Sensitivity Analysis
Indicator Sensitivity
Risk Alert evaluates the overall business condition of the entity using two methods. One is a mathematical model based on the evaluation of risk indicators. The second is a rule-based approach which uses the responses recorded to select the branch of the logic tree to follow to the conclusion.
Use
The Indicator Sensitivity screen displays the risk scoring results for each of the categories of risk indicators. It provides the option of modifying the importance of the indicators used in the categories and viewing the impact of these changes on the risk scores. An indicator which has "fired" (i.e., indicates the presence of a risk) is shaded in blue; unshaded indicators have either not been answered or have been answered in the positive (indicating no risk).
The weights of the indicators can be modified by clicking on the respective button and changing the recorded value. Or an indicator can be made non applicable by clicking off the checkmark in the Use column. If the responses to any indicators are changed the results of the changes are displayed in the New column. The effects the changes have on the final conclusion about the status of the entity is displayed in the Overall Score.
Tree Rules Sensitivity
As mentioned previously, Risk Alert evaluates the overall business condition of the entity using two methods. One is a mathematical model based on the evaluation of risk indicators. The second is a rule-based approach which uses the responses recorded to select the branch of the logic tree to follow to the conclusion. The logic encoded in the tree is based on studies of how experts in the field would approach the problem of evaluating the business condition of the entity.
The rule-based system is divided into nine separate trees. The conclusions from each tree is combined to produce the overall score. Each junction in the trees uses the response to one of the risks to select the branch to follow. The trees use a subset of the risk indicators in the other part of the system.
Each of the nine trees are based on a specific area of analysis. The areas are:
The numbers in parentheses indicate the range of risk scores the tree can produce with higher scores representing increasing risk. Some trees do not produce scores directly. The results of those trees are used in the following tree in the list. The Appendix to this manual contains a graphical example of the trees used by Risk Alert.
Use
The Tree Rules Sensitivity screen displays the risk scoring results for each of the trees. It also provides the option of modifying the responses to the indicators used in the trees and viewing the impact of these changes on the risk scores.
The indicators used in the trees can be viewed and modified by clicking on the respective button. If the responses to any indicators are changed the results of the changes are displayed in the New column. The effects the changes have on the final conclusion about the status of the entity is displayed in the Overall Score.
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