Uncertainty is inherent in all business decisions that are made. Any organisation’s ability to understand and cope with uncertainties and risk is crucial to its ultimate success. Risk evaluation techniques can help to understand uncertainties and how they interact with each other. Their potential impact on the business can then be understood.
Once risk is understood a mitigation strategy can be developed and implemented. This will help to minimise risk within the constraint of available resources.
Some areas where businesses frequently encounter risk include:
- Reliability of assets and equipment
- Delivery of projects to time and budget
- Delivery of benefits expected for projects
- Achieving standards required for regulatory compliance
- Impact of customer behaviour on the demand for services and goods
Our Expertise
Capgemini’s Operational Research team has wide ranging experience in applying Risk Evaluation and Mitigation techniques to tackle business problems. The team has performed one off evaluations for clients and also helped them to embed risk models into their business.
The team provides a tailored approach to suit each client but frequently employ Monte Carlo analysis and process simulation using market leading software including @Risk, Crystal Ball, Simul8 and WITNESS to evaluate the risks.
In addition the team has developed a unique offer designed to enable business to reduce the risk of financial reporting errors as a result of errors in spreadsheets. This approach has been successfully used to help companies achieve Sarbanes-Oxley compliance by increasing the integrity and confidence in the reporting processes carried out in spreadsheets.
Our Approach
Our approach to risk modelling has six key steps and is a flexible framework around which a bespoke approach and models are built. The tailoring of the approach ensures that the solution reflects and addresses the needs of the situation while drawing on the expertise and learning of previous work.
The first two stages of the approach, Scope and Identify, help to understand the uncertainties surrounding the business and how they interact. This leads to the development of a conceptual model.
The most appropriate modelling technique can then be selected from a toolkit including a wide range of techniques including:
- Monte Carlo simulation
- Event simulation
- Real Options analysis
The model is then built and populated with data. At this stage scenarios can also be defined that will impact the risks within the model for example good or adverse economic conditions. The model is then run and results collected.
The model output must then be analysed to determine the impact on the business of the risks seen and crucially an analysis performed to identify the key drivers of the overall risk to the business. This analysis provides the insight that allows an effective mitigation strategy to be developed using the available resources. The impact of any such strategy can then be evaluated using the risk models created - and the benefit quantified. For example, a utility company used risk modelling to demonstrate that its capital investment provided the greatest possible reduction in likely maintenance cost.
Business Benefits
Risk evaluation and mitigation techniques can provide a wide range of benefits that can include:
- Greater understanding of risk within the business
- More robust decisions in the face of uncertainty
- Better return on investment for risk mitigation activities
- Reduced cost of meeting regulatory compliance
- Greater availability of assets
- More effective contingency planning
Our Experience
Capgemini has successfully delivered risk evaluation and mitigation work for a wide range of sectors and clients, as illustrated by our case studies (see below).
Related Success Stories
Assessing cost and regulatory compliance in waste water treatment
Built a two-stage simulation model to identify the probabilities and costs of
consent failures, to evaluate how changes in regulatory requirements impact on
risk.
Download - 32kb
Also a demonstration overview.
Download - 623kb
Strategic energy risk assessment
Created a model to forecast electricity spot prices, their statistical uncertainty,
and to assess the risks versus the returns of different electricity trading strategies.
Download – 29kb
Sarbanes-Oxley Spreadsheet Compliance
Developed a unique three-phase approach for publicly quoted companies to audit
and improve their financial spreadsheets to mitigate risks of fraud or error,
in order to comply with Sarbanes-Oxley legislation.
Download – 99kb
Identifying sticking circuit breakers
Identified which models of circuit breakers were statistically significantly
less reliable, allowing targeted risk mitigation and improved future investment
decisions.
Download – 28kb
Risk Management
Developed a risk management framework for an oil and chemicals producer to ensure
that new investment projects were assessed consistently throughout the organisation
in line with overall strategic objectives.
Download - 41kb
