Dr. Sam L. Savage

Executive Director
ProbabilityManagement.org

PRESENTATION OVERVIEW

The Flaw of Averages states that plans based “average” assumptions are wrong on average. A common definition of risk runs afoul of this fallacy. That is, Risk = Likelihood of Occurrence times Consequence of Occurrence. So an event that has 1 chance in ten of occurring in the next year, and causes a single fatality, has a Risk Score of (1/10) x 1 = 0.1 Fatalities per year and an event that has 1 chance in 75,000,000,000 of killing all seven and a half billion people on earth has the identical Risk Score of 0.1 Fatalities per year. Give me a Break! ProbabilityManagement.org, a 501(c)(3) nonprofit has developed a cure for the Flaw of Averages through an open data standard for communicating uncertainties as arrays of auditable data called Stochastic Information Packets, or SIPs. SIPs allow probabilistic risks (not just averages) to be rolled up like numbers across the enterprise. This has been initiated at PG&E, see https://www.informs.org/ORMS-Today/Public-Articles/December-Volume-43-Number-6/Probability-Management-Rolling-up-operational-risk-at-PG-E. These concepts are easy to explain. The hard part is getting people to understand them. Accordingly, Dr. Savage will demonstrate several interactive models in Excel that connect the seat of the intellect to the seat of the pants. No prior understating of statistics is assumed, but for those with extensive training in the subject, this presentation will attempt to repair the damage.

PRESENTERDr. Sam L. Savage is Executive Director of ProbabilityManagement.org, a 501(c)(3) nonprofit devoted to the communication and calculation of uncertainty. The organization has received funding from Chevron, Lockheed Martin, General Electric, PG&E, Wells Fargo and others, and Harry Markowitz, Nobel Laureate in Economics was a founding board member. Dr. Savage is author of The Flaw of Averages: Why We Underestimate Risk in the Face of Uncertainty (John Wiley & Sons, 2009, 2012), is an Adjunct Professor in Civil and Environmental Engineering at Stanford University and a Fellow of Cambridge University’s Judge Business School. He is the inventor of the Stochastic Information Packet (SIP), an auditable data array for conveying uncertainty. Dr. Savage received his Ph.D. in computational complexity from Yale University.

Meeting Recording (link coming soon)

Meeting Presentation (link coming soon)

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