Schedules Announced for Risk Conferences in Copenhagen, Amsterdam, and Dubai

Presenters include Deloitte Risk Services,
Royal HaskoningDHV, Lego Group, DSM,
Saudi Aramco, Kuwait Petroleum

In their ninth year, the Palisade Risk Conferences have become “must attend” events for quantitative risk and decision analysis professionals. The schedules are set for Copenhagen, Amsterdam, and Dubai. Each day promises a full slate of intensive software training by Palisade trainers, in-depth looks at risk modelling from industry experts, networking opportunties, and the chance to review your own model with Palisade consultants.

Copenhagen, 31st March
Amsterdam, 3rd April
Dubai, 8th April

Other 2014 dates include Bogotá, Madrid, Perth, Brisbane, London, Frankfurt, Johannesburg, and Melbourne, with more dates to be announced soon.


Free Webcast this Friday: The Cure for the Flaw of Averages, Using Palisade DecisionTools Suite to Visualize Risk and Uncertainty

Presented by: Andrew Pulvermacher, Nighthawk Intelligence, LLC
When: Friday, March 21, 2014 at 11:00 am EDT

NightHawk Logo » REGISTER NOW for FREE

The Cure for the Flaw of Averages, Using Palisade DecisionTools Suite to Visualize Risk and Uncertainty will be presented by Andrew Pulvermacher of Nighthawk Intelligence, LLC. On Friday, March 21, 2014 at 11:00 am EDT, Mr. Pulvermacher will take you on a 50 minute journey through historical risk philosophies to today's industrial race to harness the benefits of risk based decision making. This session will cover the finer points of the Flaw of Averages and Probability Managements' cure of the Flaw of Averages. The presentation will wrap up with a demonstration of the immediate benefits that Palisade's DecisionTools Suite provides to the organizational decision making process through the illumination of risk and the interactive risk modeling.

Andrew Pulvermacher is the Founder and Chief Probability Officer at NightHawk Intelligence, LLC. NHI provides risk analysis services to their clients to develop high quality strategies through a better understanding of value in the context of risks and uncertainties. NHI works to transfer focus from descriptive data analytics to predictive analytics – improving insight and driving risk-informed decision making throughout the organization.

With over a decade of experience in analytics with companies such as Amazon, Best Buy, Merrill Lynch, and CUNA Mutual Group, Drew is focused on improving enterprise value through the use of Operation Research methodologies for enhancing productivity, efficiency, and profitability. With specific expertise in probability management, portfolio theory, and continuous improvement, Drew advances complex business processes and delivers innovative business development strategies for Fortune 20 corporations as well as small, community based businesses.

Click here to view his presentation from the 2013 Palisade Risk Conference in Las Vegas.

Learn more about last year's Palisade Risk Conference in Las Vegas here:
Risk Professionals Gather in Vegas for Palisade’s 2013 Risk Conference


Free Webcast this Thursday: "Using @RISK in Evaluating Full (late stage) Compound Development in the Pharmaceutical Industry"

Register now for a free webcast to be presented by Venkat Raman, A.C.A. MBA, Managing Principal of VR Advisors LLC.

"Using @RISK in Evaluating Full (late stage) Compound Development in the Pharmaceutical Industry" will discuss the financial evaluation of late stage development of compound in the pharmaceutical industry, but the rational, methodology and analysis discussed here has universal applicability to any multi-stage product development activities across industries. We will not discuss the real options analysis here, as this is not the intended objective of this presentation. But the webcast will:

  • Present the case - a miniature model of a full-blown real world case
  • Discuss the two financial models – the deterministic and the probabilistic models
  • Frame the case
  • Model the case
  • Discuss insights and results

JOIN US THIS THURSDAY - January 30, 2014 - 11:00am ESTRegister Now
"Using @RISK in Evaluating Full (late stage)
Compound Development in the Pharmaceutical Industry

Venkat Raman is a management consultant with over 25 years of extensive global experience in strategy and corporate finance across large and small enterprises. He began his career with the Big 6 and over the years has held leadership positions in the management consulting, insurance, technology services, and entrepreneurial ventures. Venkat brings his collective experience, wisdom, and judgment to every engagement. Venkat is an MBA from Indiana University, a qualified CPA, and a Chartered Accountant. Extended bio here.


