Question

(a) Explain how an undesirable outcome relates to output variables. (b) Provide a thorough example (in detail in the form of a paragraph) of how a particular risk reduction strategy of your choosing can act to reduce the chances of undesirable outcomes?

Answer 1

a) Variables are the terms which drive the overall output. Input variables and output variables are responsible for the functioning of the output model. As the variability in the output variable increases it also adversely affects the outcome and make it undesirable.

b) Risk Reduction Strategy plays a very important role in the quality and desirability of an output.

For Example : An insurance company works on a huge risk of paying claim amount to the policy holder. They receive premium in intervals from the policyholder and are liable to pay the claim amount if the event happens. The companies are still running on a profitable basis because of the risk reduction strategy. One of them is sensitivity analysis which means how much output changes when we change the input values. So models are prepared which helps the company to price the premium amount and how much to be kept as a reserve which can be further used for the purpose of claim payment. So , insurance company uses the risk reduction strategies to reduce the chance of undesirable outcomes which are worse because it can create insolvency.