Accenture recently released research illustrating that mining and metals companies could "significantly reduce the costs of large capital projects" by improving their risk analysis and management methods. With billions at stake, and delays and budget overruns the norm, the need for better systematic accounting for risk has never been greater. Accenture’s research was based on 31 interviews with mining and metals executives around the world."
Join us next week in London and Frankfurt.
In the last few months, nearly 1,000 professionals from around the world have gathered to push the boundaries of risk analysis through the Palisade Risk Conference series. Since March, Palisade Risk Conferences have been held in Santiago, Chile; São Paulo, Brazil; Johannesburg, South Africa; Tokyo, Japan; and Shanghai, China. Decision makers from industry and academia have presented dozens of real-life case studies, applying sophisticated quantitative techniques in new and exciting ways. These innovative approaches use Monte Carlo simulation, optimization, decision trees, and other techniques found in Palisade’s @RISK and DecisionTools Suite software to solve a wide range of pressing problems.
Using stochastic modeling for financial analysis in the mining industry
Presented by Collahuasi Mining Co
Assessing the financial viability of new projects
Presented by the Brazil National Development Bank
Risk assessment of capital projects in the power industry
Presented by PricewaterhouseCoopers
Achieving optimal inventory levels to minimize cost
Presented by Mitsubishi Chemical Company
Risk assessment of food safety imports
Presented by the Shanghai Food and Drug Administration
Probabilistic risk analysis of cross-border oil projects
Presented by Sinopec
Join us next week in London and Frankfurt! Upcoming dates:
April 2013 Academic Enews: Research at Curtin University of Technology Explores Tools for Teaching Probability and Risk
Palisade April 2013 Academic Enews
In This Issue
"The seamless integration of Palisade products into the Excel
development environment is a huge advantage... This in turn
reduces training and system development costs, because risk
departments are not investing in expensive/extensive
proprietary system solutions."
Darren O'Connell, Researcher, Curtin University of Technology
"Application and Benefits of Risk Analysis for Decision Making in the Oil Industry" in Oil & Gas Monitor
Rafael Hartke's column in the April issue of Oil & Gas Monitor covers "Application and Benefits of Risk Analysis for Decision Making in the Oil Industry."
"Contrary to what may seem obvious on the surface, the driving force behind risk analysis is not statistics, simulation or intricate mathematical models – it is actually much simpler than that. To put it in basic terms, risk analysis is the acknowledgement that there is uncertainty over the assumptions of the project. Statistics and simulation are only tools that help model this uncertainty, and only when we recognize uncertainty over the assumptions of a project can we begin to consider appropriate actions and mitigation strategies."
Rafael Hartke is an Oil and Energy Industry Consultant at Palisade Corporation, where he assists in the development and strategy of quantitative risk analysis methods geared towards the energy industry. He also served as a Financial Engineer in Risk Management at Brazilian-based energy corporation, Petrobras, where he created risk models for complex investment projects and assessed project risks for medium and large projects, including Brazilian Pre-Salt giant fields, projects in the Gulf of Mexico, and offshore infrastructure projects. Palisade Corporation is the provider of the world’s leading risk and decision analysis software, @RISK and the DecisionTools Suite.
March 2013 Academic Enews: Rotman School of Management Students Learn to Make Key Financial Decisions Using Monte Carlo Simulation
Palisade March 2013 Academic Enews
In This Issue
"Many leading corporations are now using Monte Carlo simulation in their
business cases. Students who want a leg up with such corporations
should seek out all opportunities to get experience in working with
Monte Carlo simulation."
Professor Asher Drory, Rotman School of Management, University of Toronto
We all know the figure of speech, "A camel is a horse designed by committee." The blog How to Manage a Camel promotes better group thinking around project management, bringing together conflicting opinions.
On January 7th, the Camel blog published "Nine Steps to Embracing Risk Analysis in the Enterprise" by Palisade's Randy Heffernan. This piece looks at some of the key advantages of implementing risk analysis in a holistic manner with an organization. It also gives guidelines for implementing a project risk management strategy within your enterprise.