Custom Solutions: Using @RISK for Oil Field Development Decisions

Oil companies need to assess new fields or prospects where very little hard data exists. Based on seismic data, analysts can estimate the probability distribution of the reserve size. With little actual data available, companies still must quantify and optimize the Net Present Value (NPV) of this asset. The number of wells to drill, the size of the processing facility, and the plateau rate of the field must all be optimized. The following example is a custom application written by Palisade Custom Development using @RISK’s XDK in Excel.

It is a custom application written by Palisade Custom Development using @RISK’s XDK in Excel.  - See more at:
It is a custom application written by Palisade Custom Development using @RISK’s XDK in Excel.  - See more at:
It is a custom application written by Palisade Custom Development using @RISK’s XDK in Excel.  - See more at:

Oil Field Development Screenshots

This analysis can be simplified by representing the production profile by three phases:

  1. Build up: The period when wells are drilled to gain enough production to fill the facilities.
  2. Plateau: After reaching the desired production rate (plateau), the period when production is continued at that rate as long as the reservoir pressure is constant and until a certain fraction of the reserves is produced. In the early stages of development, this fraction can only be estimated, and production above a certain rate influences plateau duration.
  3. Decline: The period when production rates, P, decline by the same proportion in each time step, leading to an exponential function: P(t) = P(0) exp(-c*t), where t is the time since the plateau phase began and c is some constant.

With only estimates for the total Stock Tank Oil Initially In Place (STOIIP = reserve size) and percent recovery amounts, the objective is to select a production rate, a facility size, and well numbers to maximize some financial measure. In this example, the measure used is the P10 of the NPV distribution. In other words, the oil company wants to optimize an NPV value which they are 90% confident of achieving or exceeding.

As described, the problem is neither trivial nor overly complex. A high plateau rate doesn’t lose any reserves, but it does increase costs with extra wells and larger facilities. However, facility costs per unit decrease with a larger throughput, so choosing the largest allowed rate and selecting a facility and number of wells to match might be appropriate.

This is just one example of how Palisade can provide personalized risk solutions for your business needs. We offer custom software development services as well as software developer kits to create your own applications integrating @RISK, RISKOptimizer, and other Palisade technology. We can also help automate Palisade software using VBA in Microsoft Excel or Project.

» Learn more about Palisade's Custom Development

You may also be interested in the following:

Free Webcast this Thursday: "Exploring Oil & Gas Applications of @RISK and the DecisionTools Suite" - See more at:

Cost Risk Analysis Example Movie: Palisade's Custom Development Team uses @RISK's XDK for this custom application



Minimising Financial Risk in Infrastructure PPP Projects

Recent practice in Private Public Partnership (PPP) transport projects has seen the participating governments and public agencies gradually moving from demand-based contracts to availability-based ones. These latter agreements see the public partner bear the financial implications of actual demand being either over or under that forecast, while risks associated with construction and service availability are transferred to the private partner fulfilling the contract.

Civil engineering consultancy Solvĕre has developed a methodology to enable the partners involved in PPP infrastructure projects to minimise their financial risks by accounting for each element of the project that can affect its financial status and therefore profitability. To do this Solvĕre uses @RISK to estimate the performance and to forecast the potential deductions in the payment mechanism for each project. (How much and at what intervals the government pays the contractor is determined by the ‘payment mechanism’. This relates to the quality of the service provided by the private partner whose revenue is therefore dependent on its performance score and the incentive or penalty rules of the contract).

The key objective is to quantify, for various levels of probability, the economic impact of the performance criteria not being met. Solvĕre’s @RISK model takes into account the contract specifications and the resources committed by the operator to complete the project and undertake maintenance of the infrastructure, combining them in order to evaluate the expected level of performance on this base scenario.

Solvĕre believes that the highly-complex nature of PPP contracts, coupled with payment mechanisms being subject to a significant degree of uncertainty, requires in-depth analysis in terms of probability and risk. Using @RISK, it has developed a way to do this, thereby enabling informed decisions regarding the feasibility of the project and a proper risk allocation between the partners.

» Read more about Solvĕre's use of @RISK



Radio App gets Risk Analysis Solutions from Palisade

How will a new technology or venture fare in an unestablished  or unclear market? Palisade’s @RISK software can help answer that question, and did so for the new mobile app called Omny by 121Cast, which allows users to manage their online listening of internet radio and other audio services for total customization.

