Case Studies

@RISK and the DecisionTools Suite are used across industries, including Finance & Banking, Oil & Gas, Mining, Insurance/Reinsurance, Manufacturing, Healthcare/Pharmaceutical, and Academia. See more at http://www.palisade.com/cases/

Patrick Engineering Uses @RISK for Cost and Schedule Risk on MBTA Project

PatrickEngineeringPatrick Engineering, a nationwide U.S. engineering, design, and project management firm, provides independent cost estimating, scheduling, and risk analysis services for the Massachusetts Bay Transportation Authority (MBTA). Given the uncertainty of cost and schedule duration estimates, the best way to display them is with probability distributions. Patrick Engineering uses @RISK to assess cost and schedule contingency needs based on project or program risks.

Patrick worked on the Downtown Crossing Vertical Upgrade project recently, part of the MBTA’s program to upgrade elevators and meet accessibility requirements of the Americans with Disabilities Act. The first step for the project was risk identification. “To do this, you need to work collaboratively with the client, with the designers, with the project management team, with anyone who will have insight into the project – you want them all involved,” explains Kim Kozak, Sr. Project Manager for Patrick Engineering. The full team for the Downtown Crossing station project included six organizations and approximately 20 team members.

From here, Patrick Engineering holds a Quantitative Risk Workshop with all the players. “We try to get people thinking, to encourage discussion, as even a small detail could lead to a giant risk,” said Kozak. “Similar to the situation with the Titanic – what seems like a minor detail could be enough to sink the entire ship.”

“The final results of Palisade’s @RISK models help us, and our clients, understand where projects could go – not where they will go,” explained Kozak. “And we know that if a risk does occur, we’re well prepared as we’ve already identified it.”

» Read the Full Case Study

MRAG AP Quantifies Illegal Fishing in the Pacific Islands with Palisade’s @RISK

MRAG LogoMRAG Asia Pacific (MRAG AP) is an independent fisheries and aquatic resource consulting company based in Brisbane, Australia. An international leader in the field of aquatic resource consulting, the company is dedicated to promoting sustainable use of natural resources through sound integrated management policies and practices. MRAG AP used Palisade’s @RISK software to estimate the volume, species composition and value of illegal, unreported and unregulated (IUU) fishing in Pacific Islands tuna fisheries. The outcome of their study provided recommendations on ways to strengthen monitoring, control and surveillance arrangements, to help minimize the future financial impact of IUU on Pacific Island economies.

Illegal, unreported and unregulated (IUU) fishing is a global problem that results in significant financial losses every year. Previous attempts to estimate the damages put the value between US$707 million and more than US$1.5 billion per year in the Western Pacific Ocean area alone. However, IUU fishing by its very nature is secretive, making it extremely difficult to accurately quantify the nature and extent of potential damages, as well as plan for effective Monitoring, Control and Surveillance (MCS) activities.

As part of a European Union-funded project, MRAG AP was commissioned to estimate the volume and value of IUU fishing in the tuna fisheries of the Pacific Islands region. The company took a ‘bottom up’ approach to the study, analysing detailed information at a local scale in an effort to build a more accurate picture of IUU fishing activity, particularly the variation in the nature and scale of IUU activity associated with each IUU risk in each main fishery. Estimates obtained in this way were then added together to develop an overall estimate of IUU catch and value.

Bigger@RISKDistribution

According to Duncan Souter, CEO of MRAG AP, “The challenge with this approach is that it is time-consuming and information is often very patchy and hard to collect. There are therefore many gaps to fill that require analytical methodologies of varying degrees and complexity.” For this study, the company broke down the ‘IUU problem’ into discrete, quantifiable units – volume, species composition and value – before aggregating them up to produce a regional scale estimate.

“@RISK is very user friendly, considering the complex analytical techniques we were undertaking, and provided useful outputs that allowed clear presentation of our results,” said Souter.

» Read the full case study
» MRAG AP’s report: Towards the Quantification of Illegal, Unreported and Unregulated (IUU) Fishing in the Pacific Islands Region

The Department of Energy and Climate Change uses @RISK for UK carbon emission targets

DECCThe UK government’s Department of Energy and Climate Change (DECC), is tasked with maintaining secure and economic energy supplies for the UK, while ensuring that the UK’s greenhouse gas emissions meet international targets set to combat climate change.

Under the Climate Change Act, the UK has a legal obligation to meet several national emission targets, called carbon budgets, including cutting UK greenhouse gas emissions by at least 80% by 2050 (which requires sourcing at least 15% of energy from renewable sources by 2020).