A brief excerpt: "Increased use of risk analysis in the form of quantitative risk management (QRM) and decision-making under uncertainty (DMUU) is helping organisations to be prepared for unforeseen risk. Simply put, QRM and DMUU mean thinking more quantitatively, with numbers and probabilities. It means recognising that uncertainty exists in nearly every decision, and accounting for it in a quantitative way. One good example of this is the use of Monte Carlo simulation, which is an analytical technique that evaluates and measures the risk associated with any given venture or project. A computerised mathematical process, it allows users to define uncertain variables in their models and see, as a result, a range of possible outcomes and the probability that each will occur."
@RISK (risk analysis software using Monte Carlo simulation) is now a truly cross-platform tool, enabling risk modeling of your Microsoft Project schedules using the same @RISK you use for risk analysis modeling in Microsoft Excel! You can now do your project risk modeling in Excel rather than Microsoft Project, providing a new world of flexibility. A new interface layer reproduces your schedule in Excel, enabling you to use all Excel formulas and @RISK functions. When you make changes to your model in either Project or Excel, those changes are reflected in the other with @RISK’s Sync feature. (Note that all @RISK modeling takes place in Excel, so @RISK functions do not appear in Microsoft Project.) Then simulate your Project schedules in Project itself, using Project's scheduling and calculation engine.
The benefits of using Excel for your Project risk modeling are many. You can easily build risk registers in Excel for your Project model using new “RiskProject” functions. You can integrate your cost and schedule analyses. You can standardize on a single tool – @RISK – to meet the needs of your project managers, cost estimators, finance analysts – everyone who deals with risk and decision making under uncertainty in your company. Plus, a single interface means a shorter learning curve for everybody.
@RISK is part of The DecisionTools Suite -- an integrated set of programs for risk analysis and decision making under uncertainty that runs in Microsoft Excel.
The legacy of apartheid in South Africa has left much of the country without basic services such as housing, water and electricity. The government initiatives in place to tackle the issue do not have enough resource to meet the scale of the need so commercial finance programmes will play a key role in delivering these services. But poor planning without enough information makes it difficult to recoup the costs of a project, thereby making it unattractive to potential commercial financers – in other words, ‘unbankable’.
For example, an engineer might design a high-specification water system. However, the focus on design may make it over-complex and therefore expensive – with the end result that it does not meet the needs of the community, the government or the financing organisation.
Bigen Africa, a consulting company that describes itself as a ‘development activist’, tackles this issue with risk analysis. It uses @RISK as a tool to enable it to identify, manage and mitigate the risk associated with each project and ensure it attracts funding and is successful.
@RISK risk modeling software helps Bigen Africa to understand and demonstrate that it is the number and type of houses that drives the demand for services, where this demand is, what it will be in the future and who will use the services. It forms the basis of engineering / planning, the financial risk analysis model, the revenue model and strategy, affordability analysis and the integration between the services (housing, roads, solid waste, water, sanitation, electricity, etc).
@RISK provides the level of detail that banks require before making a decision on whether to finance a project. At the same time, the methodology benefits from simplicity and is easily understood by the wider audience involved in the project but not necessarily familiar with the specific concept of demand risk.
As every risk manager knows, however good a risk-based model, the validity of the forecasts it makes is dependent upon the quality of the input data. One approach to obtaining assurance that forecasts from Monte Carlo analysis are realistic is to measure the capability of the risk management process that has been used to produce risk models.
The Project Risk Maturity Model (RMM) performs this measurement and has been demonstrated to help produce risk models that result in realistic forecasts (including models using Palisade’s risk analysis software, @RISK).
For example, the UK’s Ministry of Defence (MoD) equipment projects include the development and manufacture of new military equipment for the UK’s Army, Royal Navy and Royal Air Force. Risk is often increased on these large and complex projects by objectives that tend to push the limits of technical feasibility. As a result, the MoD is highly committed to its project risk management process.
However, in 2001, the MoD recognised that too many of its projects ran late and over budget. It traced this to over-optimistic risk analysis forecasts in the early stages, leading to projects passing approval points without adequate scrutiny. This realisation prompted the MoD to invest in the Project RMM. As a result, risk models used for project approvals became more reliable and realistic.
