@RISK Advanced Risk Analysis for Spreadsheets Simulating Modeling Using @Risk

Citation

Winston, W.L. (1998), "@RISK Advanced Risk Analysis for Spreadsheets Simulating Modeling Using @Risk", Journal of Property Valuation and Investment, Vol. 16 No. 3, pp. 344-345. https://doi.org/10.1108/jpvi.1998.16.3.344.2

Introduction

In a general sense, risk analysis comprises any method (quantitative or qualitative) for assessing the impact of risk on decisions. Decision makers may use analytic models or simulation models to quantify risk. Analytic models are based on mathematical equations that for given values of inputs enable the user to determine the value of outputs, but suffer when uncertainty is present. Simulation models, on the other hand, are able to imitate the real world and can assimilate risk (and, implicitly, uncertainty) more easily.

Spreadsheets have conventionally been used for analyses which combine single “point” estimates of a model’s variable to predict a single‐end result. Within this framework estimates of model variables are used because the values which actually will occur are not known with certainty. In reality, however, the combined errors in each estimate in the model can lead to large differences between the “expected” and “actual” results. Using simulation enables the user to explicitly include the risk that is present in the estimates to produce results which show all possible outcomes.

Of course, it is possible to use Excel or Lotus 1‐2‐3 to generate models which include risk, but the key advantage of products such as @RISK is that they are designed as an add‐in, which provides the tools for setting up, executing and viewing the results of risk analysis. This means that @RISK also works in a style the user is familiar with in terms of menus and functions.

@RISK was first reviewed in this journal a number of years ago (Mollart, 1994). Since then Windows‐based software has become standard and @RISK itself has been enhanced. In addition, Wayne L. Winston’s “Simulation Modeling Using @RISK” has been produced which includes many examples of risk analysis set up for use with @RISK. This review covers both the @RISK software and Winston’s book.