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PREFACE

This is a book that was never intended originally. It did not come about, as most books do, as a result of an idea for a book to fill some need, but rather because of an unforeseen sequence of events.

In the early nineties, the author was beginning a research project on databases for storing information about physical processes, that is, data about active systems. Hitherto, databases had been used for storing information about things, such as products, buildings, or vehicles.

What appeared initially to be merely a minor problem was encountered early on in that research. There is risk associated with systems, risk that things will go wrong, drastically affecting system output. It soon became clear that a database about processes or systems would need to include data about the risk inherent in such systems.

At the time, because of earlier work with investment and business databases, the author was familiar with the beta theory of risk used in business and finance. So, to solve the apparently minor problem about risk in systems in general, the obvious answer was: Extend the beta theory of risk, used with financial systems, to include risk in systems in general.

Unfortunately, this proved to be impossible, and the author's research soon became completely bogged down. Indeed, the only result of that work was the author's humbling realization that in reality he had no clear understanding of risk in systems at all.

Fortunately, the source of the difficulty was quite clear. There simply existed no comprehensive and practical theory of risk for systems in general.

There were two courses open. Ignore the whole problem and do something different, or start a project to develop a comprehensive theory of risk in systems. The latter seemed like a risky thing to do, since research funding for such a project was unlikely. However, risk has a captivating effect on anyone who looks into it, it was late in the author's long career, and it seemed like a risk worth running. The simple fact was, the author's curiosity was strongly aroused, and a burning curiosity, as is well known, is one of the best research motivators.

And so the project began. Guiding the author was the idea that there must exist fundamental risk principles that would apply to a very wide variety of system phenomena. It soon became clear that indeed there did. Gradually, over the course of some seven years of research, and exploration of many blind alleys, the principles emerged from the fog.

There was an encouraging sign of the usefulness of the new principles. Although far from the intent of the original research, they clarified the long standing dispute between two ardent factions in the investment community. The factions were the academic proponents of the beta theory of risk in investment, versus the proponents of the ideas of risk put forward by such classic investment scholars as the late Benjamin Graham, and his famous disciple, Warren Buffett. Each side is well known for castigating the theories and ideas of the other, with seemingly little common ground.

The author's comprehensive theory of risk, and associated principles for eliminating risk, showed clearly that both sides in this famous dispute are right. The new risk principles bridge the large gap between the two. They show that the beta theory proponents simply had failed to develop their theory far enough to include risk elimination possibilities. Risk elimination is what Benjamin Graham's ideas and methods were all about. Graham simply thought that most of the risks in the investment markets are just too high to run, and that steps should be taken by the investor, if not to eliminate them entirely, then at least to significantly reduce them. Warren Buffett, as is well known, has been doing this very successfully for decades.

In contrast, the beta theory proponents have steadfastly maintained that such a thing is impossible, and that the best you can do is run the risk of the market, with adjustments for the level of risk you are willing to run, and be content with the average small extra remuneration for running that level of risk--that is, be willing to accept the large individual losses that will occur from time to time.

At the heart of the author's new theory of risk in systems are two ideas, first, the idea of extending the risk concept to include average system output loss with respect to the best case system output, and second, the idea of uncovering the principles behind eliminating the losses due to risk, while retaining the benefit of running the risk. This would obviously have appealed to the late Benjamin Graham. Clearly, if you eliminate throughput losses with respect to the best case throughput, you get the best case scenario. This is what has always interested the proponents of Benjamin Graham's methods. It contrasts with the approach of the beta theory proponents, who are interested only in the average returns, which are merely best case returns from which the average losses due to hazards occurring have been deducted.

Clearly, the author's project to develop a comprehensive theory of risk for systems in general had been productive. He did not doubt that the new theory was universal and would stand the test of time, so that the next obvious thing to do was publish it ("marketing the results").

But now there was another problem. It would need six tightly-linked papers to cover it. This was hardly practical, and led to the resolve to publish the new theory as a book.

But now there was yet another problem. Dry-as-dust theoretical books do not sell widely, and publishers have to make some profits in order to continue existing and serving the public.

This has led the author to present the material in a fundamentally correct manner, but written with many practical and numerical examples, well explained, and with a minimum of mathematics. This would enable the publisher to sell a reasonable number of books, and would allow access to the theory by many people who would be in a position to put it to good use, and probably even save lives and property.

Thus, if you are an academic reader, expecting to see a mathematically rigorous research paper in each chapter, you may be disappointed. Nevertheless, if you examine the material closely, you will find that it will withstand a rigorous analysis.

If you are a general reader, with a reasonable level of professional education, you should have no difficulty with the material. The theory is simple and easy to understand. The mathematics is minimal, and can often be skipped. The intent is to enable you to grasp the ideas and concepts well enough to enable you to put them to good use, in whatever your field of endeavor, anything from spacecraft engineering, to computers systems design, to investment management.

Good luck, and may this book help you find and apply the means to eliminate many of those risks in systems that can harm you, those near to you, your organization and society in general.

James Bradley
Calgary, Alberta, 2002

COPYRIGHT: James Bradley 2002.

The official Publication Date is: March 01, 2001.
The publisher, Tharsis Professional Books (Tharsis Books), has arranged an Amazon.com listing for the book.
The U.S. Distributor for the book is BAKER & TAYLOR.
Commercial information is also available from BOWKER'S Books In Print .

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