An Overall View of Probabilistic Risk Assessment Approaches

Now that we have looked at scenario analysis, decision trees, and simulations, we can consider not only when each one is appropriate but also how these approaches complement or replace risk-adjusted value approaches.

Comparing the Approaches

Assuming that you decide to use a probabilistic approach to assess risk and can choose between scenario analysis, decision trees, and simulations, which one should you pick? The answer depends on how you plan to use the output and what types of risk you are facing:

  • Selective versus full-risk analysis: In the best-case/worst-case scenario analysis, we look at only three scenarios (the best case, most likely case, and worst case) and ignore all other ...

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