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 Business Risk and
Simulation Modelling
in Practice
For other titles in the Wiley Finance series
please see www.wiley.com/finance
 Business Risk and
Simulation Modelling
in Practice
Using Excel, VBA and @RISK

MICHAEL REES
This edition first published 2015
© 2015 John Wiley & Sons Ltd
Registered office
John Wiley & Sons Ltd, The Atrium, Southern Gate, Chichester, West Sussex, PO19 8SQ, United
Kingdom
For details of our global editorial offices, for customer services and for information about how to apply
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All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or
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for damages arising herefrom. If professional advice or other expert assistance is required, the services
of a competent professional should be sought.
Library of Congress Cataloging-in-Publication Data
Rees, Michael, 1964–
Business risk and simulation modelling in practice : using Excel, VBA and @RISK / Michael Rees.
pages cm
Includes index.
ISBN 978-1-118-90405-3 (cloth)
1. Risk management–Computer simulation. 2. Risk management–Data processing. 3. Microsoft
Excel (Computer file) I. Title.
HD61.R44 2015
658.15′ 50285554–dc23
2015019955
A catalogue record for this book is available from the British Library.
ISBN 978-1-118-90405-3 (hbk) ISBN 978-1-118-90403-9 (ebk)
ISBN 978-1-118-90404-6 (ebk) ISBN 978-1-118-90402-2 (ebk)
Cover Design: Wiley
Cover Image: ©iStock.com/Mordolff
Set in 10/12pt Times by Aptara Inc., New Delhi, India
Printed in Great Britain by TJ International Ltd, Padstow, Cornwall, UK
To my wife and children
 Contents

Preface xvii

About the Author xxiii

About the Website xxv

PART I
An Introduction to Risk Assessment – Its Uses, Processes, Approaches,
Benefits and Challenges

CHAPTER 1
The Context and Uses of Risk Assessment 3
1.1 Risk Assessment Examples 3
1.1.1 Everyday Examples of Risk Management 4
1.1.2 Prominent Risk Management Failures 5
1.2 General Challenges in Decision-Making Processes 7
1.2.1 Balancing Intuition with Rationality 7
1.2.2 The Presence of Biases 9
1.3 Key Drivers of the Need for Formalised Risk Assessment in Business
Contexts 14
1.3.1 Complexity 14
1.3.2 Scale 15
1.3.3 Authority and Responsibility to Identify and Execute Risk-Response
Measures 16
1.3.4 Corporate Governance Guidelines 16
1.3.5 General Organisational Effectiveness and the Creation of
Competitive Advantage 18
1.3.6 Quantification Requirements 18
1.3.7 Reflecting Risk Tolerances in Decisions and in Business Design 19
1.4 The Objectives and Uses of General Risk Assessment 19
1.4.1 Adapt and Improve the Design and Structure of Plans and Projects 20
1.4.2 Achieve Optimal Risk Mitigation within Revised Plans 20
1.4.3 Evaluate Projects, Set Targets and Reflect Risk Tolerances in
Decision-Making 21

vii
viii CONTENTS

1.4.4 Manage Projects Effectively 21

1.4.5 Construct, Select and Optimise Business and Project Portfolios 22
1.4.6 Support the Creation of Strategic Options and Corporate Planning 25

CHAPTER 2
Key Stages of the General Risk Assessment Process 29
2.1 Overview of the Process Stages 29
2.2 Process Iterations 30
2.3 Risk Identification 32
2.3.1 The Importance of a Robust Risk Identification Step 32
2.3.2 Bringing Structure into the Process 32
2.3.3 Distinguishing Variability from Decision Risks 34
2.3.4 Distinguishing Business Issues from Risks 34
2.3.5 Risk Identification in Quantitative Approaches: Additional
Considerations 35
2.4 Risk Mapping 35
2.4.1 Key Objectives 35
2.4.2 Challenges 35
2.5 Risk Prioritisation and Its Potential Criteria 36
2.5.1 Inclusion/Exclusion 36
2.5.2 Communications Focus 37
2.5.3 Commonality and Comparison 38
2.5.4 Modelling Reasons 39
2.5.5 General Size of Risks, Their Impact and Likelihood 39
2.5.6 Influence: Mitigation and Response Measures, and Management
Actions 40
2.5.7 Optimising Resource Deployment and Implementation Constraints 41
2.6 Risk Response: Mitigation and Exploitation 42
2.6.1 Reduction 42
2.6.2 Exploitation 42
2.6.3 Transfer 42
2.6.4 Research and Information Gathering 43
2.6.5 Diversification 43
2.7 Project Management and Monitoring 44

CHAPTER 3
Approaches to Risk Assessment and Quantification 45
3.1 Informal or Intuitive Approaches 46
3.2 Risk Registers without Aggregation 46
3.2.1 Qualitative Approaches 46
3.2.2 Quantitative Approaches 48
3.3 Risk Register with Aggregation (Quantitative) 50
3.3.1 The Benefits of Aggregation 50
3.3.2 Aggregation of Static Values 51
3.3.3 Aggregation of Risk-Driven Occurrences and Their Impacts 52
3.3.4 Requirements and Differences to Non-Aggregation Approaches 54
Contents ix

3.4 Full Risk Modelling 56

3.4.1 Quantitative Aggregate Risk Registers as a First Step to Full
Models 56

CHAPTER 4
Full Integrated Risk Modelling: Decision-Support Benefits 59
4.1 Key Characteristics of Full Models 59
4.2 Overview of the Benefits of Full Risk Modelling 61
4.3 Creating More Accurate and Realistic Models 62
4.3.1 Reality is Uncertain: Models Should Reflect This 62
4.3.2 Structured Process to Include All Relevant Factors 63
4.3.3 Unambiguous Approach to Capturing Event Risks 63
4.3.4 Inclusion of Risk Mitigation and Response Factors 66
4.3.5 Simultaneous Occurrence of Uncertainties and Risks 66
4.3.6 Assessing Outcomes in Non-Linear Situations 67
4.3.7 Reflecting Operational Flexibility and Real Options 67
4.3.8 Assessing Outcomes with Other Complex Dependencies 71
4.3.9 Capturing Correlations, Partial Dependencies and Common
Causalities 73
4.4 Using the Range of Possible Outcomes to Enhance Decision-Making 74
4.4.1 Avoiding “The Trap of the Most Likely” or Structural Biases 76
4.4.2 Finding the Likelihood of Achieving a Base Case 78
4.4.3 Economic Evaluation and Reflecting Risk Tolerances 82
4.4.4 Setting Contingencies, Targets and Objectives 83
4.5 Supporting Transparent Assumptions and Reducing Biases 84
4.5.1 Using Base Cases that are Separate to Risk Distributions 85
4.5.2 General Reduction in Biases 85
4.5.3 Reinforcing Shared Accountability 85
4.6 Facilitating Group Work and Communication 86
4.6.1 A Framework for Rigorous and Precise Work 86
4.6.2 Reconcile Some Conflicting Views 86

CHAPTER 5
Organisational Challenges Relating to Risk Modelling 87
5.1 “We Are Doing It Already” 87
5.1.1 “Our ERM Department Deals with Those Issues” 88
5.1.2 “Everybody Should Just Do Their Job Anyway!” 88
5.1.3 “We Have Risk Registers for All Major Projects” 89
5.1.4 “We Run Sensitivities and Scenarios: Why Do More?” 89
5.2 “We Already Tried It, and It Showed Unrealistic Results” 89
5.2.1 “All Cases Were Profitable” 90
5.2.2 “The Range of Outcomes Was Too Narrow” 90
5.3 “The Models Will Not Be Useful!” 91
5.3.1 “We Should Avoid Complicated Black Boxes!” 91
5.3.2 “All Models Are Wrong, Especially Risk Models!” 91
5.3.3 “Can You Prove that It Even Works?” 92
x CONTENTS

