i.e. Lotus 1-2-3, Microsoft Project, etc.)
• Risk + by C/S Solutions Inc. (http://www.cs-solutions.com): – Tool for purely adding simulations to Microsoft Project.

Decision Tree Analysis: –

• The following is a list of add-in Microsoft Excel tools that allow decision trees to be built within the spreadsheet: –
  PrecisionTree by Palisade Corporation (http://www.palisade.com): – Widely known tool that builds trees inside the spreadsheet with all the required formulas included. Combination of Precision Trees and @RISK are designed to work together which is particularly valuable for people that require to do decision trees and simulation as part of the one experiment / process.
• DATA by TreeAge Software Inc. (http://www.treeage.com): – Complex tool, which is very similar to PrecisionTree, but is not ideal for simple problems.
• DPL (Decision Process Language) by Applied Decision Analysis Inc. (http://www.adainc.com): – Another tool which is self-sufficient in the build and application of decision trees.
  All of the decision tree programs, which have been mentioned, are able to develop the decision model as an influence diagram and then convert these to a decision tree.

Modifying the decision tree will allow modification of the influence diagram with DPL only. Remember that value trees and decision trees use the same methodology and the difference is the units of measure (i.e. utility and money).

To read more of this article, please visit our training partner’s Turlon’s website