The app, a venture under the stewardship of the Australian venture capital firm Adventure Capital, was used as an study example by researchers Dr Clint Steele and Kourosh Dini of Australia’s Swinburne University of Technology , and Darcy Naunton of Adventure Capital to test @RISK’s capability of resolving business model uncertainties.

Some of the unknowns of the app’s business plan included market size, speed of adoption, resources needed to develop the application and related services for market segments, optimum pricing, effectiveness of promotions, and size of the organic market. Identifying the sources of potential randomness was just the start. The model needs to be set up in such a way that when random fluctuations in the inputs occur, they have the correct effect upon the outputs. Unfortunately, many business plans and their financial models are not usually put together in such a way. Often, fixed numbers that “seem right” to the entrepreneur are allocated to each cell within a spreadsheet. The model will balance, but if one changes a cell value for, say, the market size, then the other cells are unlike to change much. If they do, then it will unlikely be in a logical manner. An increase in sales, for example, may not cause a corresponding increase in operations costs, asset purchased, or administration costs.

Creating accurate models for these relationships was the first step. This was easy for the typical issues. The relationship between market size and the cost of customer support is a good example. However, other relationships are trickier to model. For instance, how does an increase in sales affect the position of an app in an app store listing? To figure this out, the team used @RISK to create a model with distributions specified by percentiles. @RISK also helped the entrepreneurs use ‘coevolution’ to design a business plan--coevolution occurs when a problem becomes clearer after a person engages in solving it. “Because you have to create a model that allows for the flow of variances, a lot more thought needs to go into how the proposed business will run,” says Darcy Naunton, the capital venture manager on the project. “I now know a lot more about this business than I ever would have otherwise.”

As the case study explains, new ventures will always have unknowns. “It is what entrepreneurs do – deal with uncertainty. However, @RISK can be used to eliminate uncertainty about the sensitivity of the business model to expected randomness. This is different from removing uncertainty, or randomness, entirely – that’s impossible. But by mitigating some of the guesswork around the sensitivity of a business plan to various external fluctuations, an entrepreneur can now focus uncertainty management skills on a smaller area and apply those skills more intensely.”

Read the original case study here.

See also: Incorporating Project Risk Management Strategies in your Enterprise


2013 Palisade Risk Conference Series - Three stops coming up in November: Paris, Milan and Las Vegas

We have three cities left to go in our 2013 Risk Conference Series - Paris, Milan and Las Vegas! We have spanned the globe and stopped in 11 cities in the past 7 months. Last week at our Moscow Risk Conference we were able to present our latest versions of @RISK and the DecisionTools Suite programs which have been completely translated into Russian. According to Craig Ferri, Palisade's EMEA & India Director, "The speakers were of very high standard, and attendees were excited about the software and looking forward to being able to download the presentations. It was a great success and we look forward to new partnerships in Russia."

2013 Palisade Risk ConferenceThe Moscow conference, as well as the others in the 2013 Palisade Risk Conference Series, are beneficial for both novice and experienced users of our risk and decision analysis products. If you are a new user and unfamiliar with @RISK and the DecisionTools Suite, we invite you to see why 93% of the Global Fortune 100 are using Palisade products to make better decisions. If you are an existing user, this is your opportunity to network and be exposed to some useful hints and tips to get more out of our software.

In general, Palisade software enables clients to be more confident in the decisions that they make, in a wide variety of industries and applications. Clients use Palisade software in industries ranging from oil & gas, mining, and finance, through to utilities, insurance, and banking, along with government, manufacturing, and logistics. So, if one of your responsibilities is to create or base decisions on a credit risk analysis, financial risk analysis, or maybe a pharmaceutical risk assessment, or if you are looking to improve your project risk management strategies, we invite you to join us in one of the following cities to learn how other people utilize our software.

Palisade Conférence régionale sur le risque
Paris - 12 novembre
Voir le programme - Inscription

Palisade Regional Risk Conference Milan
Milan - November 14th
View Schedule - Register Now

Palisade Regional Risk Conference Las Vegas
Las Vegas - November 20th-21st *
View Schedule - Register Now

* 2-day event with 4 tracks for each day.


Previous 2013 Palisade Risk Conferences

An advantage of our software being available in 8 different languages is the Palisade's ability to provide risk analysis services throughout the world. The following is a list of the cities Palisade Risk Conferences were held this year. If you missed us in a city near you, be sure to look for us in 2014!