5.3.4 “Why Bother to Plan Things that Might Not Even Happen?” 93
5.4 Working Effectively with Enhanced Processes and Procedures 93
5.4.1 Selecting the Right Projects, Approach and Decision Stage 93
5.4.2 Managing Participant Expectations 95
5.4.3 Standardisation of Processes and Models 95
5.5 Management Processes, Culture and Change Management 96
5.5.1 Integration with Decision Processes 96
5.5.2 Ensuring Alignment of Risk Assessment and Modelling Processes 97
5.5.3 Implement from the Bottom Up or the Top Down? 98
5.5.4 Encouraging Issues to Be Escalated: Don’t Shoot the Messenger! 99
5.5.5 Sharing Accountability for Poor Decisions 99
5.5.6 Ensuring Alignment with Incentives and Incentive Systems 100
5.5.7 Allocation and Ownership of Contingency Budgets 101
5.5.8 Developing Risk Cultures and Other Change Management
Challenges 102

PART II
The Design of Risk Models – Principles, Processes and Methodology

CHAPTER 6
Principles of Simulation Methods 107
6.1 Core Aspects of Simulation: A Descriptive Example 107
6.1.1 The Combinatorial Effects of Multiple Inputs and Distribution of
Outputs 107
6.1.2 Using Simulation to Sample Many Diverse Scenarios 110
6.2 Simulation as a Risk Modelling Tool 112
6.2.1 Distributions of Input Values and Their Role 113
6.2.2 The Effect of Dependencies between Inputs 114
6.2.3 Key Questions Addressable using Risk-Based Simulation 114
6.2.4 Random Numbers and the Required Number of Recalculations or
Iterations 115
6.3 Sensitivity and Scenario Analysis: Relationship to Simulation 116
6.3.1 Sensitivity Analysis 116
6.3.2 Scenario Analysis 119
6.3.3 Simulation using DataTables 121
6.3.4 GoalSeek 121
6.4 Optimisation Analysis and Modelling: Relationship to Simulation 122
6.4.1 Uncertainty versus Choice 122
6.4.2 Optimisation in the Presence of Risk and Uncertainty 129
6.4.3 Modelling Aspects of Optimisation Situations 131
6.5 Analytic and Other Numerical Methods 133
6.5.1 Analytic Methods and Closed-Form Solutions 133
6.5.2 Combining Simulation Methods with Exact Solutions 135
6.6 The Applicability of Simulation Methods 135
Contents xi

CHAPTER 7
Core Principles of Risk Model Design 137
7.1 Model Planning and Communication 138
7.1.1 Decision-Support Role 138
7.1.2 Planning the Approach and Communicating the Output 138
7.1.3 Using Switches to Control the Cases and Scenarios 139
7.1.4 Showing the Effect of Decisions versus Those of Uncertainties 140
7.1.5 Keeping It Simple, but not Simplistic: New Insights versus
Modelling Errors 144
7.2 Sensitivity-Driven Thinking as a Model Design Tool 146
7.2.1 Enhancing Sensitivity Processes for Risk Modelling 150
7.2.2 Creating Dynamic Formulae 151
7.2.3 Example: Time Shifting for Partial Periods 153
7.3 Risk Mapping and Process Alignment 154
7.3.1 The Nature of Risks and Their Impacts 155
7.3.2 Creating Alignment between Modelling and the General Risk
Assessment Process 156
7.3.3 Results Interpretation within the Context of Process Stages 157
7.4 General Dependency Relationships 158
7.4.1 Example: Commonality of Drivers of Variability 159
7.4.2 Example: Scenario-Driven Variability 160
7.4.3 Example: Category-Driven Variability 162
7.4.4 Example: Fading Impacts 168
7.4.5 Example: Partial Impact Aggregation by Category in a Risk Register 170
7.4.6 Example: More Complex Impacts within a Category 171
7.5 Working with Existing Models 173
7.5.1 Ensuring an Appropriate Risk Identification and Mapping 173
7.5.2 Existing Models using Manual Processes or Embedded Procedures 174
7.5.3 Controlling a Model Switch with a Macro at the Start and End of a
Simulation 175
7.5.4 Automatically Removing Data Filters at the Start of a Simulation 176
7.5.5 Models with DataTables 178

CHAPTER 8
Measuring Risk using Statistics of Distributions 181
8.1 Defining Risk More Precisely 181
8.1.1 General Definition 181
8.1.2 Context-Specific Risk Measurement 181
8.1.3 Distinguishing Risk, Variability and Uncertainty 182
8.1.4 The Use of Statistical Measures 183
8.2 Random Processes and Their Visual Representation 184
8.2.1 Density and Cumulative Forms 184
8.2.2 Discrete, Continuous and Compound Processes 186
8.3 Percentiles 187
8.3.1 Ascending and Descending Percentiles 188
8.3.2 Inversion and Random Sampling 189
xii CONTENTS

8.4 Measures of the Central Point 190

8.4.1 Mode 190
8.4.2 Mean or Average 191
8.4.3 Median 193
8.4.4 Comparisons of Mode, Mean and Median 193
8.5 Measures of Range 194
8.5.1 Worst and Best Cases, and Difference between Percentiles 194
8.5.2 Standard Deviation 195
8.6 Skewness and Non-Symmetry 199
8.6.1 The Effect and Importance of Non-Symmetry 201
8.6.2 Sources of Non-Symmetry 202
8.7 Other Measures of Risk 203
8.7.1 Kurtosis 204
8.7.2 Semi-Deviation 205
8.7.3 Tail Losses, Expected Tail Losses and Value-at-Risk 206
8.8 Measuring Dependencies 207
8.8.1 Joint Occurrence 207
8.8.2 Correlation Coefficients 209
8.8.3 Correlation Matrices 210
8.8.4 Scatter Plots (X–Y Charts) 212
8.8.5 Classical and Bespoke Tornado Diagrams 212

CHAPTER 9
The Selection of Distributions for Use in Risk Models 215
9.1 Descriptions of Individual Distributions 215
9.1.1 The Uniform Continuous Distribution 216
9.1.2 The Bernoulli Distribution 218
9.1.3 The Binomial Distribution 219
9.1.4 The Triangular Distribution 220
9.1.5 The Normal Distribution 222
9.1.6 The Lognormal Distribution 226
9.1.7 The Beta and Beta General Distributions 232
9.1.8 The PERT Distribution 234
9.1.9 The Poisson Distribution 236
9.1.10 The Geometric Distribution 238
9.1.11 The Negative Binomial Distribution 240
9.1.12 The Exponential Distribution 241
9.1.13 The Weibull Distribution 242
9.1.14 The Gamma Distribution 242
9.1.15 The General Discrete Distribution 244
9.1.16 The Integer Uniform Distribution 245
9.1.17 The Hypergeometric Distribution 245
9.1.18 The Pareto Distribution 246
9.1.19 The Extreme Value Distributions 246
9.1.20 The Logistic Distribution 250
9.1.21 The Log-Logistic Distribution 251
9.1.22 The Student (t), Chi-Squared and F-Distributions 252
Contents xiii

9.2 A Framework for Distribution Selection and Use 256

9.2.1 Scientific and Conceptual Approaches 257
9.2.2 Data-Driven Approaches 258
9.2.3 Industry Standards 259
9.2.4 Pragmatic Approaches: Distributions, Parameters and Expert Input 259
9.3 Approximation of Distributions with Each Other 263
9.3.1 Modelling Choices 263
9.3.2 Distribution Comparison and Parameter Matching 265
9.3.3 Some Potential Pitfalls Associated with Distribution Approximations 267

CHAPTER 10
Creating Samples from Distributions 273
10.1 Readily Available Inverse Functions 274
10.1.1 Functions Provided Directly in Excel 274
10.1.2 Functions Whose Formulae Can Easily Be Created 276
10.2 Functions Requiring Lookup and Search Methods 277
10.2.1 Lookup Tables 277
10.2.2 Search Methods 278
10.3 Comparing Calculated Samples with Those in @RISK 279
10.4 Creating User-Defined Inverse Functions 280
10.4.1 Normal Distribution 281
10.4.2 Beta and Beta General Distributions 282
10.4.3 Binomial Distribution 283
10.4.4 Lognormal Distribution 283
10.4.5 Bernoulli Distribution 284
10.4.6 Triangular Distribution 284
10.4.7 PERT Distribution 284
10.4.8 Geometric Distribution 285
10.4.9 Weibull Distribution 285
10.4.10 Weibull Distribution with Percentile Inputs 285
10.4.11 Poisson Distribution 285
10.4.12 General Discrete Distribution 287
10.5 Other Generalisations 287
10.5.1 Iterative Methods using Specific Numerical Techniques 287
10.5.2 Creating an Add-In 289

