Home → Techniques and Tips → Correlation in @RISK → Correlation of RiskCompound
Applies to: @RISK 5.x–7.x
I have a risk register with columns for cost and schedule risk, and I'm using formulas like these:
=RiskCompound(RiskBinomial(1,D5), RiskTriang(F5,G5,H5), RiskName("Cost"))
=RiskCompound(RiskBinomial(1,D5), RiskTriang(I5,J5,K5), RiskName("Duration"))
The RiskBinomial with n = 1 indicates that the risk will or will not happen, with the probability given in cell D5. But here's my problem. In some iterations, the cost risk is zero but the duration risk is nonzero, or vice versa. Logically I want them to be zero or nonzero together.
The RiskCompound( ) function itself can't be correlated, because @RISK has no way to know in advance how many times it will need to draw values from the severity distribution during the simulation. However, you can correlate elements of the RiskCompound, as follows:
Correlate the frequency distributions, or even use the same frequency distribution for both RiskCompound functions. Both methods are illustrated in the attached workbook, Correlating RiskCompound.xlsx. Using the same frequency distribution in both RiskCompound( ) functions is simpler, and it guarantees that you'll never have a zero for one risk while the other is nonzero.
Unpack the severity distribution, so that you have multiple copies of a distribution and use Excel's SUM( ) function to add them up. This replaces RiskCompound with a frequency distribution and multiple copies of the severity distribution. Please see the attached workbook Unpacking RiskCompound.xlsx. For an alternative method, correlating a RiskCompound by converting it to a RiskCuml, see Correlating RiskMakeInput or RiskCompound, Approximately.
By the way, @RISK 6.0 and later offer a Bernoulli distribution for events that may or may not happen. In those releases of @RISK, you could replace RiskBinomial(1,D5) with RiskBernoulli(D5).
For more about RiskCompound( ), see All Articles about RiskCompound.
Additional keywords: Compound distribution
Last edited: 2018-06-28