See also: Palisade Global Risk Conferences Advance Best Practices in Risk Management


Palisade's Risk Analysis Software Ensures Shanghai Food Supply is Safer

Palisade’s technology has been busy overseas, helping to keep millions of people safer from food and pollutant contamination; The Shanghai Food and Drug Administration monitors the safety of the production, circulation and consumption of food, drugs, health supplements and cosmetics for Shanghai, a city with over 20 million residents. Since 2007, the Shanghai FDA has been using Palisade’s @RISK software for risk and decision analysis to monitor contaminants and assess food safety risk in food service. Tian Mingsheng, Inspector and Chief Physician of the Shanghai FDA, explained in a recent case study how @RISK has benefited Shanghai’s food supply.

@RISK has helped the Shanghai FDA carry out exposure assessments of chemical and biological contaminates, as well as analyzing surveys of data on residents’ expenditure on various foods. Overall, the software “has played an indispensable role in the efficient development of food safety monitoring at the Administration, helping guarantee the safety of the food Shanghai residents consume,” writes Mighsheng.

Prior to using @RISK, the Shanghai the FDA relied on mean averages to calculate average risk exposure, which didn’t allow for accurate, quantitative exposure assessments for sensitive groups or highly exposed populations, leaving no way to describe the formation and development trends behind a risk. It also hampered the formulation of effective countermeasures to protect these sensitive groups. Thus, there was an urgent need for effective risk evaluation and assessment software.

In 2007 the Shanghai FDA decided to try Palisade’s @RISK software to tackle these issues. The results were excellent: a nitrite contamination risk assessment for cooked meats, cadmium contamination exposure assessments, a vomitoxin risk assessment for wheat products and a risk assessment for bacillus cereus contamination in rice, completely overcoming previous setbacks. The Administration also carried out analyses on vibrio parahaemolyticus contamination in seafood and listeria contamination in refrigerated ready-to-eat meals with excellent results to make effective, needed risk management recommendations.

Mingsheng says, “with @RISK, the Shanghai FDA has been able to eliminate its old-fashioned, backward risk assessment and evaluation methods, and find patterns even at the micro level, finding, for example, patterns and risks in chemical and biological contamination, with important implications for maintaining food safety for Shanghai residents.”  

Read the full case study here.


NASA & Deloitte develop Monte Carlo Simulation tools for space projects, and apply them to Oil & Gas

What do NASA, Deloitte and the oil and gas industry have in common? As of this year, a great deal. In June, the NASA Johnson Space Center and the Deloitte Center for Energy Solutions announced a strategic alliance to offer a wide array of risk management services for the oil and gas sector. Under the agreement, Deloitte will utilize NASA as a subcontractor for oil and gas risk management projects.

From the outside looking in, the alliance may seem a bit curious. Deloitte has a long history of assessing risk for enterprise, but how, exactly, does space exploration synch up with oil and gas? The clearest and most relevant commonality between the two is low-probability, high-impact risk events (also referred to as “black swan” events). An inaccurate risk forecast may result in delays and loss of capital for most industries. Not to downplay these losses, but they are material in nature. The same can’t be said for space exploration and energy, where miscalculations of risk can be, quite literally, disastrous. Given that backdrop, NASA has a lot to offer in terms of methods for assessing risk factors and the probability that they may occur.

Monte Carlo simulation (MCS) is a computerized mathematical technique utilized by both oil and gas and space exploration to not only determine potential risk factors, but project the probability that such risks may actually occur. For example, NASA utilized MCS to run a series of simulations in the development of Orion, the space vehicle that will replace the Space Shuttle, which uncovered general fight dynamics problems. The MCS capabilities of Palisade's @RISK have been invaluable in this field.

The utilization of Monte Carlo simulation has also played a prominent role in the oil and gas industry. Blade Energy in Frisco, TX. developed a statistical analysis tool using MCS from @RISK called “Under Balanced Drilling Productivity Improvement Estimator” to  estimate productivity improvements for underbalanced drilling. @RISK's MCS was also utilized by the Brazilian Oil company, Petrobras to develop risk projections related to the production of oil and natural gas, demand for derivatives, prices of various commodities, start dates for various operations and changes in company capital and operating expenditures.