CHAPTER 11
Modelling Dependencies between Sources of Risk 291
11.1 Parameter Dependency and Partial Causality 291
11.1.1 Example: Conditional Probabilities 293
11.1.2 Example: Common Risk Drivers 293
11.1.3 Example: Category Risk Drivers 294
11.1.4 Example: Phased Projects 294
11.1.5 Example: Economic Scenarios for the Price of a Base Commodity 295
11.1.6 Example: Prices of a Derivative Product 296
11.1.7 Example: Prices of Several Derivative Products 297
xiv CONTENTS

11.1.8 Example: Oil Price and Rig Cost 297

11.1.9 Example: Competitors and Market Share 298
11.1.10 Example: Resampling or Data-Structure-Driven Dependence 299
11.1.11 Implied Correlations within Parameter Dependency Relationships 302
11.2 Dependencies between Sampling Processes 302
11.2.1 Correlated Sampling 303
11.2.2 Copulas 304
11.2.3 Comparison and Selection of Parameter-Dependency and Sampling
Relationships 306
11.2.4 Creating Correlated Samples in Excel using Cholesky Factorisation 309
11.2.5 Working with Valid Correlation Matrices 313
11.2.6 Correlation of Time Series 315
11.3 Dependencies within Time Series 316
11.3.1 Geometric Brownian Motion 317
11.3.2 Mean-Reversion Models 319
11.3.3 Moving Average Models 321
11.3.4 Autoregressive Models 321
11.3.5 Co-Directional (Integrated) Processes 323
11.3.6 Random State Switching and Markov Chains 323

PART III
Getting Started with Simulation in Practice

CHAPTER 12
Using Excel/VBA for Simulation Modelling 327
12.1 Description of Example Model and Uncertainty Ranges 327
12.2 Creating and Running a Simulation: Core Steps 328
12.2.1 Using Random Values 328
12.2.2 Using a Macro to Perform Repeated Recalculations and Store the
Results 330
12.2.3 Working with the VBE and Inserting a VBA Code Module 330
12.2.4 Automating Model Recalculation 331
12.2.5 Creating a Loop to Recalculate Many Times 331
12.2.6 Adding Comments, Indentation and Line Breaks 332
12.2.7 Defining Outputs, Storing Results, Named Ranges and Assignment
Statements 333
12.2.8 Running the Simulation 334
12.3 Basic Results Analysis 335
12.3.1 Building Key Statistical Measures and Graphs of the Results 335
12.3.2 Clearing Previous Results 336
12.3.3 Modularising the Code 338
12.3.4 Timing and Progress Monitoring 339
12.4 Other Simple Features 339
12.4.1 Taking Inputs from the User at Run Time 339
12.4.2 Storing Multiple Outputs 340
Contents xv

12.5 Generalising the Core Capabilities 340

12.5.1 Using Selected VBA Best Practices 340
12.5.2 Improving Speed 341
12.5.3 Creating User-Defined Functions 342
12.6 Optimising Model Structure and Layout 343
12.6.1 Simulation Control Sheet 343
12.6.2 Output Links Sheet 344
12.6.3 Results Sheets 344
12.6.4 Use of Analysis Sheets 346
12.6.5 Multiple Simulations 348
12.7 Bringing it All Together: Examples Using the Simulation Template 350
12.7.1 Model 1: Aggregation of a Risk Register using Bernoulli and PERT
Distributions 351
12.7.2 Model 2: Cost Estimation using Lognormal Distributions 352
12.7.3 Model 3: Cost Estimation using Weibull Percentile Parameters 352
12.7.4 Model 4: Cost Estimation using Correlated Distributions 353
12.7.5 Model 5: Valuing Operational Flexibility 353
12.8 Further Possible uses of VBA 354
12.8.1 Creating Percentile Parameters 354
12.8.2 Distribution Samples as User-Defined Functions 354
12.8.3 Probability Samples as User-Defined Array Functions 355
12.8.4 Correlated Probability Samples as User-Defined Array Functions 356
12.8.5 Assigning Values from VBA into Excel 358
12.8.6 Controlling the Random Number Sequence 359
12.8.7 Sequencing and Freezing Distribution Samples 363
12.8.8 Practical Challenges in using Arrays and Assignment Operations 364
12.8.9 Bespoke Random Number Algorithms 364
12.8.10 Other Aspects 364

CHAPTER 13
Using @RISK for Simulation Modelling 365
13.1 Description of Example Model and Uncertainty Ranges 365
13.2 Creating and Running a Simulation: Core Steps and Basic Icons 366
13.2.1 Using Distributions to Create Random Samples 368
13.2.2 Reviewing the Effect of Random Samples 369
13.2.3 Adding an Output 370
13.2.4 Running the Simulation 370
13.2.5 Viewing the Results 370
13.2.6 Results Storage 373
13.2.7 Multiple Simulations 373
13.2.8 Results Statistics Functions 374
13.3 Simulation Control: An Introduction 377
13.3.1 Simulation Settings: An Overview 377
13.3.2 Static View 377
13.3.3 Random Number Generator and Sampling Methods 379
13.3.4 Comparison of Excel and @RISK Samples 381
13.3.5 Number of Iterations 382
xvi CONTENTS

13.3.6 Repeating a Simulation and Fixing the Seed 382

13.3.7 Simulation Speed 383
13.4 Further Core Features 384
13.4.1 Alternate Parameters 384
13.4.2 Input Statistics Functions 384
13.4.3 Creating Dependencies and Correlations 385
13.4.4 Scatter Plots and Tornado Graphs 385
13.4.5 Special Applications of Distributions 395
13.4.6 Additional Graphical Outputs and Analysis Tools 400
13.4.7 Model Auditing and Sense Checking 405
13.5 Working with Macros and the @RISK Macro Language 405
13.5.1 Using Macros with @RISK 405
13.5.2 The @RISK Macro Language or Developer Kit: An Introduction 407
13.5.3 Using the XDK to Analyse Random Number Generator and
Sampling Methods 409
13.5.4 Using the XDK to Generate Reports of Simulation Data 417
13.6 Additional In-Built Applications and Features: An Introduction 417
13.6.1 Optimisation 419
13.6.2 Fitting Distributions and Time Series to Data 420
13.6.3 MS Project Integration 421
13.6.4 Other Features 421
13.7 Benefits of @RISK over Excel/VBA Approaches: A Brief Summary 421

Index 425
 Preface

T his book aims to be a practical guide to help business risk managers, modelling analysts
and general management to understand, conduct and use quantitative risk assessment and
uncertainty modelling in their own situations. It is intended to provide a solid foundation in
the most relevant aspects of quantitative modelling and the associated statistical concepts in
a way that is accessible, intuitive, pragmatic and applicable to general business and corporate
contexts. It also discusses the interfaces between quantitative risk modelling activities and the
organisational context within which such activities take place. In particular, it covers links with
general risk assessment processes and issues relating to organisational cultures, incentives and
change management. Some knowledge of these issues is generally important in order to ensure
the success of quantitative risk assessment approaches in practical organisational contexts.
The text is structured into three parts (containing 13 chapters in total):

 Part I provides an introduction to the topic of risk assessment in general terms.

 Part II covers the design and use of quantitative risk models.
 Part III provides an introduction to key ways to implement the repeated calculation steps
that are required when conducting simulation, covering the use of VBA macros and that
of the @RISK add-in.

