So many variables which impact a venture’s outcome are beyond management control, that we are bound to make risky decisions in the fog of business, based on imperfect information.

But if instead of being blinded by the fog, we manage to visualize the shape of the cloud, then we are in a position to take calculated risks based on the expected return / risk of a production system, a project, or a strategic decision. And we are also in a position to evaluate the impact of risk management alternatives such as portfolio diversification, insurance, price hedging, limiting or increasing exposure, risk sharing, flexibility in project design and implementation, and other alternatives which may contribute to value generation by limiting downside while enabling upside.

MonteCarlo simulation is a quantitative technique which enables us to visualize the shape of the cloud. It is most useful for evaluating the impact of random variables on the outcomes of a production system, a project, or a strategic decision, making it possible to estimate expected return, variability, probability of exceeding targets, and probability of shortfalls.