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TECHNICAL RISK ANALYSIS
FOR BUSINESS INVESTMENTS
You are considering a new Project or Investment and, as always, you know there is Risk involved! Further, your past business experience confirms that as you increase your knowledge about a Project, you decrease your Risk! This means that any method of Technical Risk Analysis must somehow quantify the Risk as a part of its process!
My Technical Risk Analysis is a quick and cost-effective method to quantify Risk for a Technical Project. In fact, we can quantify the Risk in a pro forma for your Technical Project in as little as 1 workday for $500!
Technical Risk Analysis in the context of this website is a subset of Business Risk Analysis and/or Investment Risk Analysis and is easily defined. The "Technical" aspect was defined when discussing Technical Systems Analysis. In the Technical Systems Analysis, we develop a Business Scenario. This Business Scenario contains all of the capital, start-up, operational, and liquidation events for the proposed venture. The purpose of Technical Risk Analysis is to finally determine the "consequences" of the Business scenario. And, in order to maximize the value of these "consequences", they should be quantified!
The most logical way to make the consequences of our Business Scenario quantitative, is to rely on the existing "Uncertainties" of the project. Remember, the Business Scenario is nothing more than a business model. The pro forma is a method we use to quantify our analysis of our model, or Business Scenario. Finally, the larger the Uncertainty in a project, the larger the Risk! Let me quickly restate the TABU Principle.
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Technical Axiom of Business Uncertainty - The less you know about a Project, the higher your uncertainty regarding the Project.
This concept is so simple, yet fundamental in the structure of Technical Risk Analysis! Recall that each and every aspect of our Business Scenario has uncertainty because it is simply impossible to accurately predict the future! Our goal in Technical Risk Analysis is to make the "answers" derived from the pro forma reflect the "uncertainties" in the "input".
By determining this uncertainty in our "answers", we will have provided a quantitative measure of the Risk of the project. In order to accomplish this goal, we must develop a "methodology" that will do the following.
- Determine the "best possible" value for all of the input variables.
- Determine a valid uncertainty for this "best possible" value of each variable.
- Develop a technique to make the "answers" from our pro forma accurately reflect the uncertainties of all of the input values.
The good news is that a "methodology" already exists that does all of the above with the help of computers. It is called the Monte Carlo Risk Analysis Method and it is used extensively in my system of Technical Risk Analysis. In fact this Monte Carlo Simulation Technique has been extensively used since the advent of computers to do such things as help put a man on the moon and develop sophisticated weapon systems. We will now apply this proven modeling technique to evaluating the Risk of Potential Investments!
Briefly, the Monte Carlo Method creates a "Distribution Function" of each variable that is "input" to our model. Each of these "Distribution Functions" are constructed to be representative of the variable they represent. The process is described in the Monte Carlo Risk Analysis Section of this Web Site. Further, the "answer" to our model, or pro forma, is also a new Distribution Function that absolutely reflects the uncertainty from our "input" data!
To read more about the Monte Carlo Method, please either select "Monte Carlo" on the "Menu Bar" on the left of the top-portion of this page, or follow any of the "Monte Carlo" links on this page. Some of Dr. Wright's Qualifications and Experience regarding Technical Risk Analysis are listed below.
- Assessed and mitigated the Process, Safety, Environmental and Business Risk from Oil & Gas Operations, Manufacturing, Waste Treatment & Disposal, and other industrial operations.
- Used "Fault Tree Analysis" to assess Risk in Chemical and Nuclear Processes.
- Evaluated Risk to Personnel from Naturally Occurring Radioactive Material (NORM) on oil-well pipe and developed a Screening System that is used at Exempt Waste Disposal Facilities.
- Evaluated Risk of using a new High-Explosive System to remove Scales from inside Boilers of Nuclear Reactors in the US and Europe.
- Evaluated Risk from Hydrocarbon, Chemical and Environmental Accidents. Developed and implemented Accident, Safety and Environmental Remedial Plans.
- Used "Fault Tree" model for failure analysis of industrial processes.
- Worked in a Group that determined the technical vulnerability of nuclear weapons to all possible conditions in the "stock-pile-to-target" sequence.
- Evaluated Treaty Issues to Allow Peaceful Nuclear Explosives (PNEs) under a Comprehensive Test Ban Treaty (CTBT) for US State Department Negotiators.
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