The text has been written to be software independent as far as reasonably practical. Indeed
(apart from an assumption that the reader wishes to use Excel to build any models), most of
the text in Parts I and II would be identical whichever platform is used to actually perform the
simulation process (i.e. whether it is VBA or @RISK). Thus, although some of the example
files use Excel functionality only, and others use features of @RISK, essentially all could be
readily built in either platform if necessary (there are a handful of exceptions): One would
have to make a few simple formula changes in each case, with the tools presented in this
text showing the reader how to do so. On the other hand, in the context of presenting data
arising from probabilistic processes and simulation results, @RISK’s graphical capabilities
are generally more flexible (and quicker to implement) than those in Excel. Thus, for purposes
of quality, consistency and convenience, many of the illustrations in the book use @RISK in
order to show associated graphs, even where the model itself does not require @RISK per se.
Thus, a reader is not required to have a copy of @RISK at that point in the text. Indeed, apart
from when working with the examples in Chapter 13, there is no fundamental requirement
for a reader to own a copy (or a trial version) of @RISK in order to gain value from the text.
In fact, readers who wish to use other implementation platforms for the simulation itself may
find many aspects of this text of relevance.

xvii
xviii PREFACE

The choice to present both Excel/VBA and @RISK approaches serves a number of
purposes:

 Whichever platform is used for the simulation, the core concepts, most of the modelling
techniques and issues concerning process alignment and other organisational challenges
are essentially the same. An integrated approach allows a reinforcement of some of the
concepts from different perspectives, and provides a comparison between the possible
implementation approaches whilst ensuring minimum repetition.
 Each platform has its own merits, so that in practice, some readers may need one approach
whilst other readers would need another. In particular, not only is Excel essentially
ubiquitous (and hence the implementation within Excel/VBA involves no additional
cost), but also the range of possibilities to use Excel/VBA for risk modelling is larger
than is often realised. For example, it is fairly straightforward to create random samples
from over 20 probability distributions, and to correlate them. On the other hand, the
use of @RISK can facilitate many aspects of the process associated with the building
and communication of risk models and their results; in many organisation contexts, its
use would be the most effective, flexible and transparent option, with the cost of the
required licences generally being insignificant compared to the potential benefits and
the investments being made (both in terms of participants’ time and in terms of project
investment budgets). The visual tools in @RISK also represent very powerful benefits
from an organisational process perspective, where there is typically a large variety in the
level of understanding of statistics and modelling within groups of participants.

The main content of each part and chapter is as follows:

 Part I introduces the need for risk assessment, its uses, the general process steps, pos-
sible approaches to risk quantification and the associated benefits and implementation
challenges:
 In Chapter 1, we discuss the use of risk assessment in many day-to-day situations as an

informal activity that most people conduct naturally, albeit implicitly and informally. We
also present some prominent examples of where risk management has failed in business-
related contexts. We then discuss some general challenges to the implementation of
formalised risk assessment processes, before presenting key drivers of the need for
more structured, explicit and formal approaches in some contexts, especially in many
business situations. Finally, we present the main uses and objectives of general risk
assessment processes.
 In Chapter 2, we cover general aspects of the risk assessment process, including tools

to ensure that risk identification is appropriately thorough, the potential objectives and
challenges in risk prioritisation, categories of risk mitigation actions, and some other
selected process issues.
 In Chapter 3, we present a variety of possible qualitative and quantitative approaches to

risk assessment, including their core aspects and relative benefits. We discuss the more
demanding requirements of quantitative aggregation or full risk modelling approaches,
especially in terms of risk identification and risk mapping. We note the associated
challenges when qualitative or non-aggregate approaches are used as a basis for the
subsequent development of quantitative models.
Preface xix

 In Chapter 4, we discuss the benefits of full risk modelling approaches, in relation

both to risk register approaches to risk assessment and to traditional static (non-risk)
modelling approaches to project evaluation and to general business analysis.
 In Chapter 5, we discuss many challenges in implementing quantitative risk modelling,

especially those that relate to issues of an organisational, incentive, cultural, process

and communications nature. An awareness of these can be of great importance both
to modelling analysts and to senior management who wish to implement risk-based
decision-making processes and to install a more risk-aware culture within their organ-
isations.
 Part II provides a detailed discussion of the design and building of risk models:
 In Chapter 6, we present the key principles of simulation methods. We also cover the

relationships between simulation and other numerical modelling techniques, such as

sensitivity, scenario and optimisation analysis.
 In Chapter 7, we discuss core aspects in the design of risk models. We highlight some

important similarities between risk modelling and traditional static modelling, as well
as covering some of the key differences. We also discuss issues that need to be addressed
in order to align the modelling activities with those of a general risk assessment process,
as well as issues faced when integrating risk assessment into existing models.
 In Chapter 8, we cover statistical measures of risk and probability distributions, as

well as the general topic of risk measurement using properties of distributions; this
has general relevance for the use of distributions as inputs to risk models, and for the
interpretation of simulation results.
 In Chapter 9, we describe over 20 distributions and their uses; these are usually sufficient

for most practical activities in business risk modelling, and are available both in @RISK
and in Excel/VBA. We also discuss the approximation of distributions with each other,
and the processes and possible frameworks to select an appropriate distribution to use.
 In Chapter 10, we present methods to create random samples from the distributions

discussed in Chapter 9; this is fundamental to readers wishing to use Excel/VBA

approaches, whereas it is in-built as part of @RISK’s distribution functions.
 In Chapter 11, we discuss the modelling of dependency relationships that are specific to

risk models, including techniques such as the use of conditional probabilities, parameter
dependencies, scenarios, correlated sampling, time-series modelling and others.
 Part III presents practical methods to implement the repeated calculations of a model
that is the hallmark of simulation methods. The advantages of presenting this topic at the
end of the text include that the core concepts apply to whichever platform is used for
the simulation, and that it allows readers to achieve a strong basis in the concepts and
understand the possibilities that quantitative risk modelling may offer, without needing
to necessarily become involved in the technical aspects of implementation. We initially
focus on the “mechanical” aspects of each platform, which are presented in a step-by-step
fashion within the context of a simple model. We aim for the early part of the discussion
to be largely self-contained, focusing on the simulation process, rather than establishing
a tight link into the subject of model design. This part of the text can be read essentially
independently to the modelling techniques covered earlier. Nevertheless, in the later parts
of the discussion, we do cover more general topics, and make links to the earlier text:
 Chapter 12 presents the use of Excel/VBA. We discuss many aspects of simulation

models that can be readily implemented in this approach, ranging from running basic
xx PREFACE

simulations to the creation of flexible ways to store and analyse results, generate cor-
related random numbers and increase simulation speed. A template model is provided,
which contains the core functionality that would be needed in many cases; its use
is explained with several example models. Although we show techniques that allow
for the creation of reasonably sophisticated approaches to the design of risk models,
the running of simulations and to results analysis, we do not attempt to replicate the
functionality of an add-in, such as @RISK. Rather, where such functionality would
be complex and time-consuming to implement in Excel/VBA, but is available within
@RISK, we take the pragmatic view that for readers working in a business or organisa-
tional context (to whom this book is targeted), it would almost always be more effective
to use @RISK in order to access this functionality, in order for them to be able to retain
a focus on the core aspect of providing decision support.
 Chapter 13 covers the use of @RISK. By presenting it in the last chapter of the text, one
can create a clearer comparison with Excel/VBA approaches, especially of its relative
benefits. These include not only its sophisticated and flexible graphics capabilities, but
also tools to rapidly build, experiment with and modify models, and to analyse the
results. In addition, there is a larger set of distributions and parameters available, an
ability to control many aspects of the simulation and random number selection, and to
create dependency relationships. The chapter focuses on the core aspects of the software
and on the features required to work with the models in this text, as well as being guided
by the general modelling considerations that the author wishes to emphasise. Although
it covers many topics, it does not intend to be a substitute or alternative to the software
manual (which, at the time of writing, is approximately 1000 pages, as a pdf file).
Nevertheless, in the latter part of the text, additional features that may be of importance
in some specific practical situations are mentioned. These include functionality to fit
distributions and time series to data, to conduct optimisation under uncertainty and to
integrate Excel with Microsoft Project. The book was written when @RISK version
6.3 was the latest one available, so that new features may become available in the
future (such as when version 7 is released). However, the fundamental concepts in risk
assessment, risk model design and simulation modelling remain largely unchanged
as such developments occur, and later software versions are generally fully backward
compatible with prior ones, so that it is hoped that this text will nevertheless provide a
useful guide to core functionality, even as future versions are released.

