Best tips for risk management


The Birthday Paradox and Risk Evaluation

Take any random pair of people and theto  have  DIFFERENT  birthdays.
probability of them having the exact same
birthday sits at (1/365)?0.0027 or roughly4) Therefore, this concludes that out of a
0.27%. The chance of it seems so low thatgroup of 23 people, there exists 50.05%
many would ignore and assume it neverprobability of having a pair born on the same
occurring.date.
The Birthday Paradox however makes availableAs shown, it takes only 23 unique people or
mathematical means to display that theevents for something formally considered
"improbable" occurs quite more often than"highly unlikely" to transpire. This suggests
general belief. How many people does it takethat business operators could adopt a more
to have over 50% chance of a pair sharing themeticulous and mathematical approach to risk
same  birthday?management.
23Killer storms or typhoons come on the ocean
infrequently. Yet, shipbuilders make certain
Explanation, please keep in mind this exampleto construct and design the vessels to endure
ignores  leap  years.the worst of conditions. When it comes down
to life or death, survival relies on
1)  With  23 people 253 possible pairs exist.weathering  the  rare  catastrophes.
23*22/2=253Does your business model include contingency
plans for short term negative outcomes or if
(Look up Permutations if you don't understandcompetitors employ unforeseen strategies? The
this)investors of bankrupt New Zealand financing
companies had to learn this the hard way,
2) Now instead of finding the chance of twowith some losing a lifetime of savings. I
people having the same birthday, let us findoften hear the phrase "take calculated
the probability of them having DIFFERENTrisks", yet not many people understand the
birthdays.calculation part. It certainly does not
equate  to  guessing and hoping for the best.
1-1/365?0.9973 or 99.73% or 364/365 in
fractionI plan to discuss risk management in the near
future. In the mean time, free resources are
3)  Plugging in the number of possible pairs.available everywhere at the library or over
the internet. Learn to survive the worst of
(364/365)^253?0.4995 or 49.95% chance oftimes, and everything will turn out A O K.
having every possible pair within the group



1 A B C D 62 63 64 65 66 67 68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 100 101 102 103 104 105 106 107 108 109 110 111 112