Chapter 16

Question 1

What is Prescriptive Analytics?

Answer 1

Process of using analysis tools such as simulations and optimisation to improve decision making. Helps to determine best course of action among different alternatives

Question 2

What is Risk?

Answer 2

The possibility or probability that an undesirable outcome may occur

Question 3

What is Risk Analysis?

Answer 3

Process of examining and assessing different scenarios to better understand the possibility of both intended and undesired outcomes

Question 4

What are the 3 alternatives to consider when performing a risk analysis?

Answer 4

• most likely
• pessimistic
• optimistic

Question 5

What can be used to model risk and uncertainty?

Answer 5

Random variables (excel)
- discrete
- continuous

Normal Distribution (excel)
- continuous uniform distribution
- exponential distribution

Question 6

Of the most relevant discrete probability distributions in most business and nonbusinnes the applications are?

Answer 6

• binomial random variable
• Poisson distribution
• discrete uniform distribution

Question 7

What is a Triangular Distribution? (Excel)

Answer 7

Simplistic representation of a continuous distribution with a triangular shape and is defined by 3 parameters: minimum value, maximum value and the mode

Question 8

What is the Monte Carlo Simulation?

Answer 8

Used to model probabilistic processes based on random variables by recreating a real world process.

Used to understand the impact of risk and uncertainty in a wide variety of applications

Relies on random variables to mimic the odds of possible outcomes

Question 9

What are the 5 steps to perform the Monte Carlo Simulation?

Answer 9

1. Data collection
2. Random number generation and assignment
3. Model formulation
4. Performing and repeating of the analysis
5. Interpretation of the results and deployment