Readers who wish to review specific models that use @RISK may install a trial version
(if they do not have, or do not wish to buy, a full version). Trial versions are fully functional
but time limited, so that readers should ensure that the installation of any trial is appropriately
timed. In particular, readers may choose to read (or skim) all of the text before installing the
trial, and revisit relevant parts of the text afterwards. At the time of writing, trial versions
are valid for 10 days and are available at www.palisade.com. Readers may contact Palisade
Corporation directly who may – entirely at its discretion – be able to extend the duration of
a trial. For the purposes of the models used in this text, it is sufficient to download @RISK
Industrial; however, some features within this – whilst briefly mentioned in this text – are
not required for the example files provided, so that the additional software associated with
these features does not need to be acquired (in particular the SQL-related content used for the
Library functionality, and Microsoft Project, are not required). Technical aspects of installation
and licensing options for @RISK are not covered in this text. Please note that the author is
Preface xxi

totally independent of Palisade Corporation, and has no control over the availability (or not) of
trial versions, so the above is (in theory) subject to change, although trial versions have been
available for many years without issue.
As far as possible, we have aimed to present concepts in a logical and linear order, but
also to remain practical and to introduce technical aspects only where they are genuinely
needed, and not simply for their own sake. Due to the richness of the subject, this has not been
possible to do perfectly. In particular, whereas the detailed discussion of simulation concepts
and definitions of statistical terms is covered in Part II (Chapter 8), on occasion in Part I
we make reference to some basic statistical concepts (such as averages or percentiles, or to
probability in general), and also show some simulation results. It is hoped that readers will
nevertheless be able to follow this earlier discussion; many will no doubt have some (at least
limited) experience of such concepts that is sufficient to be able to follow it; if not, of course
the option to read first (or selectively refer to) this later chapter is open to them.
 About the Author

M ichael Rees has a Doctorate in Mathematical Modelling and Numerical Algorithms, and
a BA with First Class Honours in Mathematics, both from Oxford University. He has
an MBA with Distinction from INSEAD in France. In addition, he studied for the Wilmott
Certificate of Quantitative Finance, where he graduated in first place for course work and also
received the Wilmott Award for the highest final exam mark.
Since 2002, he has worked as an independent expert in financial modelling, risk modelling
and quantitative decision support, providing training, model building and advisory services to a
wide range of corporations, consulting firms, private equity businesses and training companies.
As part of his activities as an independent consultant, Michael worked closely with Palisade
Corporation, the developers of the @RISK software, for which he is one of the world’s most
experienced instructors, having taught several thousand people in this area.
Prior to becoming independent, Michael was employed at J.P. Morgan, where he conducted
valuation and research work, and prior to that he was a partner with strategy consultants Mercer
Management Consulting (now Oliver Wyman), both in London, UK, and Munich, Germany.
His earlier career was spent at Braxton Associates (a strategy consulting firm that became part
of Deloitte and Touche), where he worked in London and as a founding member of the start-up
team in Munich.
Michael is a dual UK/Canadian citizen. He is fluent in French and German, and has wide
experience of working internationally and with clients with diverse cultural backgrounds. In
addition to this text, he is the author of Financial Modelling in Practice: A Concise Guide
for Intermediate and Advanced Level (John Wiley & Sons, 2008). He can be contacted at
[email protected] or through the website www.michaelrees.co.uk.

xxiii
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 L E T T E R LVI.

TO M R . S — — .

December 20, 1777.

WITH the old story of the Season, &c. &c. most sincerely, and
amen.
When Royal David—in the intoxication of success and fullness of
pride—imprudently insisted upon the numbering of his people—we
are told, the Prophet was sent to announce the Divine displeasure—
and to give him the choice of one of the three of the Almighty’s
heaviest punishments:—in his choice—he shewed both wisdom and
true piety—you know the rest.—Now, my friend—thou knowest my
weakness;—I sincerely believe the Sacred Writ—and of course look
upon war in all its horrid arrangements as the bitterest curse that
can fall upon a people; and this American one—as one of the very
worst—of worst things:—that it is a just judgement, I do believe;—
that the eyes of our rulers are shut, and their judgements stone-
blind, I believe also.—The Gazette will give you a well-drest
melancholy account—but you will see one thing in it which you will
like—and that is, the humane solicitude of General Burgoyne—for
the safety and good treatment indiscriminately of all his camp-
artificers and attendants:—he is certainly a man of feeling—and I
regard him more for the grandeur of his mind in adversity—than I
should in all the triumphal pomp of military madness.—But let me
return, if possible, to my senses:—for God’s sake! what has a poor
starving Negroe, with six children, to do with kings and heroes, and
armies and politics?—Aye, or poets and painters!—or artists—of any
sort? quoth Monsieur S——. True—indubitably true.—For your letter,
thanks—It should have come sooner—better late, &c. &c.—What
have I to do with your good or evil fortune—health or sickness—weal
or woe?—I am resolved from henceforth to banish feelings—
Misanthrope from head to foot!—Apropos—not five minutes since I
was interrupted, in this same letter of letters, by a pleasant affair—
to a man of no feelings.—A fellow bolted into the shop with a
countenance in which grief and fear struggled for mastery.—“Did you
see any body go to my cart, Sir?”—“No, friend, how should I? you
see I am writing—and how should I be able to see your cart or you
either in the dark?”—“Lord in heaven pity me! cries the man, what
shall I do? oh! what shall I do?—I am undone!—Good God!—I did
but go into the court here—with a trunk for the lady at Captain G
——’s (I had two to deliver), and somebody has stole the other;—
what shall I do?—what shall I do?”—“Zounds, man!—who ever left
their cart in the night with goods in it, without leaving some one to
watch?”—“Alack, Sir, I left a boy, and told him I would give him
something to stand by the cart, and the boy and trunk are both
gone!”—Oh nature!—oh heart!—why does the voice of distress so
forcibly knock at the door of hearts—but to hint to pride and avarice
our common kindred—and to alarm self-love?—Mark, I do think, and
will maintain it—that self-love alone, if rightly understood, would
make man all that a dying Redeemer wills he should be.—But this
same stolen trunk;—the ladies are just gone out of my shop—they
have been here holding a council—upon law and advertisements;—
God help them!—they could not have come to a worse—nor could
they have found a stupider or sorrier adviser:—the trunk was seen
parading between two in the Park—and I dare say the contents by
this time are pretty well gutted.—Last Sunday I met, coming from
church, Mr. C——; he looks well, better than when you left him.—I
took occasion, as we were prating about and about your worship—to
pin Mr. de Groote’s interest upon the skirts of his feelings;—he
desired, when I saw him next, I would send him into Crown-street—
which I religiously performed, but have not seen Mr. de Groote
since;—in truth, there is (despight of his nose) so much of the
remains of better times—somewhat of the gentleman and artist in
ruins—something creative of reverence as well as pity—that I have
wished to do more than I ought—though at the same time too little
for such a being to receive without insult from the hands of a poor
Negroe—(pooh, I do not care for your prancings, I can see you at
this distance).—We have agreed upon one thing;—which is, I have
undertaken to write to Mr. G—— for him, in the way of local relief;—I
will wager a tankard of porter I succeed in some sort;—I will aim at
both sides of him—his pity and his pride—which, alas!—the last I
mean, finds a first-floor in the breast of every son of Adam. S——
called on me this day, and left a picture for you at your lodgings—
and a very spirited head in miniature, of your own doing, with me—
which I like so well—you will find it difficult to get it from me—
except you talk of giving me a copy—Self-love again!—How can you
expect business in these hard times—when the utmost exertions of
honest industry can scarce afford people in the middle sphere of life
daily provisions?—When it shall please the Almighty that things shall
take a better turn in America—when the conviction of their madness
shall make them court peace—and the same conviction of our
cruelty and injustice induce us to settle all points in equity—when
that time arrives, my friend, America will be the grand patron of
genius—trade and arts will flourish—and if it shall please God to
spare us till that period—we will either go and try our fortunes there
—or stay in Old England and talk about it.—While thou hast only one
mouth to feed—one back to cloath—and one wicked member to
indulge—thou wilt have no pity from me—excepting in the argument
of health. May that cordial blessing be thine—with its sweet
companion ease!—Peace follows rectitude—and what a plague
would’st thou have more?—Write soon if thou dar’st—retort at thy
peril—boy—girls—and the old Duchess, all pretty well—and so, so, is
yours,

I . SA N C H O.
 L E T T E R LVII.

