Enterprise Risk simulation and performance quantification

Risk Simulator is a strategic agent-based simulation solution allowing:

• Modelling of internal company processes and detailing of internal rules and organisation goals (BPM),
• Integration of risk maps,
• Simulation of scenarios taking into account the mapping of risks to processes, and the combined impacts,
• Analysing critical paths of risk propagation though the enterprise,
• Use of the Monte-Carlo method to obtain a distribution of any loss of performance through chosen indicators (KPI). Information of average and standard deviation),
• Capability to select and replay the critical scenarios in order to understand the risks combination, their impacts, and set-up adequate solutions.

This new and reliable approach allows:

• Identifying risks or combinations of risks that cannot be found by traditional statistical methods,
• Quantifying risks even without complete of data,
• Identifying checkpoints in order to reduce risk impacts,
• Detailing this model at operational level so as to master critical processes.

Solution details:

Eurobios Risk Simulator provides companies the capabilities to model the organisation under risks, partially or totally, in order to simulate all possible combination of risks and prevent serious shortfalls to its performance.

Enterprise severe performance degradations almost always come from a combination of several unrelated risks and not from a few obvious risks that are commonly expected and controlled by the company.

Limits of conventional approaches

As a matter of fact, real challenges with conventional modelling approaches to operational risk are as follows:

• Risks are highly complex and cannot be adequately captured by linearly driven mathematical models,
• Risks cascade through an organization. Their events interact synergistically with each other and with business processes and the risk impacts are thus difficult to globally assess,
• Risk impacts are more easily quantified at the local knowledge level than at the global one,
• Risks can have multiple effects on multiple business processes and ultimately on multiple corporate goals and initiatives,

Thus, as a matter of fact, traditional statistics-based approaches to assess risk individually and avoid catastrophes are limited and do not allow understanding today’s modern and interacting organisations.

The mains reasons are as follows:

• Traditional risk valuation methods assume simple causal relationships between risk and effect. They assess risk impact on single objectives at the global level and rely heavily on historical loss data that is scarce and frequently inaccurate,
• They are economic theory driven: preset distributions for risk and associated losses are assumed and used to define mathematical relationships, and because they try to describe a past –often an obsolete past – situation of the company whereas today’s organizations and their environment change rapidly.