New helicopters require large investments in order to design, develop, test, certify and bring the product to market—a process that can last three to five years. The venture also carries considerable financial risk. Thus, Anglo-Italian helicopter manufacturer AgustaWestland relies on @RISK to determine the financial feasibility of developing any new product.
AgustaWestland first builds a ‘deterministic’ Excel model to predict key financial outputs such as revenue, net profit, Net Present Value (NPV), Internal Rate of Return (IRR) and financial break-even. Inputs to the model include: the cost of engineering studies for the design and development of the new product; prototype manufacture; flight tests; certification; etc. Financial parameters such as inflation and exchange rates in different currencies are also accounted for.
AgustaWestland then carries out an @RISK analysis using Monte Carlo simulation to determine the accuracy of the forecasts and the way to improve the business, both in true feasibility and in financial results. The models must take uncertainty into account because the economic situation cannot be predicted with any great accuracy, especially when the business cases are based on a period of 20 years. Using @RISK graphs, AgustaWestland can see which inputs have the greatest effect on the financial outputs, and therefore require attention.
“Our use of the risk analysis element of Palisade’s DecisionTools Suite has enhanced our ability to assess, control and drive company decisions. We can now focus on the key activities that enable us to pursue the best product within the most appropriate financial timeframe,” says Francesca Schiezzari, a Senior Analyst at AgustaWestland who uses @RISK to build similar financial business cases for a variety of company projects.