WEBVTT
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In this Excel tutorial, I'm going to be talking to you about risk.
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Now one common measure of risk is the probability of loss.
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Another common measure is to calculate the standard deviation,
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which measures the dispersion of outcomes about the expected value.
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Now in order to calculate this i'm contuning...contuning continuing some previous examples.
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So this is the third tutorial in a series of three you need to watch the excep..expected value tutorial
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and the joint probability tutorial before getting to this one.
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If you finish those tutorials, what you will notice is the setup that I have here is the exact information
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that were..was calculated at the end of the Joint probability tutorial.
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Now in order to calculate standard deviation, the standard deviation is the earned value
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of your variable squared minus the earned value..ba..variable squared.
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I know that doesn't make a lot of sense at the moment, but it will when we start doing the formulas.
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So notice I have copied the exact information from our joint probability Final End calculation example.
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We have our initial cost, our interest and we have our prop..present worth times joint probability.
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Now to calculate standard deviation we need to do present worth squared times joint probability.
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So that would equal our present worth,
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to square it we use the caret 2 times our joint probability.
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And you can see we get a huge answer of over 35 million dollars.
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Now I did not lock any of the cells for this because I want to grab the corner and have everything increment.
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Notice that it incremented as it went down.
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Then what we need to do here is simply sum these.
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So we can equal sum and I can just grab these and close.
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Now, remember when you're calculating the present work times joint probability
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you can actually do a sum product here as shown in a previous tutorial.
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I think tutorial on the earned value I showed you how to do that.
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So remember that's always an option.
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Now we have our two pieces of information that we need in order to calculate the standard deviation.
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The formula here would be equals standard deviation is S..I'm sorry,
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we're going to we need to calculate the standard deviation we have to do a square root.
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So it is the square root, which is S..Q..R..T
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and our formula that we're taking the square root of is I19,
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which represents our earned value of x squared.
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Remember our present worth is the thing that we squared, minus
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our present worth times joint probability squared.
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And you can see that our standard deviation of our expected value present worth is about $4,000.
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So what this is going to give you is that you now start to understand the variability of a plus
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or minus around that $19,716 to get you a better idea or..or more comfortable that it could be somewhere in this zone.
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So in this Excel tutorial, I've shown you how to handle risk in terms of using the measure of standard deviation.