The alliance between NASA and Deloitte is expected to assist oil and gas companies to address low-probability, high-impact events that may occur during field activities such as deep-water drilling, undersea production, and pipeline operations. Deloitte will also offer examinations of the “risk culture” that exists among an organization’s employers and contractors to determine the likelihood of risk in work environments and processes.

See related:

Petrobras Uses @RISK for E&P Analysis

"Application and Benefits of Risk Analysis for Decision Making in the Oil Industry" in Oil & Gas Monitor


Indian Media covers Palisade Case Study

Palisade was proud to recently be involved in a successful case study by L&T Institute of Project Management in India, which we covered in this blog previously.  With the help of Palisade's @RISK software, the Institute was able to help engineering outsourcing firms pinpoint risks that might hamper project success.

Other media outlets took notice.  APN News, an Indian online newsource, covered the project, as did the Telegraph, the largest circulated English daily in Eastern India.  The India Infoline news service, part of the IIFL Group, (a leading financial services company in India) also covered the story. Analytics India Magazine, a web-based publication which serves the needs of analytics professionals in India, covered the case study in full.  L&T's work was also reported on in Money Life, an Indian online webzine covering finance and economics.

The L&T Institute's cutting edge work on risk analysis as it relates to the engineering outsourcing industry has clearly made an impression on those media outlets covering the Indian business and financial world. This doesn't come as a surprise to those of us at Palisade, who understand the importance of risk management.

Dr. Chakradhar Iyyunni, Deputy General Manager and Faculty at the L&T Institute of Project Management pointed out  that "as the Indian engineering outsourcing industry matures, new service offerings emerge and the cost pressures and virtualisation of work increases, we need to develop more customised and scientific approaches to project management and delivery in order to enhance the competitiveness of engineering services organisations in India."

Project risk management analysis using Monte Carlo simulation promises to allow for rapidly emerging economies, like India's, to hone their project management strategies to better compete in the global economy.

Read the Case Study: Larsen & Toubro Institute of Project Management Uses @RISK to Develop Project Delivery Schedule Identification Methodology for Engineering Outsourcing Assignments

See also: Project Risk Management Strategies Help Indian Engineering Outsourcing Firms


Project Risk Management Strategies Help Indian Engineering Outsourcing Firms

India has become a key provider of outsourced engineering serices for companies around the world. Larsen & Toubro Limited (L&T) is a major engineering and manufacturing company in the Indian private sector. The L&T Institute of Project Management conducts education and research in project management, and used @RISK  to help engineering outsourcing firms to pinpoint risks that might impede project success.

While the Indian engineering outsourcing industry has proven itself in the global playing field, the complexity of software applications has grown along with customer expectations--greatly increasing the type of risks that could significantly impact the growth and reputation of the engineering outsourcing industry. These risks include service provider's inability  to use the latest technologies due to proprietary reasons or other companies having an unseen competitive advantage.

Cultural mismatches or lack of synergy between expectations of sales and delivery teams can also lead to uncertainty, as can personal interactions and processes, organisational structures of service providers and customers, trust between teams, continuous on-boarding and attrition of personnel, etc.. Furthermore, gaps in technical understanding and alignment of project objectives across outsourcing and customer teams also add to uncertainty.

All of these factors can impact project scope and delivery schedules that can greatly impact customer satisfaction. Thus, the L&T Institue of Project Management conducted a study using @RISK to find a methodology that would allow these companies to best manage these risks.

“We chose @RISK for its ease of use and compatibility with Microsoft Excel,” said Dr Chakradhar Iyyunni, Deputy General Manager and Faculty at the L&T Institute of Project Management. “@RISK imports all the analysis into Excel, which means that we can use all the formulae in the software alongside all the @RISK features – a powerful combination for statistical analysis.”

Using a three-point estimation (optimistic, most likely and pessimistic), the team was able to construct probability distributions in @RISK to represent the uncertainty.

The analysis showed that at a 90% confidence level, an engineering project team could complete the work in 887 man-hours as if the project was being undertaken for the first time. For a 95% confidence level, the man-hours required would be 902 hours. This estimate could be used for repeat projects. 107 of these 902 hours could be used for contingency and a partial use of these hours would likely be acceptable to the client at the time of pre-project approval for billing. However, for a 99% confidence level, the team would require 925 hours to complete the project including 130 hours for contingency and a partial use of these hours would be acceptable to the client (pre-project approval) for billing as a trade-off to adhering to a stricter schedule.