This is useful insight for @RISK users, because it enables them to check that the process used to develop their input data has been good enough to support their model. As a result they can be confident of their predictions – regardless of the industry in which they operate.
For those who want to find out more, further details about the Project Risk Maturity Model and its lead developer, Martin Hopkinson, are in the case study on our website.
In a blog post last October, ‘Mixing business with biofuels’, we looked at how Sark7 uses Palisade’s DecisionTools Suite to build the business case for biofuel projects, with the overall aim of making these more attractive to potential investors.
Energy and Environmental Management magazine picked up on the topic, with the result that Scott Mongeau of Sark7 features on the site discussing the issue.
The premise of Scott’s article (and the Sark7 case study featured on our website) is that in order to attract funding, sustainable energy projects need to take a holistic approach that address a fundamental principle of finance. So, rather than looking at potential profit in isolation, they must balance the highest profit that can be gained for the lowest aggregate risk exposure across integrated implementation, technical, economic and financial aspects.
Achieving this requires intensive computer-based modelling and simulation to enable in-depth decision-making insight, and Scott discusses how the various elements of the DecisionTools Suite are ideal tools with which to do that. The full piece is available to read here: http://www.eaem.co.uk/opinions/mixing-business-biofuels
Scott Mongeau is following up this work with a presentation at this year’s European User Conference. Here he will talk about using the DecisionTools Suite to conduct in-depth analysis that separates the hype from the tangible economic value-driven factors needed to ‘green light’ Smart City initiatives.
EMEA Managing Director of Risk & Decision Analysis
Product innovation has been described as the way out of today’s difficult business environment. However, the rate of success of development projects — in particular white space or disruptive innovation projects — remains too low.
The analysts at SpyroTek believes that a reason for the low success rate of development projects is the erroneous application of analysis methods designed for incremental innovation, such as NPV and DCF, to projects with high levels of uncertainty.
In the presentation, Jose discusses the use of @RISK and Probabilistic Decision Analysis in the management of innovation projects with high levels of uncertainty. Probabilistic decision analysis, when combined with the right management processes like Discovery Driven Planning, is a very effective approach to evaluate and manage the risk and potential of innovation projects.
» Watch "Use of @RISK for Quantifying Uncertainty in Innovation Project Management"
» View related slides from Dr. Briones
Free Webcast this Thursday: “Refining the Business Case for Sustainable Energy Projects Using @RISK and PrecisionTree: A Biofuel Plant Case Study”
The sustainable energy industry sits at the nexus of growth and change: the popular groundswell for ‘green initiatives’, ongoing debates concerning global warming / climate change, fickle government incentives, the quest for renewable and alternative sources, expansion in developing economies, and the rapid emergence of new technologies. Sustainable energy industry sectors such as biofuel, solar, wind power each have unique selling points as well as practical challenges. Across the board, profit margins are uncertain and tight, demanding detailed analysis and complex business cases. Palisade's DecisionTools Suite is an ideal vehicle for conducting the deep risk analysis needed to separate the hype and ‘wishful vibes’ from the real risks and tangible profit cases needed to ‘green light’ sustainability projects.
Sustainable energy’s central competitor and sometimes partner, the petroleum majors, have distinct advantages, having established, streamlined supply chains and being embedded into the global economy. However, traditional petroleum exploration is going to increasingly extreme and risky lengths to locate and exploit new reserves (i.e. Athabasca Oil Sands, deep sea drilling, project development in politically unstable regions). The petroleum majors are dedicated users of the Palisade DecisionTools Suite to make their increasingly complex and risky business cases.
This free live webcast asserts that an energy development ‘risk / reward parity’ level is growing between new petroleum exploration and production and sustainable energy initiatives. The presentation uses a biofuel plant case study as an example of how a profitable business case can be made for a sustainable energy project using techniques commonly applied in petroleum exploration and engineering initiatives. The biofuel industry is expected to multiply its production by a factor of 50 by 2020. The uncertainties of government subsidy, tax credits, and loan guarantees are crucial to meeting biofuel profit margins. Stochastic statistical analysis greatly improves the ability to pinpoint risk and to identify mitigation strategies. The case study uses @RISK to model biofuel project NPV, Evolver to suggest plant optimization strategies, and PrecisionTree to guide strategic decision making. The approaches presented have promise as a due-diligence tool for prospective sustainability entrepreneurs, investors, project managers, and firms.
