Risk Analysis

I am frequently asked by analysts and executives to recommend a book that provides practical methods and clear guidance for making risk and uncertainty more transparent, evident, understandable, and manageable in support of complex decisions. The book I turn to most often is Risk Analysis by David Vose (2008). Included with the book is a 90-day license for ModelRisk (Vose) software, which I also recommend and use in private practice. According to the publisher:

Risk Analysis concerns itself with the quantification of risk, the modeling of identified risks and how to make decisions from those models. Quantitative risk analysis (QRA) using Monte Carlo simulation offers a powerful and precise method for dealing with the uncertainty and variability of a problem. By providing the building blocks the author guides the reader through the necessary steps to produce an accurate risk analysis model and offers general and specific techniques to cope with most modeling problems. A wide range of solved problems is used to illustrate these techniques and how they can be used together to solve otherwise complex problems.... Based entirely on proven techniques, this superb guide is designed for those who do computer modeling. Stressing the accuracy of risk modeling rather than the management of risk analysis, it provides excellent guidelines for modeling uncertainty using spreadsheets and Monte Carlo software. Features sufficient probability and statistics theory for readers to be confident of the correctness of the methods and understand when and how the theories can be used.

I use Risk Analysis with my university students, and also in professional development training that I conduct around the world. The book includes scores of graphs, charts, practical exercises and model solutions. Additionally, the book makes frequent reference to ModelRisk, the most powerful spreadsheet-based risk analysis software currently on the market. The help files included with ModelRisk are worth the cost of the book alone. I recommend Risk Analysis by David Vose to anyone seeking to master or just learn more about the art and science of professional risk analysis.

Source: Vose, D (2008), Risk Analysis (3rd edition), John Wiley & Sons.