How do simulations contribute to risk management?

Simulations play a crucial role in risk management by enabling the anticipation of risks and their impacts. This is achieved through the use of models that replicate real-world scenarios, allowing organizations to test various strategies and understand potential consequences before facing actual events. By running simulations, decision-makers can visualize how different factors may influence outcomes, thus gaining insights into the likelihood of adverse events and the effectiveness of their responses.

This proactive approach allows for better preparation and resource allocation, as organizations can identify potential vulnerabilities and develop plans to mitigate those risks. Additionally, simulations help to create a comprehensive understanding of the interconnectedness of risks, fostering a more informed risk management strategy.

In contrast, the other options highlight approaches that either downplay the complexities of risk management or rely solely on historical data, which may not adequately inform future decision-making.