Scott Mongeau is Lead Consultant and Founder of Biomatica BV (biomatica.com), a niche consultancy specializing in biotechnology industry risk management. Scott has over a decade of experience in biotech, including key positions at Genentech Inc. related to risk management. He currently consults for several biofuel start-up initiatives and completed his thesis on biofuel project risk management. In addition to consulting, Scott is a part-time PhD researcher in the Executive Doctorate Program at Nyenrode Business University in the Netherlands. He holds a Global Executive MBA (OneMBA) and Masters in Financial Management (MFM) from the Erasmus Rotterdam School of Management (RSM). Additionally, he holds a Certificate in Finance from University of California at Berkeley, a Masters in Communication from the University of Texas at Austin, and a Graduate Degree in Applied Information Systems Management from the Royal Melbourne Institute of Technology as a Rotary Ambassadorial Scholar. Having lived and worked in a number of countries, Scott is an American citizen and currently consults and conducts research from his office in Leiden, Netherlands.
» Register now (FREE)
» View archived webcasts
This free live webcast contains instructions and demonstrations for using @RISK risk simulation software to examine net present value economic analyses for a petroleum resource. In this case, the asset is a low pressure gas reservoir. The main applications of @RISK cover in detail the spectrum of petroleum engineering analyses – rock and fluid properties, reservoir volumetrics, material balance, analogy, decline curve, and net present value. Microsoft Excel statistics spreadsheets with @RISK are the primary analysis tools. Basic principles are emphasized with the understanding that fundamentals may be applied to the entire spectrum of reservoir oil and natural gas assets in cases where variability and uncertainty in all relevant parameters are important.
Variability in rock properties are demonstrated by analysis of electric logs, Variability in original gas is place in demonstrated by comparing volumetric analysis and material balance for generalized reservoir (includes water influx and water production). Application of decline curve analysis with uncertainty in decline rate is applied to NPV analysis. A result of reserves determinations and NPV is compared with an alternative investment opportunity.
Dr. Brimhall’s experience covers 50 years in industry and in academia. He was part of the Petroleum Engineering Faculty at Texas A&M University, and maintained a professional practice related to formation evaluations, resource evaluations, log and pressure transient analyses, production operations for oil, natural gas and groundwater, as well as environmental and resource assessments for subsurface operations in energy and groundwater resources. His past project management experience includes business development as well as proper utilization of environment & natural resources.
» Register now (FREE)
» View archived webcasts
Sark7 is a specialist consultancy that aims to bridge the gap between populist enthusiasm surrounding ‘green’ initiatives and the intensive financial risk analysis demanded by capital investors and participants. It uses Palisade’s DecisionTools Suite to develop profitable business cases for sustainable energy projects. In effect, these act as due-diligence tools for prospective sustainability entrepreneurs, investors, project managers, providers and organisations.
Taking a biofuel plant as an example (but stressing that the techniques used are equally applicable to sustainable energy initiatives such as wind or solar energy), Sark7 uses various components of Palisade’s DecisionTools Suite to demonstrate viability. @RISK models the biofuel project’s Net Present Value (NPV), PrecisionTree informs strategic scenario decision-making and Evolver suggests plant optimisation strategies.
The premise is simple: Sark7 believes that environmental experts and enthusiasts need to be realistic about whether their proposal is financially viable if they are going to attract the funds that will make it a reality. Palisade’s risk analysis tools provide the language that is familiar to the financial world, as a result of which the project is more likely to receive funding. Sustainability criteria can therefore be met at the same time as providing investors with a risk-balanced return - so everyone wins.
» Read the full case study
Making decisions for the future is becoming harder and harder because of the ever increasing sources and rate of uncertainty that can impact the final outcome of a project or investment. Several tools have proven instrumental in assisting managers and decision makers tackle this: Time Series Forecasting, Judgmental Forecasting and Simulation.
This free live webcast is going to present these approaches and how they can be combined to improve both tactical and strategic decision making. We will also cover the role of analytics in the organization and how it has evolved over time to give participants strategies to mobilize analytics talent within the firm.
