Risk Insights Explorer is designed to help users understand and analyse potential financial risks related to a specific scenario—in this example, mismanagement of a pension fund after a bank’s acquisition. It uses a method called Monte Carlo Simulation to predict various outcomes based on different factors and uncertainties. The main goals are to:
Model the Scenario: Describe the situation, for example, where pension funds software update processes fail impacting upon client money handling processes, leading to potential financial losses for clients.
Simulate Outcomes: Run multiple simulations to see how different factors might affect the overall financial impact.
Display Results: Present the findings in easy-to-read tables and visual charts, helping users grasp the potential risks and costs involved.
How the Program Works
Setting Up the Data:
Default Information: The program starts with predefined information about the scenario, the scenario parameters and various uncertainty factors (like loss rates, number of affected customers, compensation costs, etc.).
Parameters and Assessments: These factors are broken down into specific parameters and assessments. Parameters are the main elements that influence the outcome, while assessments define how these parameters can change under different conditions.
Loading the Data:
The program can either use the default scenario data or allow users to input their own data. It ensures that all the information is correctly structured and ready for simulation.
Running the Simulation:
Multiple Trials: The Monte Carlo Simulation runs thousands of trials (simulations) to account for various uncertainties and variations in the parameters.
Random Variations: In each trial, the program randomly changes the parameters within defined ranges to mimic real-life unpredictability.
Calculations: For each trial, it calculates the total financial impact by considering all factors, such as compensation costs, legal fees, and system upgrade costs.
Generating Reports:
After running all the simulations, the program compiles the results into comprehensive reports. These reports include statistical summaries like mean, percentiles, and the result of expressions of possible outcomes.
It also creates visual representations like histograms, cumulative distribution functions (CDF), and box plots. These charts help users quickly understand the distribution and likelihood of different financial impacts.
User Interaction:
Users can view and edit the parameters and assessments directly in the web interface. This flexibility allows them to adjust assumptions and see how changes affect the outcomes.
The program lets users save their data and results for future reference or further analysis.
There’s a structured process and help section guiding users on how to use the interface and interpret the simulation results.
Why It’s Useful
Risk Assessment: Helps organisations understand potential financial risks associated with pension fund mismanagement.
Decision Making: Provides data-driven insights, enabling better decision-making to mitigate risks.
Transparency: Offers clear and detailed reports that make complex financial scenarios easier to understand.
