Retirement Planning

The Greenup Locks and Dam system is critical to a number of companies in the coal, petroleum, iron and steel companies that transport their materials along the Ohio River. In basic terms, a locks and dam system traps and contains water in a mechanism that transports large vessels past an area where the river is unnavigable. More than 62 million tons of materials pass through the Greenup Locks and Dam annually, with that number expected to increase to more than 113 million tons by 2030.

In 2011, a study utilizing Monte Carlo simulation and @RISK was commissioned to analyze the internal stability of the system’s middle wall, which forms the water barrier separating two lock chambers. The study set out to answer three specific questions:

• What is the probability of unsatisfactory performance throughout the planning horizon, through the year 2070?
• When is rehabilitation work anticipated to be necessary?
• What should be done to insure continued safe operation of the locks?

The results from the study allowed the owners of Greenup Locks and Dam to accurately forecast when certain monoliths would need repair, based on their current level of stability. Having that critical insight ensured the creation of a repair timetable that would still allow the system to remain open, and keep the flow of materials—and the economies of critical industries—moving.

» Case Study: Stability of the Ohio River Locks and Dam Determined Utilizing @RISK

PricewaterhouseCoopers put together a beautiful video about the Corridor Budgeting program, developed by Tobias Flath and Michael Hofmann. Corridor Budgeting is a methodology combining planning, business management, and risk management in order to prepare for a range of possible outcomes, and thereby generate a more realistic picture of the future.

Palisade's DecisionTools Suite is an integral part of this program. As explained in the video: "We identify the factors underlying variables and ranges that impact on financial results. The Corridor is regularly analyzed and validated, giving visibility into any gaps or delta between target bandwidths and actual figures. Specially designed software then aggregates these bandwidths and event risks to paint an accurate picture of possible scenarios."

The video depicts modeling with Monte Carlo simulation: "A simulation models the total risk exposure. The width of the curve indicates the level of uncertainty. The height shows the likelihood that an event will occur, giving senior executives insights into the full spectrum of future possibilities, and making it easier to make the right decisions."

The video concludes, "Corridor Budgeting allows businesses to forecast more realistically, and prepare more effectively for what's to come, equipping them to face the future, however it turns out." It's a simple and beautiful explanation of how risk and decision analysis are a central part of business decisions today.

See PwC's Corridor Budgeting video here:

Join us this Thursday, January 17, 2012, for a free live webcast entitled, "Portfolio Management using @RISK " to be presented by Matthew H. Rosenberg.

This free live webcast is intended to show the benefits of using Monte Carlo simulation in the processes of portfolio construction, and portfolio management for individuals, families and institutional investors. Topics will include a general overview of the portfolio management processes, as well as specific examples showing the use of @RISK for risk management within these processes.

Mr. Rosenberg is Managing Partner for RoseCap Investment Advisors, LLC, a private investment management and financial planning firm in Grand Junction, CO.  Among other things, his responsibilities include portfolio management, formulating investment strategy, and development of financial models for use by the firm. Throughout his career Mr. Rosenberg has developed financial models for numerous large and small companies across multiple asset classes/sectors, investment vehicles, and asset types.

Prior to founding RoseCap, Mr. Rosenberg was Managing Director with Jackson Oats Shaw Corporate Real Estate, a privately held real estate firm in Atlanta, GA. Mr. Rosenberg also previously served as Vice President/AE with General Electric ‘s Commercial Finance Division. He started his career in investment banking, underwriting and syndicating leveraged loans and high yield bonds for Wachovia Securities in Charlotte, NC.

Mr. Rosenberg received his Masters degree in Accounting and Bachelor of Business Administration from The University of Texas, at Austin, where he was also a member of the 2002 National Championship baseball team. He enjoys reading and competing in numerous sports, and also serves as a lecturer of finance, investments, and accounting for Colorado Mesa University, in Grand Junction, CO.

» Register now (FREE)
» View archived webcasts

Join us this Thursday, January 10, 2012, for a free live webcast entitled, "Use of @RISK in Food Safety Risk Assessment " to be presented by Charles Yoe.

The Food Safety Modernization Act is the most sweeping reform of FDA’s food safety authority in more than 70 years. It strengthens and increases the role of risk analysis in protecting consumers and promoting public health. In this free live webcast, Prof. Charles Yoe of Notre Dame of Maryland University will use the FDA/ Center for Food Safety and Applied Nutrition’s report “Quantitative Risk Assessment on the Public Health Impact of Pathogenic Vibrio parahaemolyticus In Raw Oysters” in a demonstration and discussion of the use of @RISK in food safety risk assessment.

Charles Yoe is a professor of economics at Notre Dame of Maryland University and an independent risk analysis consultant and trainer. Working extensively for U.S. and other government agencies as a consultant and risk analyst, his wide range of risk experience includes international trade, food safety, natural disasters, public works, homeland security, ecosystem restoration, resource development, navigation, planning, and water resources. As a consultant to private industry his work includes a discrete but wide variety of concerns. He has trained professionals from over 100 countries in risk analysis and has conducted customized risk training programs for government agencies and private industry in over two dozen nations.

» Register now (FREE)
» View archived webcasts

Like the inner workings of an intricate timepiece, major projects are made up of a number of parts—often moving in different directions—that must all work in concert to keep accurate time. The functioning interconnectivity of the smaller projects is greatly impacted by an organization’s ability to accurately forecast the risk, both major and detailed.  For management consulting firm Value Management Strategies (VMS),  Monte Carlo simulation has proven to be an effective method of risk management for many multi-level projects.

