RiskAnalytica Science of Applied Risk Management - EconomicAnalysis

By: Pantology  09-12-2011
Keywords: decision support

RiskAnalytica provides clients with application of economic impact analysis tools which support strategic option valuation, prioritization, determination of an appropriate strategy, and provide a preliminary measure of the impact of an adopted strategy.

To assess the impact of a project, the analysis must estimate not only the possible outcome within the project scenario but also the consequences within an environment in which the scenario is not present. This is the economic principle of scarce resource allocation: economic decision making requires considering the trade-offs between two goals. The cost of a commodity is what an economic agent will give up to get that commodity. Businesses therefore have to consider both the obvious and implicit costs of their actions.

Typical model and solution foundations include:

  • market and demand forces
  • government and regulatory dynamics
  • dynamics of supplier, provider, payer, and consumer
  • technology innovation

Quantitative and decision support tools implicated in the analysis including Monte Carlo simulation, decision trees, model connectivity analysis, factor sensitivity analysis, and Markov-based stochastic simulation.

Cost Effectiveness Analysis

At RiskAnalytica, cost effectiveness analysis is conducted using a risk-based approach of simulating the effects of a management decision and comparing those results against a “do nothing” scenario. By using a risk-based approach to cost effectiveness analysis, RiskAnalytica is able to extend its analysis beyond a simple comparison of the incremental cost to incremental effect, to understanding the wider spectrum of the risks and rewards inherent in a management decision.

Further, given the proprietary simulation framework used by RiskAnalytica, we can test for effects across multiple investment periods. This provides a greater understanding of the effects of management decisions and their timing. This is superior to more traditional approaches that confine the analysis to short time horizons, with the result of underestimating benefits and/or costs.

The methods that RiskAnalytica is able to incorporate within its risk-based framework include: Cost Minimization Analysis, Cost-Benefit Analysis, Cost Effectiveness Analysis, Cost Utility Analysis, Budget Impact Analysis, Real Option Analysis.

Keywords: decision support

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