TO J. S — — , E s q .

Charles Street, December 26, 1777.

I HAD the favor of a letter—replete with kindness which I can never

deserve—and have just now received the valuable contents—of
which said letter was harbinger—without either surprize or emotion
—save a kind of grateful tickling of the heart—the child of respect—
and I believe twin-brother of gratitude.——Now had I heard of an A
—hb—p (at this sacred season especially)—gladdening the hearts of
the poor, aged and infirm—with good cheer—informing the minds of
the young with Christian precepts, and reforming his whole See by
his pious example—that would have surprized me:—had I been
informed of a truly great man—who, laying aside party and self-
interest, dared to step forth the advocate of truth, and friend to his
country; or had any one told me of a lord—who was wise enough to
live within bounds—and honest enough to pay his debts—why it
would have surpriz’d me indeed.—But I have been well informed
there is a Mr. S—— at Bury—and I think I have seen the gentleman
—who lives in a constant course of doing beneficent actions—and,
upon these occasions, the pleasure he feels constitutes him the
obliged party.—You, good Sir, ought of course to thank me—for
adding one more to the number you are pleased to be kind to—so
pray remember, good Sir, that my thanks—(however due in the eye
of gratitude) I conceive to be an act of supererogation—and expect
that henceforth you will look upon the Sancho’s—as a family that
have a rightful call upon your notice.—Mrs. Sancho joins me in
repetition of the customary wishes.—Give me credit for having a
heart which feels your kindness as it ought.—That Heaven may
lengthen your days for the good of mankind—and grant every wish
of your heart—is the true conclusion of

Your greatly obliged

and respectful humble servant,

I . SA N C H O.
 L E T T E R LVIII.

TO M R . F — — .

Charles Street, January 27, 1778.

FULL heartily and most cordially do I thank thee, good Mr. F——, for
your kindness in sending the books—that upon the unchristian and
most diabolical usage of my brother Negroes—the illegality—the
horrid wickedness of the traffic—the cruel carnage and depopulation
of the human species—is painted in such strong colours—that I
should think would (if duly attended to) flash conviction, and
produce remorse, in every enlightened and candid reader.—The
perusal affected me more than I can express;—indeed I felt a double
or mixt sensation—for while my heart was torn with the sufferings
which—for aught I know—some of my nearest kin might have
undergone—my bosom, at the same time, glowed with gratitude and
praise toward the humane—the Christian—the friendly and learned
Author of that most valuable book.—Blest be your sect!—and
Heaven’s peace be upon them!—I, who, thank God! am no bigot—
but honour virtue and the practice of the great moral duties equally
in the turban or the lawn-sleeves—who think Heaven big enough for
all the race of man—and hope to see and mix amongst the whole
family of Adam in bliss hereafter—I with these notions (which,
perhaps, some may style absurd) look upon the friendly Author—as
a being far superior to any great name upon your continent.—I could
wish that every member of each house of parliament had one of
these books.—And if his Majesty perused one through before
breakfast—though it might spoil his appetite—yet the consciousness
of having it in his power to facilitate the great work—would give an
additional sweetness to his tea.—Phyllis’s poems do credit to nature
—and put art—merely as art—to the blush.—It reflects nothing either
to the glory or generosity of her master—if she is still his slave—
except he glories in the low vanity of having in his wanton power a
mind animated by Heaven—a genius superior to himself. The list of
splendid, titled, learned names, in confirmation of her being the real
authoress, alas! shews how very poor the acquisition of wealth and
knowledge are—without generosity—feeling—and humanity.—These
good great folks all knew—and perhaps admired—nay, praised
Genius in bondage—and then, like the Priests and the Levites in
sacred writ, passed by—not one good Samaritan amongst them.—I
shall be ever glad to see you—and am, with many thanks,
Your most humble servant.

I G N AT I U S SA N C H O.
 L E T T E R LIX.

TO M R . W— — E .

Charles Street, March 12, 1778.

WILL you forgive me—if I take the liberty to trouble you with
getting my enclosed plan inserted in the General Advertiser, or
Morning Intelligencer, as speedily as they conveniently can, if after
you have perused it, you think it admissable?—if not, destroy it; for I
have not yet vanity sufficient to think whatever I privately approve
must of course be approveable.—I send you the copy of what real
affection made me draw up for the late unfortunate Dr. Dodd[5]
(which, as it never was inserted, I must believe the learned editor
thought it too insignificant for the laudable service it was meant to
help).—My respects attend your whole family.—I am, dear Sir,

Yours, &c. &c.

I . SA N C H O.

I prefer Mr. Parker’s paper for many reasons;—let me have your

opinion of my plan—for, in serious truth, I think it ought to be put in
execution.

[5] Mr. Sancho also wrote to Dr. Dodd when in prison.

 For T H E G E N E R A L A D V E R T I S E R.

Palace Yard, March 12, 1778.

SIR,

THE Romans were wont to decree public honors on the man who
was so fortunate as to save the life of a citizen; a noble act of policy,
founded on true humanity, to stimulate the endeavours of every
individual towards acts of benevolence and brotherly regard to each
other. Actuated by zeal to my prince, and love to my country—I
mean to deserve well of both, by publishing, through the channel of
your paper, a plan for greatly diminishing the national debt; or, in
case a war with the House Bourbon should be inevitable, for raising
three or four years supplies, without oppresing the merchant,
mechanic, or labouring husbandman; in short, without abridging one
needful indulgence, or laying any fellow-subject under the least self-
denying restraint.
Mr. Editor, we all know that in noble families plate is merely ideal
wealth—and in very many houses of your first connexions and over-
grown fortunes, there are vast quantities of it old and useless, kept
merely for the antiquity of its fashion, and the ostentatious proof of
the grandeur of ancestry. Our neighbours the French (if I mistake
not) in the last war had the spirit (when the treasures of their Grand
Monarque were nearly exhausted) to send their plate generously to
the mint, in aid of national honour and security. Their churchmen
have often shewn the laity the glorious example of aiding the state.
We, to our immortal honour, have never yielded them the palm in
courage, wisdom, or gallantry. Let every gentleman, whose landed
property exceeds 500l. per annum, give up, without reserve, his
useful family plate, all except knives, forks, and spoons, which may
be deemed useful and necessary. I trust, such is the exalted spirit of
the British nobility and gentry, that they will resign with chearfulness
what they can so well do without. Should this meet (as I hope it will)
with the chearful assent of the public, let the quantities, so nobly
given, be printed against the names of the patriotic donors, as a
lasting testimony of their zeal for the public good, and a glorious
proof of the internal riches of this queen of isles!

Africanus.
 To the Editor of the M O R N I N G P O S T.

SIR,

I AM one of the many who have been often edified by the graceful
eloquence and truly Christian doctrine of the unfortunate Dr. Dodd.—
As a Divine, he had, and still has, my love and reverence; his faults I
regret; but, alas! I feel myself too guilty to cast a stone: justice has
her claims;—but Mercy, the anchor of my hope, inclines me to wish
he might meet with Royal clemency—his punishments have already
been pretty severe!—the loss of Royal favor—the cowardly attacks of
malicious buffoonry—and the over-strained zeal for rigid justice in
the prosecution.—Oh! would to God the reverend bishops, clergy,
&c. would join in petitioning the Throne for his life!—it would save
the holy order from indignity, and even the land itself from the
reproach of making too unequal distinctions in punishments. He
might, by the rectitude of his future life, and due exertion of his
matchless powers, be of infinite service—as chaplain to the poor
convicts on the river, which would be a punishment, and, at the
same time, serve for a proof or test of his contrition—and the
sincerity of a zeal he has often manifested (in the pulpit) for the
service of true Religion—and he may rise the higher by his late fall—
and do more real service to the thoughtless and abandoned culprits,
than a preacher, whose character might perhaps be deemed
spotless. If this hint should stimulate a pen, or heart, like the good B
——p of Chester’s, to exert itself in the behalf of a man who has
formerly been alive to every act of heaven-born charity—the writer
of this will have joy, even in his last moments, in the reflection that
he paid a mite of the vast debt he owes Dr. Dodd as a preacher.

