An essential guide to the calibrated risk analysis approach
The Failure of Risk Management takes a close look at misused and misapplied basic analysis methods and shows how some of the most popular "risk management" methods are no better than astrology! Using examples from the 2008 credit crisis, natural disasters, outsourcing to China, engineering disasters, and more, Hubbard reveals critical flaws in risk management methods–and shows how all of these problems can be fixed. The solutions involve combinations of scientifically proven and frequently used methods from nuclear power, exploratory oil, and other areas of business and government. Finally, Hubbard explains how new forms of collaboration across all industries and government can improve risk management in every field.
Douglas W. Hubbard (Glen Ellyn, IL) is the inventor of Applied Information Economics (AIE) and the author of Wiley's How to Measure Anything: Finding the Value of Intangibles in Business (978-0-470-11012-6), the #1 bestseller in business math on Amazon. He has applied innovative risk assessment and risk management methods in government and corporations since 1994.
"Doug Hubbard, a recognized expert among experts in the field of risk management, covers the entire spectrum of risk management in this invaluable guide. There are specific value-added take aways in each chapter that are sure to enrich all readers including IT, business management, students, and academics alike"
—Peter Julian, former chief-information officer of the New York Metro Transit Authority. President of Alliance Group consulting
"In his trademark style, Doug asks the tough questions on risk management. A must-read not only for analysts, but also for the executive who is making critical business decisions."
—Jim Franklin, VP Enterprise Performance Management and General Manager, Crystal Ball Global Business Unit, Oracle Corporation.
Table of Contents
- Title Page
- Copyright Page
PART ONE - An Introduction to the Crisis
- CHAPTER 1: Healthy Skepticism for Risk Management
- CHAPTER 2: Risk Management: A Very Short Introduction to Where We’ve Been and Where (We Think) We Are
- CHAPTER 3: How Do We Know What Works?
PART TWO - Why It’s Broken
- CHAPTER 4: The “Four Horsemen” of Risk Management: Some (Mostly) Sincere Attempts to Prevent an Apocalypse
- CHAPTER 5: An Ivory Tower of Babel: Fixing the Confusion about Risk
CHAPTER 6: The Limits of Expert Knowledge: Why We Don’t Know What We Think We Know about Uncertainty
- THE RIGHT STUFF: HOW A GROUP OF PSYCHOLOGISTS SAVED RISK ANALYSIS
- MENTAL MATH: WHY WE SHOULDN’T TRUST THE NUMBERS IN OUR HEADS
- “CATASTROPHIC” OVERCONFIDENCE
- THE MIND OF “ACES”: POSSIBLE CAUSES AND CONSEQUENCES OF OVERCONFIDENCE
- INCONSISTENCIES AND ARTIFACTS: WHAT SHOULDN‘T MATTER DOES
- ANSWERS TO CALIBRATION TESTS
CHAPTER 7: Worse Than Useless: The Most Popular Risk Assessment Method and Why It Doesn't Work
- A BASIC COURSE IN SCORING METHODS (ACTUALLY, IT’S AN ADVANCED COURSE, Too—There’s Not Much to Know)
- DOES THAT COME IN “MEDIUM”?: WHY AMBIGUITY DOES NOT OFFSET UNCERTAINTY
- UNINTENDED EFFECTS OF SCALES: WHAT YOU DON‘T KNOW CAN HURT YOU
- CLARIFICATION OF SCORES AND PREFERENCES: DIFFERENT BUT SIMILAR-SOUNDING METHODS and Similar but Different-Sounding Methods
- CHAPTER 8: Black Swans, Red Herrings, and Invisible Dragons: Overcoming Conceptual Obstacles to Improved Risk Management
CHAPTER 9: Where Even the Quants Go Wrong: Common and Fundamental Errors in Quantitative Models
- INTRODUCTION TO MONTE CARLO CONCEPTS
- SURVEY OF MONTE CARLO USERS
- THE RISK PARADOX
- THE MEASUREMENT INVERSION
- WHERE’S THE SCIENCE? THE LACK OF EMPIRICISM IN RISK MODELS
- FINANCIAL MODELS AND THE SHAPE OF DISASTER: WHY NORMAL ISN’T SO NORMAL
- FOLLOWING YOUR INNER COW: THE PROBLEM WITH CORRELATIONS
- “THAT‘S TOO UNCERTAIN”: HOW MODELERS JUSTIFY EXCLUDING THE BIGGEST RISKS
- IS MONTE CARLO TOO COMPLICATED?
PART THREE - How to Fix It
- CHAPTER 10: The Language of Uncertain Systems: The First Step Toward Improved Risk Management
- CHAPTER 11: The Outward-Looking Modeler: Adding Empirical Science to Risk
- CHAPTER 12: The Risk Community: Intra- and Extraorganizational Issues of Risk Management
- APPENDIX: Additional Calibration Tests and Answers
- Title: The Failure of Risk Management: Why It's Broken and How to Fix It
- Release date: April 2009
- Publisher(s): Wiley
- ISBN: 9780470483442