Month: November 2014

Palisade Vice President Randy Heffernan Discusses Risk of Climate Change in Risk Management Monitor

Randy Heffernan, Palisade’s Vice President, wrote a recently featured piece in the Risk Management Monitor discussing the looming risks of climate change. The piece, titled ‘Analyzing the Real Costs of Climate Change’ details how businesses and organizations are in for serious changes in the coming decades thanks to increasingly unpredictable weather patterns.

Heffernan references a report published earlier this year, “Risky Business: The Economic Risks of Climate Change in the United States,” which was co-chaired by business experts Michael R. Bloomberg, Henry Paulson and Tom Steyer and which quantifies and publicizes the economic risks posed by a changing climate.

“Are companies prepared for skyrocketing energy costs to combat extreme heat? Can farmers handle average crop losses of up to 73%? Should businesses invest in oceanfront property that is virtually guaranteed to flood?,” Heffernan asks in his piece.

Some organizations are preparing themselves. The Australian Federal Government hired  AECOM, a professional technical and management support company, to run Monte Carlo simulation-based evaluations on flooding risk in populated areas, such as the Narabeen lagoon, near Sydney. “Because climate change is expected to increase flooding in the Narrabeen catchment over the coming century, decision-makers needed a clearer understanding of the different possible adaptation measures,” Heffernan says.

He goes on to say, “While many companies may be resistant to change, the [Risky Business] report makes an undeniable case; we cannot afford to ignore the momentous climate risks that threaten our near- and long-term future.”

US Army Uses @RISK to Address Schedule and Cost Risk in Acquisitions

US Army Uses @RISK to Address Schedule and Cost Risk in AcquisitionsThe US Army Materiel Systems Analysis Activity, known as AMSAA, conducts critical analyses to equip and sustain weapons and materiel for soldiers in the field and future forces. The Army is charged with determining the best possible choice among several acquisition options, taking care to examine alternatives in tradespace, sensitivity, and cost and schedule risk mitigation. AMSAA Mathematician and Statistician John Nierwinski decided to use @RISK to integrate schedule and cost consequences in order to provide a single risk rating that decision-makers can efficiently use to inform the overall decision. “This is cutting edge stuff,” says Nierwinski.

The first step in Nierwinski’s analysis requires a schedule network models and cost models, based on information from subject matter experts and available technology cost information.

With schedule and cost variables in place, Nierwinski then creates integrated outputs from the model, which will then, with several thousand iterations, create scenarios that involve an overrun or underrun, depending on the iteration. After running the integrated model, @RISK gives an output that tells the likelihood of not meeting the schedule, and the collection of maximum consequences from schedule overrun scenarios. Nierwinski then applies this distribution to a pre-established DOD risk reporting matrix to determine the transformed risk distribution, and to eventually come up with a specific risk rating.

“Once we’ve established a risk rating for a certain materiel option, let’s say it’s a particular alternative for a kind of tank, we can do all sorts of studies (i.e. tradespace, what-if scenarios, risk mitigations)—we can examine what would happen to the risk if we were to swap out its engine for a cheaper one,” says Nierwinski. “This can change a lot of things. We can study how the risk rating changes: for example, it may go from high risk to low risk.”

Nierwinski says that @RISK was instrumental in modeling the inherent risk and uncertainty with materiel acquisitions that AMSAA faces. “@RISK enables us to build various kinds of risk models quickly, with lots of flexibilities.”

Read the full case study here.