Value Management Strategies, Inc., based in Escondido, Ca. is a management consulting firm specializing in value analysis, value engineering and risk management for organizations in both the public and private sectors. VMS clients include state and federal government agencies, private engineering and architectural firms and local and international manufacturing firms.

Many of VMS’ clients are looking to deliver projects, implement processes or produce innovative products in specific verticals. To successfully complete these projects, they turn to VMS to analyze the seemingly never-ending maze of uncertainty and risk that exists in various projects and to develop risk response strategies and action plans that maximize opportunities and minimize threats. In this capacity, the VMS’ utilization of Monte Carlo simulation through @RISK helps to support the decision-making process, as well as offer a more granular understanding of the nature of uncertainties being characterized. Clarity of the likelihood and exposures of risks can help to minimize delays and maximize efficient deployment of capital resources.

We’re excited that @RISK is able to help VMS to keep its clients “moving parts” moving in the right direction.  Time is money…tick-tock, tick-tock.

» Read more: VMS Utilizes @RISK to Offer Clients a Roadmap to Managing Risk on Projects and Programs

The July 14th issue of E-Commerce Times features an article by Palisade's Randy Heffernan about the importance of understanding risk factors in the technology sector, and planning strategies accordingly.

"Tech mainstays and startups alike now require a clearer forecast of a project's probability of success or failure," writes Heffernan. "Clearly, the margin or error has drastically shrunk, and organizations are paying greater attention to analyzing the risks associated with each project, investment and acquisition."

Heffernan gives recommendations about identifying and communicating current external and internal risk factors, and outlines how Monte Carlo simulation and computing risk can help.  

» "Knowledge Is Power: Embracing Risk Analysis," in E-Commerce Times

The June Baseline magazine features an article by Stephen Johnson, chief financial officer of Arc of Yates, explaining how the nonprofit uses @RISK and Monte Carlo simulation to account for potential shortfalls in annual budget planning.

Founded in 1975, Arc of Yates is a nonprofit organization for people with developmental disabilities. Arc of Yates provides a wide range of community-based services, including service coordination, residential living, clinical services, employment opportunities, and industrial and educational development throughout Yates County in upstate New York.

Johnson outlines how Arc of Yates used @RISK to develop  effective strategic financial contingency plans and communicate challenges to board members and other stakeholders. Johnson writes, "We also were able to quantify the magnitude and probability of risks in our funding streams that could affect our financial planning. And we could update risks monthly or even weekly to keep up with our fast-paced environment. As a result, we were able to gain crucial insights that enabled us to develop our three-year strategic financial plan."

He continues: "Using @RISK has empowered our organization to foresee potential obstacles and shortfalls in our budgetary forecast. By understanding risks, we are able to both quantify and focus on other activities that may generate replacement revenue and produce contingency plans for cost reduction."

» Read the article in Baseline magazine

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.

» Case Study: Bigen Africa uses @RISK to encourage funding for basic community services in South Africa

Recently Software Advice posted a guest blog on supply chain planning by Chad Smith and Carol Ptak  of the Demand Driven Institute.  Their agenda is to improve the efficiency and agility of supply chains by changing the way manufacturers conceive of Material Requirements Planning.  They believe that conventional ERP software is too generic to account for the complexities of managing materials and scheduling for globally distributed manufacturing operations, and they're looking for a shift in paradigm from "push and promote" to "position and pull," in which at any given moment a multi-layer planning procedure brings demand into full alignment with material requirements.

For Smith and Ptak, the current manufacturing environment is characterized by volatility and variability, and I'd like to add to their excellent discussion the point that  there is a long-established technique for mitigating the risks posed by these forces: Monte Carlo simulation.  Predictive modeling of the risks as they occur in the manufacturing-supply cycle would be a straightforward way to aggress volatility and variability. It would be roughly parallel to the risk analyses we've been applying to value chains for a number of years now.  And, as my customers working in Six Sigma, Design for Six Sigma, and other process improvement efforts have discovered, good tools for doing Monte Carlo in Excel are not hard to come by.  They're now adopting Monte Carlo simulation on a much wider scale, and there's no doubt that this technique could also smooth out the rough places in any demand-driven planning process.

You've probably noticed that as Six Sigma and other lean management strategies have become more widely adopted, the jargon their practitioners use has also multiplied.  Take, for instance, the acronyms JIT, QRM, SIPOC--or even the names of the practices themselves, as in DFSS. So when a collogue contacted me to give me the link to a recent blog he had posted, I was pleased to follow the link and find that what he has produced is a plain English primer and glossary for Six Sigma.  It's a kind of Six Sigma for Dummies.

It's a very worthwhile effort--well organized, clearly written, and it reduces the sometimes gnarly ideas behind lean methods to their simplest formulations. Best of all, here, laid out in tables according to their primary purpose, are all the confusingly similar acronyms we use. QFD, QTQ, DMAIC, DMADV--if you can spell it, he can name it and give you a tight working definition of it.

The author of this useful work, is Stephen Jannise. He heads up Enterprise Resource Planning--ERP, right?-- for Software Advice, a firm that helps other companies select software best suited for their needs. This means he's a friend not only to us at Palisade Corporation but to a number of other developers who produce software, and sometimes jargon, for the Six Sigma market. To read the full article, visit: A Plain English Guide to Modern Manufacturing Methods.