This study concluded that this kind of three-point estimation using Monte Carlo simulation was a better way of creating robust project delivery schedules as opposed to a detailed risk analysis exercise, especially for short duration projects that are the norm in the engineering outsourcing industry.

Read the case study: Larsen & Toubro Institute of Project Management Uses @RISK to Develop Project Delivery Schedule Identification Methodology for Engineering Outsourcing Assignments

See also: The Economics of Supply Chain Risk Management using @RISK



Risk UK newsletter features Halcrow's use of @RISK for flood mitigation

The top story of this week's Risk UK newsletter is Halcrow's use of Palisade @RISK risk analysis software, for flood mitigation.

Severe flooding due to heavy rainfall in the UK continues to be a real threat. Halcrow looks at mitigating the consequences by determining the risk faced by critical assets such as water treatment works and pumping stations and weighing these up against the cost of appropriate preventative measures. The process is subject to a great deal of uncertainty, which Halcrow quantifies using @RISK. This ensures that informed decisions are made on the best action to be taken.

“Serious flooding having a major impact on water services is a very real possibility in some areas in the UK – and this has been demonstrated in recent years,” explains Alec Yeowell, asset management engineer at Halcrow.  “We set out to understand what it was realistic to mitigate against and achieve in terms of the costs and benefits of improving the current levels of resilience.  The nature of the task means that each stage of the calculation is subject to uncertainty.  @RISK, which is flexible and robust, allows us to measure each eventuality and present it visually so that the benefits of each path are clear to everyone and an informed decision can be taken.”

» Risk UK news

More about Halcrow's use of @RISK:  Determining the Level of Flood Resilience Required for UK Water Assets, using Risk Analysis


Determining the Level of Flood Resilience Required for UK Water Assets, using Risk Analysis

As the UK continues to suffer from unseasonal weather patterns, serious flooding is a very real possibility. This can have a severe impact on water assets and services.

Halcrow, a CH2M HILL company, has developed a programme to mitigate the consequences of severe flooding in the UK. It determines the risk faced by critical assets such as water treatment works and pumping stations and weighs it up against the cost of appropriate preventative measures. @RISK is used to quantify the uncertainties in this process.

Halcrow first identifies the likelihood that a site will be subject to fluvial flooding and quantifies the vulnerability and consequence of failure for each asset. Recommendations to improve flood resilience may include adaptive solutions, such as designing structures to reduce the consequences of flooding by facilitating recovery from it. Alternatively, resistance, which aims to prevent flooding in the first place, might be more appropriate for some sites.

For example, rectifying the consequences of a flooded water treatment plant can be very expensive. The physical damage to pumps and equipment needs to be repaired, and there are additional costs that may be incurred, such as bottled water supply while the plant is out of action, and customer compensation for lack of service. Working out the costs of these consequences will help to determine the right solution for the individual site. However, it is difficult to quantify the exact costs so @RISK is used to quantify the variations in the figures.

@RISK is also used to measure levels of uncertainty for other key aspects that have bearing on the eventual outcome. For example, there are uncertainties around the direct damage costs and the expense of responding to customer contacts associated with the incident. At the same time it is important to understand the level of uncertainty in the costs of intervention, such as building a floodwall.

Halcrow set out to understand what it was realistic to mitigate against and therefore what could be achieved in terms of the costs and benefits of improving the current levels of resilience. The nature of the task means that each stage of the calculation is subject to uncertainty, but @RISK enables it to measure each eventuality and make an informed decision on the best course of action.

» Case study: "Halcrow uses @RISK to determine level of flood resilience required for UK water assets"

» Related: How can the UK public services prepare for unpredictable, extreme weather?


Troubled Waters: Report Calls for New Risk Analysis Services when Estimating Flood Insurance

As our weather patterns change and become more severe, it can’t be denied--climate change is upon us, and with it are some serious changes to life as we know it.  Take, for example, a recent report  commissioned by FEMA and  written by the National Research Council which outlines the true risks and costs of flooding in the Missouri and Mississippi river flood plains, and attempts to accurately price out flood insurance in a way that recovers actual costs.