I— — S — — .
 L E T T E R LX.

TO M R S. H — — .

Charles Street, April 9, 1778.

DEAR MADAM,

I HAVE to thank you for repeated favors—and I do most sincerely.—

You have a pleasure in doing acts of kindness—I wish from my soul
that your example was more generally imitated.—I have given to the
care of Mr. W—— one of Giardini’s benefit-tickets—which I present
not to you, Madam, but to Mr. H——, that he may judge of fidlers’
taste and fidlers’ consequence in our grand metropolis—the ticket
was a present from the great Giardini to the lowly Sancho—and I
offer it as a tribute of musical affection to thy worthy partner—and
with it, to both, the sincereest best wishes and respects of their
much obliged servant,

I G N . SA N C H O.
 L E T T E R LXI.

TO M R . J — — W— — E .

May 4, 1778.

M Y D E A R W— — E ,

YOUR short letter gave me much pleasure—which would have been

enlarged, had your epistle been longer;—but I make allowances—as
I ought—for the number of friends who wish equally with me—and
expect to be gratified. You are greatly fortunate in enjoying your
health—for which I doubt not but you are truly thankful to the
Almighty Giver.—As to your success, it is the best comment upon
your conduct;—for rectitude of principle and humble deportment,
added to strict attention and good-nature, must make even fools and
knaves wish you well—though envy will mix itself with the transient
kindness of such—but with such noble natures as you went out
happily connected with, you are every day sowing the good seeds of
your future fortune.—I hope to live to see you return—the comfort
and honor of your good father and family;—but observe—I do not
wish you half a million, clogged with the tears and blood of the poor
natives;—no—a decent competence got with honesty—and that will
keep increasing like the widow’s cruse, and descend down to
posterity with accumulated blessings.—You desire to transfer your
share in me to your brother Joe;—now be it known to you—Joe has
interest sufficient in his own natural right with me, to secure him
every attention in my poor power. But you flatter, my good friend—
though your flattery carries a good excuse with it—you flatter the
poor.
I say nothing of politics—I hate such subjects;—the public papers
will inform you of mistakes—blood—taxes—misery—murder—the
obstinacy of a few—and the madness and villainy of a many.—I
expect a very, very long letter from you—in answer to a sermon I
wrote you last year.—Miss —— is still divinely fair;—she is a good
girl, but no match for Nabobs.—Mrs. C—— is as handsome as ever—
and R—— as friendly. God bless them! feasting or fasting! sleeping
or waking! May God’s providence watch over and protect them—and
all such!—Your brother Frank is a sweet boy—a painter, who would
wish to draw a cherub, will find no fitter subject.—The C——ds—but
what have I to do with good people, who will of course all write for
themselves?—so let them.—Your father—Oh Jack! what a cordial!—
what a rich luxury is it to be able to contribute, by well-doing, to a
father’s, nay a whole family of kindred love, and heart-felt affection!
what a bliss to add to all their happiness—and to insure your own at
the same time!—May this high pleasure be thine! and may the God
of truth and fountain of all good enrich thy heart and head with his
spirit and wisdom—crown your labours with success—and guard you
from avarice—ambition—and every Asiatic evil—so that your native
land may receive you with riches and honor—your friends with true
joy—heightened with sincere respect! So wishes—so prophesies—thy
true friend and obliged servant,

I . SA N C H O.
 L E T T E R LXII.
Charles Street, May 9, 1778.

T O M I S S C——.

THE Sanchos—in full synod—humbly present their respectful

compliments to the good Mrs. C—— and Miss —— (what a C——!)
are happy in hearing they got well into Suffolk—that they continue
so—and enjoy the beauties of this sweetest of seasons—with its
attendant dainties—fresh butter—sweet milk—and the smiles of
boon nature—on hill and dale—fields and groves—shepherds piping
—milk-maids dancing—and the chearful respondent carolings of
artless joy in the happy husbandmen—Should you perchance rise
early in pursuit of May dew—I earnestly make it my request—you
will save—and bring to town a little bottle of it for my particular use.
—Happy—thrice happy nymphs—!—be merciful to the poor hapless
swains. The powerful little god of mischief and delight now—at this
blest season—prunes his beauteous wings—new feathers and
sharpens his arrows—tight strings his bow—and takes too sure his
aim.—Oh! lads, beware the month of May. For you, blest girls—
nature, decked out as in a birth-day suit, courts you with all its
sweets where-e’er you tread—the grass and wanton flowerets fondly
kiss your feet—and humbly bow their pretty heads—to the gentle
sweepings of your under-petticoats—the soft and amorous southern
breezes toy with your curls, and uncontroul’d steal numberless kisses
—the blackbirds and thrushes suspend their songs—and eye beauty
and humanity with pleasure;—and, could their hearts be read, thank
most sincerely the generous fair hands that fed them in the winter;
—the cuckoo sings on every tree the joys of married life—the
shrubbery throws out all its sweets to charm you—though, alas! an
unlucky parciplepliviaplemontis seizes my imagination—my brains
are on the ferment—Miss C—— will excuse me.—Make my best
wishes to Mrs. C——, tell her I hope she rides and walks in
moderation—eats heartily, and laughs much—sleeps soundly, dreams
happily—that she—you—my R—— and your connexions—may enjoy
the good of this life without its evil—is the true Black-a-moor wish of

I . SA N C H O.

Now mark, this is not meant as a letter—no—it is an address to

the ladies.—Pray our best respects to Mr. and Mrs. B——; it is an
address to Spring-birds and flowers—and when you see Johnny, our
loves—it is a caution to the swains against the popery of Love.—The
K—— and Q—— are just now returned from Portsmouth.—I said
nothing in regard to the month by way of advice to the ladies.—The
Spectator—blessings on his memory—has.—They say the Royal
chaise was covered with dirt—even the very glasses.—Quistus Quirini
—was found very late last night.—Nothing broke—except the
hemmings of advantage.—They say the Queen never looked better.—
But what amaz’d most people—both the Royal postillions rode the
off-horses—which it is expected the Gazette of this night will explain
—Adieu.
Is not that—a good one.
 From the P U B L I C A D V E R T I S E R of May 13th,
1778.

Inserted unknown to Mr. Sancho.

TO MR. B——.

DEAR SIR,

I COULD not see Mr. de Groote till this morning—he approached the
threshold—poor man—in very visible illness;—yet, under the
pressure of a multitude of infirmities—he could not forget his recent
humane benefactor. With faultering speech he enquired much who
you were;—and, in the conclusion, put up his most earnest petitions
to the Father of Mercies in your behalf—which (if the prayers of an
indigent genius have as much efficacy as those of a fat bishop) I
should hope and trust you may one day be the better for.—He is in
direct descent from the famous Hugo Grotius by the father’s side.—
His own mother was daughter to Sir Thomas Hesketh. He married
the widow Marchioness de Melaspina.—His age is 86; he had a
paralytic stroke—and has a rupture.—His eyes are dim, even with
the help of spectacles.—In truth, he comes close to Shakspeare’s
description in his last age of man—“Sans teeth—sans eyes—sans
taste—sans every thing.”
 He has the honour to be known to Dr. Johnson—and the luck to
be sometimes remembered by Mr. Garrick.—If you help him—you do
yourself a kindness—me a pleasure—and he, poor soul, a good—
which he may one time throw in your teeth—in that country where
good actions are in higher estimation than stars—ribbons—or
crowns.

Yours, most respectfully,

I G N AT I U S SA N C H O.

He lodges at Nᵒ. 9, New Pye-Street, Westminster.

 L E T T E R LXIII.

TO M R . R— — .

