Worst Expected Best method for assessment of probabilistic network expected value at risk: application in supply chain risk management

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    Abstract

    Purpose: The purpose of this paper is to develop and operationalize a process for prioritizing supply chain risks that is capable of capturing the value at risk (VaR), the maximum loss expected at a given confidence level for a specified timeframe associated with risks within a network setting. Design/methodology/approach: The proposed “Worst Expected Best” method is theoretically grounded in the framework of Bayesian Belief Networks (BBNs), which is considered an effective technique for modeling interdependency across uncertain variables. An algorithm is developed to operationalize the proposed method, which is demonstrated using a simulation model. Findings: Point estimate-based methods used for aggregating the network expected loss for a given supply chain risk network are unable to project the realistic risk exposure associated with a supply chain. The proposed method helps in establishing the expected network-wide loss for a given confidence level. The vulnerability and resilience-based risk prioritization schemes for the model considered in this paper have a very weak correlation. Originality/value: This paper introduces a new “Worst Expected Best” method to the literature on supply chain risk management that helps in assessing the probabilistic network expected VaR for a given supply chain risk network. Further, new risk metrics are proposed to prioritize risks relative to a specific VaR that reflects the decision-maker's risk appetite.

    Original languageBritish English
    Pages (from-to)155-175
    Number of pages21
    JournalInternational Journal of Quality and Reliability Management
    Volume39
    Issue number1
    DOIs
    StatePublished - 14 Jan 2022

    Keywords

    • Bayesian belief networks
    • Risk appetite
    • Risk metrics
    • Supply chain risks
    • Value at risk
    • Worst Expected Best method

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