The report highlighted the fact that flooding is bound to increase in severity--and thus, it's crucial to have a modern, statistically sound approach using risk analysis when analyzing and managing flood risk in areas protected by levees. Palisade’s @RISK software is used around the world for these type of analyses, and has in fact been used to analyze the risks and rewards of flood mitigation in the UK .  The National Research Council stated a need for state-of-the art estimates on how well levees will perform, in order to paint an accurate picture of the likely risks communities might face during flood conditions. Scenario analysis is key--multiple variables must be analyzed, such as how high a river might rise, and how many times will it crest it’s specified flood level.

According to Gerald Galloway, an engineering professor at the University of Maryland  who chaired the panel that produced this report, flood losses are continuing to rise. In fact, the National Weather Service predicts roughly $8 billion per year in flood losses--a number that is bound to grow as climate change continues.

The report states that, as an administrator of the Nation's  flood insurance program, FEMA must adopt a more up-to-date approach to analyzing as well as managing the risks of flooding behind levees. “Property owners would be more favorably inclined to buy flood insurance if individual risk is well-known, understood, and insurance rates are priced to match the probability of flooding and financial impact of flooding events,” the report says. 

If FEMA chooses to tackle the problem using @RISK, they'll be sure to have accurate answers to these complex questions.


See also: Using Risk Analysis to measure the impact of climate change


Guarding against the risk of ‘unbankable’ community projects in South Africa

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


Free Webcast this Thursday: “A Stochastic Simulation Model for Dairy Business Investment Decisions ”

Join us this Thursday, May 24, 2012, for a free live webcast entitled, "A Stochastic Simulation Model for Dairy Business Investment Decisions " to be presented by Dr. Jeffrey Bewley.

A dynamic, stochastic, mechanistic simulation model of a dairy enterprise was developed to evaluate the cost and benefit streams coinciding with investments in Precision Dairy Farming technologies. The model was constructed to embody the biological and economical complexities of a dairy farm system within a partial budgeting framework. A primary objective was to establish a flexible, user-friendly, farm-specific, decision-making tool for dairy producers or their advisers and technology manufacturers.

The basic deterministic model was created in Microsoft Excel. @RISK was employed to account for the stochastic nature of key variables within a Monte Carlo simulation. Net present value was the primary metric used to assess the economic profitability of investments. The model comprised a series of modules, which synergistically provided the necessary inputs for profitability analysis. Estimates of biological relationships within the model were obtained from the literature in an attempt to represent an average or typical U.S. dairy. Technology benefits were appraised from the resulting impact on disease incidence, disease impact, and reproductive performance. The economic feasibility of investment in an automated BCS system was explored to demonstrate the utility of this model.

An expert opinion survey was conducted to obtain estimates of potential improvements from adoption of this technology. Benefits were estimated through assessment of the impact of BCS on the incidences of ketosis, milk fever, and metritis; conception rate at first service; and energy efficiency. Improvements in reproductive performance had the greatest influence on revenues followed by energy efficiency and disease reduction, in order. Stochastic variables that had the most influence on NPV were: variable cost increases after technology adoption; the odds ratios for ketosis and milk fever incidence and conception rates at first service associated with varying BCS ranges; uncertainty of the impact of ketosis, milk fever, and metritis on days open, unrealized milk, veterinary costs, labor, and discarded milk; and the change in the percentage of cows with BCS at calving ≤ 3.25 before and after technology adoption. The deterministic inputs impacting NPV were herd size, management level, and level of milk production. Investment in this technology may be profitable; but results were very herd-specific.

Investment decisions for Precision Dairy Farming technologies can be analyzed with input of herd-specific values using this model. This free live webcast will go into detail about the model, as well.

Dr. Jeffrey Bewley, is Assistant Professor and Extension Dairy Specialist, specializing in Dairy Systems Management, Dairy Decision Making, and Precision Dairy Farming, at the University of Kentucky. He received his BS from the University of Kentucky, MS from the University of Wisconsin-Madison, and PhD from Purdue University. Jeffrey has a keen appreciation for the opportunities automation provides for more precise management. His own work is in the technical and economic assessment of Precision Dairy Farming technologies, body condition scoring, and temperature monitoring. His outreach program is focused on developing tools and strategies for improved decision-making on dairy farms.

» Register now (FREE)
» View archived webcasts


Arc of Yates County, New York Projects Budgets Using Monte Carlo Simulation

Arc of Yates uses @RISK for financial risk analysisCreating a feasible budget is never easy, but it’s even more challenging during questionable economic times. That was the case for the Arc of Yates, an amazing organization in New York State that provides a wide array of services for individuals with developmental disabilities in Yates County.  For many non-profit organizations, funding often comes from local, state and federal sources. Given the current economic climate, Arc of Yates was faced with the prospect of slashed budgets on every governmental level, effectively leaving the organization with a fraction of the funding they have enjoyed previously.

