Monte Carlo Simulation

Simulate an aggregated risk based on single risk instances in the system.

Each risk will be considered with a given numerical / currency risk value and possibility / likelihood between 0 (zero) and 1 (one).​

​Use a random number generation (between 0-1) to determine if the risk applies for this simulation and create a sum of all applying risk values.​

If the random number is smaller than the likelihood, the risk applies​

​The sum will be stored as a possible result and counted over all simulation runs. The stored results can be used for analyzing the aggregated company risk.

Result

Based on the stored results it can be determined how likely a specific aggregated risk value is to appear.​ A graph can be build on the percentage of each value, which will present some normal distribution curve. A slight left or right shift can take place depending on the data. (many high percentage low risks or many high percentage high risks).​

​Confidence

Confidence level can be used to ignore edge cases. Values below confidence Level will be removed. ​

Example: A confidence level of 95 will cut of top and bottom 5 percent of the results.​

​Prerequisites:

• IBM OpenPages with Watson 8.2 and newer

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