For nearly a decade, almost as long as I have been communicating with customers of Palisade Corporation, I have been in touch with Tim Havranek about his work in environmental risk assessment. His work is a series of stories about environmental legacy that are often used as testimony in court. A consultant with Triangle Economic Research, Havranek works with Fortune 500 clients to identify and quantify their potential environmental liabilities and to simulate the least costly routes to meeting their responsibilities. Many of the complex cases that he and his associates at TER work on involve hundreds of millions of dollars, multiple stakeholders, and a powerful amount of statistical analysis and modeling.
Of course, liability equals risk, and so Tim’s basic task in his work is a kind of Janus-like risk analysis that looks both back to the manufacturing history of a company and to forward for its future environmental implications. Typically, the issue is valuing his client’s liability for remediating environmental problems that, one way or another, have become a company’s legacy. And typically, the problem has been festering for a long time. For instance, in a particular SuperFund clean-up site, what portion of the problem can be rightfully assigned to his client? And, given that, what are the company’s best options for dealing with the site?
To model this problem accurately enough to advise his clients, Tim has to take into account industrial recipes, quantity of production, duration of manufacturing and many other variables. Monte Carlo simulation is just the beginning of his risk assessment. He deploys a full arsenal of statistical analysis tools, starting with a Monte Carlo application in Excel and progressing to decision trees, sensitivity analysis, and optimization.
It’s a lot of computation. How good are the results? Good enough to stand up in court, and more important to Tim, good enough to help his clients make the best possible decisions in situations where no truly happy endings are still available.