1. RISK ANALYSIS & MANAGEMENT Budapest University of Technology and Economics Prof. Janos LEVENDOVSZKY, Dr. Gábor JENEY levendov@hit.bme.hu

2. Outline Administrative course information The basic concept of risk analysis and management Fundamental challenges Course objectives

3. Course Information I – classes & readings Lectures – Monday 12-14 Lab practices – Monday 14-16 (Attila Ceffer, ceffer@hit.bme.hu) Suggested literarture: Wose: Risk Analysis: A Quantitative Guide, 2nd edition. Wiley, 2000., Distributed materials

4. Course Information II – requirements Completing the lab assignments 1 mid term test (1 recap) Exam (similar to mid term test) Grading:

5. What is risk and risk analysis ? System (project, process, financial operation) Input Output (system performance according to a given performance index) “Components” (SW, HW…etc.) RISK= an event which may jeopardize the succesful outcome of a planned process (e.g. in the case of a project, the delays in cash flow, delivery/production failures …etc.) What is the probability of a given performance degradation ? RISK ANALYSIS

6. What is risk ? It may or may not occur Risk is a random variable with a p.d.f. Complex system Elementary risk factors with known statistics Evaluation of global risk factors defined over system performance COMPUTATIONAL RISK ANALYSIS

7. Risk analysis Determine some statistical measures on the performance index ! Average performance Tailp.d.f Average performance Tail p.d.f

8. Basic steps of Risk Analysis 1.Identify the risks 2.Identify the corresponding p.d.f.-s 3.Define the performance index 4.Define the statitical measure on the performance index to be evaluated for risk analysis 5.Calculate the defined statistical measures Identification of risks Prob. of failure

9. Risk management (mitigation) 1.Evaluate the risk of the process under investigation 2.Check if system risk complies with a pre-defined criterion 3.Re-design it if necessary 4.Re-calculate the performance index 5.Demonstrate the improvement and do it iteratively until you reach the pre-defined risk objective The risk is mitigated

10. Course objective Knowledge and skills of basic risk measures; mathematical tools for their evaluation; real-time calculation of system risk measures. Expertise in COMPUTATIONAL RISK ANALYSIS !