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ALJGSB

NAME: Carlton Thomas Jr. ( ID # 05735129) COURSE: Risk Management and Decision Analysis of Energy Projects ASSIGNMENT 1: The purpose of decision analysis is to eliminate risk. True or False? Explain.

Decision analysis is a process that combines the methods of statistical decision theory, imaginative creativity, systems analysis, and operations research. Decision analysis would not eliminate risks, but it does provide assurance of the best choice with the information available at the time. The ultimate objective is to indicate direction which might minimise a firms exposure to risk. Risk in this context, is generally defined as the probability of occurrence of unfavourable outcomes. Because risk is inherent in the commitment of present resources to futile expectations, trying to eliminate risk in business are futile. Here the key word is analysis, which, according to definition, involves the breaking up of a decision into smaller parts. The process provides insight into how the defined alternatives differ from one another and then generates suggestions for new and improved alternatives. The decision analysis process in simple form involves identifying and defining the problem; assessing the various factors that may impact the problem; performing a sensitivity analysis; followed by the implementation of the suggested decision. The goal of decision analysis is to give guidance, information, insight, and structure to the decision-making process in order to make better, more 'rational' decisions. It cannot necessarily eliminate risk.