We will discuss these topics as well as present practical risk analysis models and applications using @RISK.
Eric Torkia has practical experience as a consultant and as a coach with organizations implementing technological and strategic change, including Analytics and Enterprise Systems.
» Register now (FREE)
» View archived webcasts
Free Webcast this Thursday: “Project Management Risk Modeling Methods using The DecisionTools Suite”
In the field of Project Management, risk exists in scheduling, costing, contracted risk allocation, maintaining, and delivering. Options and uncertainty play a significant role in the success of project engagements. With so much uncertainty, project managers require sophisticated methods for evaluating risk. This webcast will highlight a few primary applications of The DecisionTools Suite for addressing risk and uncertainty in Project Management.
Rishi Prabhakar is a Consultant and Trainer at Palisade Asia-Pacific, based in the Sydney, Australia. Rishi brings a broad range of experience and expertise to the Palisade team. He has worked in and consulted to the energy industry, telecommunications, scientific research, banking and finance with an emphasis on operational risk and Basel II. Rishi has expert skills in the areas of statistical analysis, simulation, time series forecasting, risk/capital modelling, extreme value theory, survey design and analysis. He holds a BSc Mathematics from the University of Technology, Sydney.
» Register now (FREE)
» View archived webcasts
Palisade Risk Conference in Amsterdam, March 29, 2011
An energy development ‘risk / reward parity’ level is growing between new petroleum exploration and sustainable energy initiatives. This case uses a biofuel plant case study as an example of how a profitable business case can be made for a sustainable energy project using techniques commonly applied in petroleum exploration and engineering initiatives. The toolkit includes risk analysis using Monte Carlo simulation, sensitivity analysis, optimization, correlation, econometrics, decision trees, and real options.
The biofuel industry is expected to multiply its production by a factor of 50 by 2020. The uncertainties of government subsidy, tax credits, and loan guarantees are crucial to meeting biofuel profit margins. Stochastic analysis greatly improves the ability to pinpoint risk and to identify mitigation strategies. The case study uses @RISK to model biofuel project NPV, Evolver to suggest plant optimisation strategies, and PrecisionTree to guide strategic decision making. All of these software tools are part of the DecisionTools Suite.
The approaches presented have promise as a due-diligence tool for prospective sustainability entrepreneurs, investors, project managers, and firms.
» Read the full presentation
Free Webcast This Thursday, July 22nd - 11:00am - Noon ET: “Intuitive Project Management Techniques for @RISK for Project”
This free live webcast will present some simple, intuitive techniques that present a realistic view of projects using MS Project and Palisade tools such as @RISK for Project. The focus will be to change the way project managers and stakeholders think about projects and explain why the new point of view is required for a project to increase its probability of success.
» Register now (FREE)
» View archived webcasts
experience, and great hospitality.” - Michael Brand, Captum Capital
Over 100 delegates attended the 2011 Palisade Risk Conference at the historic West Indische Huise in Amsterdam in March. Over the course of the two day conference, industry experts presented a selection of real-world case studies about innovative and interesting approaches to risk and decision analysis. This event included the ever-popular workshops and training given by Palisade consultants, as well as a sneak peek at what is in the pipeline of new software from Palisade.
We invite you to join us next week in Mexico City, June 1 -2. Delegates from Consultoría en Decisiones®, PEMEX, IMP and experts from other companies and universities will present case studies and discuss Monte Carlo techniques and risk in all its forms.
Palisade Risk Conferences showcase the latest methodologies for risk analysis and decision making under uncertainty. It is an opportunity to learn applications such as product pricing, production forecasting, cost estimation, risk quantification, portfolio risk management, environmental liability estimation, project management, and much more, while utilizing the user-friendly risk simulation software of @RISK and the DecisionTools Suite. These events are attended by professionals from industries as diverse as oil and gas, pharmaceuticals, insurance, healthcare, engineering, and banking.
Be sure to join us for a stimulating and thought provoking experience at one of our remaining 2011 Risk Conferences in Rio de Janeiro, Sydney or Las Vegas!
» 2011 Rio de Janeiro Conference
» 2011 Sydney Conference
» 2011 Las Vegas Conference