Bridging the Cultural Gap
Risk management entails the evaluation of a set of circumstances which, if they were to occur, would be costly for an individual or a firm. Risk management also includes the investigation of various ways to minimize the possibility of occurrence of these circumstances and their consequent costs. Simulation can quantify the cost and provide an inexpensive and bloodless evaluation mechanism for addressing a particular risk. A comparative analysis of the simulations of various courses of action can aid in the management of risk by determining an optimal approach to a particular set of circumstances.
Simulation has been put to good use in engineering and science, but has not made a major impact in business. Although simulation has been incorporated in various management simulation games, it has not been incorporated into the business decision evaluation process. In fact, the existence of management simulation games may well impede the adoption of simulation in a business environment. Managers may associate simulation with a modeling of a contrived situation for educational and training purposes and not as a possible means of analysis of actual business problems. This is one gap that has to be bridged. To help bridge this gap, the application of simulation focuses on obtaining a measure of reward and risk in the decision-making process for new investments. There is no more practical application of simulation in the business environment than this because no firm, no matter what its function or size, can avoid financial risk management.
While engineers and scientists have adopted simulation to a much greater extent than businessmen,* engineers and scientists are more apt to sense the____________________
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Publication information: Book title: Computer Simulation in Financial Risk Management:A Guide for Business Planners and Strategists. Contributors: Roy L. Nersesian - Author. Publisher: Quorum Books. Place of publication: New York. Publication year: 1991. Page number: 1.
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