MY good friend, take my thanks for your kind attention;—and,

believe me, I am exceedingly mortified at being thus thrust forward
in the public prints.—You may observe, by what has happened to
me, how very difficult it is to do even a right thing, so as to escape
uneasiness.—Trust me, this same letter (though wrote, I dare say,
with the kindest intention imaginable) will do me hurt in the opinion
of many;—I therefore repeat, I like it not—and dare own to my
friend R—— it hurts my pride.—You may laugh—but it’s truth.—The
drawing was gone to my friend S——, but I recovered it in time.—
Hope the ladies are well—and that it will amuse them for a few
moments. The young man who invented the design is no artist—but
I think he has genius.
 L E T T E R LXIV.

TO M I SS C— — .

May 14, 1778.

WHAT terms shall I find to express my gratitude to the obliging,

the friendly Miss C——, for the pleasure we enjoyed from the
contents of the best letter that has been wrote this good year?—You,
who delight to please, will also feel high satisfaction in knowing you
have succeeded.—We hope the change of weather has had no ill
effect upon our friend—and that she will adhere to her promise in
remembering how ill she has been—and that it is too probable any
cold got by over-exertion or fatigue may occasion a relapse. We
have had much thunder and rain this morning—and, if old saws say
true, we are to expect a continuance of about thirty-seven days
good ducking weather;—we will leave it to the all-wise Disposer of
events, with this comfortable reflection—that whatever he wills—is
best.—We are happy to hear such an account of the ——; she
especially, as very likely a good course of fatigue, sweetened with
gain, may contribute as much to her health as her pleasure, and re-
establish her perfectly.—We have nothing stirring in the news way, or
any other way:—the town is literally empty, saving a few sharks of
both sexes, who are too poor to emigrate to the camps or watering-
places, and so are forced to prey upon one another in town.—I
protest, it is to me the most difficult of things to write to one of your
female geniuses;—there is a certain degree of cleverality (if I may so
call it), an easy kind of derangement of periods, a gentleman-like—
fashionable—careless—seesaw of dialogue—which I know no more
of than you do of cruelty.—I write as I think—foolishly—and you
write well—why?—because you think well.—So much for praise—
compliment—flattery, &c.—My respects attend Mr. B—— and Mrs. S
—— and Mrs. ——. Tell Miss A——s, one of us will come to see her—
perhaps.—I have received a kind letter from my good friend the
doctor—and one also for the surgeon to the guards, dated New York,
June 12:—he thinks the commissioners might have saved themselves
the trouble, as they are like to come back just as wise as they went.
—The Panton-Street good folks are well, for what I know—not
having seen them since I last had the honor of addressing Mrs. C
——. Adieu.—Our best respects—with Kitty’s and Billy’s in particular
—attend Monsieur Nuts[6];—pray tell him so—with all civility;—he
deserves it on the score of his own merits—were it not even so—yet
surely, I think, we should regard him for the sake of our friend.
Mrs. Sancho joins me, in every thing to Self and Co.

Yours, dear Miss C——,

with zeal and esteem,

I G N . SA N C H O.

[6] A favourite Spaniel.

 L E T T E R LXV.

TO M R . I— — .

May 22, 1778.

DEAR SIR,

I CLAIM your indulgence—and modestly insist upon your help.—The

companions to this billet are the hobby-horses of a young man that I
respect.—Darley has used him with less attention than he ought—
having kept the press affair above a month—and done nothing—so
he is (of course) out of favor.—I want first your approbation—that
gained, I wish your interest, to get them speedily into the world;—
there are some inaccuracies in both—which any regular artist will
amend.—As my friend is self-taught, his errors must be excused.—I
wish I could wait upon you;—but my stiff joint—my leg—is so
unwell, that at present I must give up any hopes of that pleasure.—I
hope Mrs. I——’s health is perfectly restored.—I should wish to win
her over to our interests in the affairs before you: in good faith, I
like the subject myself—and can fancy I discern something like wit in
both of them.—Forgive and assist yours faithfully,

S a n c h o the Big.
 L E T T E R LXVI.

TO M R . H — — .

Charles Street, Westminster, May 31, 1778.

THE Sanchonian chapter of enquiries, dictated by an esteem nearly

bordering upon affection (perhaps as warmly sincere as most
modern friendships), runs thus—How do you do? Are you the better
for your journey? Did the exercise create any amendment of
appetite? Was your travelling party agreeable? And how did you find
the good couple?—The sweet sensations arising from the sight of
those we love, the reviewing the places, either houses, fields,
hedges, stiles, or posts, of our early morn of life acquaintance, the
train of pleasurable ideas awakened, are more salutary than the
college of grave faces.—Tell me much about yourself—and more
about your honored parents, whom I hope you found as well as you
wished—your kindred at Lancaster, to whom my hearty wishes—and
to all who have charity enough to admit dark faces into the
fellowship of Christians.—Say much for me to your good father and
mother—in the article of respect thou canst not exaggerate;—
excepting conjugal, there are no attentions so tenderly heart-
soothing as the parental.—Amidst the felicity of thy native fields,
may’st thou find health, and diffuse pleasure round the respectable
circle of thy friends!—No news—but that Keppel is in chace of de-
Chartres.

Yours truly,

I . SA N C H O.

If you can afford a line, inclose it in the inclosed.—Mrs. Sancho

and girls wish you every pleasure.
 L E T T E R LXVII.

TO M R . M — — .

June 10, 1778.

“’Tis with our judgements as our watches—none

“Go just alike—yet each believes his own.”

Pope.

SO, my wise critic—blessings on thee,—and thanks for thy

sagacious discovery!—Sterne, it seems, stole his grand outline of
character from Fielding—and who did Fielding plunder? thou
criticizing jack-ape!—As to S——, perhaps you may be right—not
absolutely right—nor quite so very altogether wrong—but that’s not
my affair.—Fielding and Sterne both copied Nature—their pallettes
stored with proper colours of the brightest dye—these masters were
both great originals—their outline correct—bold—and free—Human
Nature was their subject—and though their colouring was widely
different, yet here and there some features in each might bear a
little resemblance—some faint likeness to each other—as for
example—in your own words—Toby and Allworthy—the external
drapery of the two are as wide as the poles—their hearts—perhaps—
twins of the same blessed form and principles;—but for the rest of
the Dramatis Personæ, you must strain hard, my friend, before you
can twist them into likeness sufficient to warrant the censure of
copying.—Parson Adams is yet more distant—his chief feature is
absence of thought. The world affords me many such instances—but
in the course of my reading, I have not met with his likeness, except
in mere goodness of heart—in that, perhaps, Jack M—— may equal
him—but then he is so confounded jingle-headed!—Read, boy, read
—give Tom Jones a second fair reading!—Fielding’s wit is obvious—
his humour poignant—dialogue just, and truly dramatic—colouring
quite nature—and keeping chaste.—Sterne equals him in every
thing; and in one thing excels him and all mankind—which is the
distribution of his lights; which he has so artfully varied throughout
his work, that, the oftener they are examined, the more beautiful
they appear.—They were two great masters, who painted for
posterity—and, I prophesy, will charm to the end of the English
speech.—If Sterne has had any one great master in his eye—it was
Swift, his countryman—the first wit of this or any other nation;—but
there is this grand difference between them—Swift excels in grave-
faced irony—whilst Sterne lashes his whips with jolly laughter.—I
could wish you to compare (after due attentive reading) Swift and
Sterne—Milton and Young—Thomson and Akenside—and then give
your free opinion to yours ever.

I . SA N C H O.

I want a handful or two of good fresh peach leaves—contrive to

send me them when opportunity serves—and word, at the first
leisure period, how Miss Anne Sister-like—George Grateful-look—
Mrs. &c. &c.—and how your worship’s hip does.—You had set up my
bristles in such guise—in attacking poor Sterne—that I had quite
forgot to give you a flogging for your punning grocery epistle—but
omittance is no quittance.—Swift and Sterne were different in this—
Sterne was truly a noble philanthropist—Swift was rather cynical;—
what Swift would fret and fume at—such as the petty accidental
sourings and bitters in life’s cup—you plainly may see, Sterne would
laugh at—and parry off by a larger humanity, and regular good-will
to man. I know you will laugh at me—do—I am content;—if I am an
enthusiast in any thing, it is in favor of my Sterne.
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