With uncertainties as to where that funding would originate, Arc of Yates utilized risk analysis software @RISK to explore which areas of funding were most likely to be affected. Using probability distributions, Arc of Yates could forecast what portion of the current budget stream may not be available over the next three years. Subsequently, the organization could develop strategies to explore alternative means of funding. Now Arc of Yates has a clear plan of action to meet upcoming budgets for the foreseeable future.

We think Arc of Yates’ use of @RISK is a great example of how Monte Carlo Simulation can empower organizations and lessen the concerns and uncertainties that accompany a struggling economy. Knowing where potential shortfalls may occur offers decision-makers the foresight and flexibility to stay in front of budgetary gaps. On a personal level, it’s great to know that we were able---in some small way---to further the effort of a truly fantastic organization.

» Arc of Yates case study
» Take a look at the great work Arc of Yates is doing.

Randy Heffernan
VP, Palisade Corporation


Free Webcast this Thursday: “Modeling Behavior Using @RISK and PrecisionTree: Why probability estimates aren’t always what they seem”

Join us this Thursday, October 6, 2011, for a free live webcast entitled, "Modeling Behavior Using @RISK and PrecisionTree: Why probability estimates aren’t always what they seem," to be presented by Christopher Brand.

Over the past three decades, behavioral economists and psychologists have gathered a significant amount of evidence suggesting that most people find it surprisingly difficult to make accurate judgments about probabilities. This is a cause for concern in real-world decisions, which normally involve at least some degree of risk and uncertainty. Even more troubling are the consequences for long-term decisions, in which it is necessary to account for multiple possible sequences of events; if each event includes an erroneous prior probability judgment, this will have the effect of multiplying the overall error in the decision.

This free live webcast will discuss some examples of probabilistic decision making where intuitions and judgments are regularly incorrect -- such as the Monty Hall problem, the base rate fallacy, and the conjunction fallacy -- and demonstrate these cases via implementation within @RISK risk analysis software, and PrecisionTree decision trees modeling software. Furthermore, the presentation will also explain how models of behavior during decision making can be developed using Palisade software.

Chris Brand is an Associate at Captum Capital Limited, where he provides consulting and training services to early stage life science companies in the behavioral aspects of business development. He is also a PhD student at Birkbeck, London University where he is active in the psychology of decision making. Chris holds an MSc in Cognitive and Decision Sciences from University College, London, an MA in Philosophy from the University of York and a BSc in Philosophy and Psychology from the University of Keele.

» Register now (FREE)
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Model railways: Palisade talks risk analysis to

Slovak Rail CompanyEarlier in 2011, this blog looked at the role risk analysis could play in the complex decision-making process surrounding investment in rail travel.  This was prompted by ongoing discussions about the UK’s proposed high-speed rail link and fuelled by the Slovak Rail Company’s use of @RISK in its own funding strategy.

This and the full case study on the SRC piqued the interest of online publication, who interviewed our European managing director, Craig Ferri to find out more.  In the resulting article, ‘Railway Software for Hard Decisions’, Craig provides information on how modelling software works as well the projects it has been used on by rail companies across Europe.

Craig also talks about how risk analysis services could help rail companies prepare contingency plans that would combat the major disruption faced by UK commuters as a result of bad weather in recent winters.

» Read the full piece here

March 2011 - Worldwide Training Schedule

Palisade Training services show you how to apply @RISK and the DecisionTools Suite to real-life problems, maximizing your software investment. All seminars include free step-by-step books and multimedia training CDs that include dozens of example models.

North America
Houston, TX: 15-16 March 2011
Decision-Making and Quantitative Risk Analysis using @RISK

Amsterdam: 29-30 March 2011
2011 Palisade Risk Conference

São Paulo, Brasil: 29 a 31 de março de 2011
Avaliação do Risco para Usuários do @RISK e DecisionTools Suite

Buenos Aires, Argentina: 21 al 23 de marzo de 2011
Evaluación de Riesgo para Usuarios Principiantes/Intermedios

Melbourne: 30-31 March 2011
Decision-Making and Quantitative Risk Analysis using @RISK