To monitor carbon budgets, the Central Modelling Team at the DECC undertakes annual projections of energy use and emissions by modelling both overall UK energy demand and the electricity supply system and calculating the emissions based on the fuels used. These projection figures are uncertain however, due to variation in each of the economic and technical inputs used in the models.

DECC-1

DECC uses @RISK to explore the overall effects of these uncertainties and estimate the probabilities of not meeting the carbon budget.

“@RISK has all the sophisticated functionality required for Monte Carlo modelling, but is straightforward to use,” explains Dr Roger Lampert from the DECC Central Modelling Team. “Before adopting Monte Carlo modelling, the custom was to use scenario analysis. Using @RISK we can now use the statistical properties of the input data to better represent the full spectrum of possible model inputs. Consequently. we have more insight into the spectrum of outputs. The statistical rigour of the modelling gives us much more confidence in the level of uncertainty of our emissions estimates and therefore the UK’s ability to meet the carbon budgets.”

» Read the full case study

Rusnano uses The DecisionTools Suite for Nanotechnology Investment Decisions

Rusnano private equity firm uses the DecisionTools Suite for Nanotechnology Investment Decisions

RUSNANO is a private equity firm focused on the development of the nanotechnology industry in Russia. Using government funds, it invests in nano projects that have significant economic or social potential, across a variety of industries. Having provided capital for a company, RUSNANO works with it for five to seven years to develop the business before it is bought by strategic investors.

The hi-tech nature of these enterprises means that RUSNANO often has to make an investment decision at the R&D phase, before a product is on the market. This introduces a high level of risk, so the company looked to the discipline of risk management, adopting a modern and comprehensive approach through risk modelling.

RUSNANO uses the complete Palisade DecisionTools Suite toolset, with a focus on TopRank and @RISK. The tools help RUSNANO to model projections of different KPIs on two management levels: portfolio management level and investee management level. This allows it to calculate the right value of investment based on the risk it entails and understand the overall liquidity of the portfolio using risk analysis.

Using Palisade’s tools, risk managers at RUSNANO can communicate uncertainty to the company’s senior executives; the key factors, risks and projects that have the most impact on the company and project KPIs. Modelling risks also helps RUSNANO to understand the different micro factors that are outside the control of the investment team. The insight provided is in-depth and indicates when the impact of those factors is potentially a significant threat, therefore requiring risk mitigation action planning and model changing accordingly for the portfolio or the project to be successful.

RD&I Consulting uses @RISK to Model Financial Uncertainty of Fehmarn Belt Fixed Link

The Fehmarn Belt Fixed Link is a planned immersed tunnel that will cross the Fehmarn Strait to connect Denmark and Germany. This large infrastructure project is mainly user funded, with an official projected payback period of less than 40 years.  However, based on the latest research from RD&I Consulting based in Denmark, it is highly unlikely that this projected payback deadline will be met.

Fehmarn Belt Fixed Link

Hans Schjær-Jacobsen, Director of RD&I Consulting and former Professor and Director at the Technical University of Denmark, used Palisade’s @RISK software to create financial models for the Fixed Link to determine the likelihood of project success – or failure – in terms of the payback period.

Uncertainty in the model was calculated by probabilistic uncertainty representation and Monte Carlo simulation, as well as interval analysis. Schjær-Jacobsen leveraged @RISK software’s ability to calculate a genuine uncertainty profile by Monte Carlo simulation in contrast to just partial sensitivity analyses, using uniform and also triangular distributions as they were easily derived from double estimates (i.e. best- and worst-case), and triple estimates (i.e. best-, base- and worst-case), respectively. The simulation generated the probability distribution of the payback period for the Fehmarn Belt Fixed Link over 60 years, providing a project uncertainty profile presented in terms of a traffic light metaphor: a green light corresponds to a payback period of less than 40 years, a yellow light corresponds to a payback period of 40-50 years, and a red light corresponds to a payback period of more than 50 years.

Project uncertainty profile for the Fehmarn Belt Fixed Link payback period.

For the Danish government, the only acceptable outcome of the model for the projected payback period is in the green light zone: less than 40 years. However, based on the model created by Schjær-Jacobsen, the Fehmarn Belt Fixed Link is a high-risk business case and the likelihood of financial project failure in terms of the payback period taking longer than 40 years is equal to 92.5% and substantially larger than acknowledged by the project proponents and presented to the public. This is due to several realistic uncertainties based on readily available facts, including traffic volume and income, construction costs, services and EU subsidies.

“As nobody had done this kind of analysis on the project before, the results were a surprise,” explained Schjær-Jacobsen. “However, now that these results have been presented to Fehmarn A/S and the Commission of Transport, we will see how they impact future development of the Fehmarn Belt Fixed Link.”

» Read the Full Case Study

Netconomy Plans for Business Growth with Palisade’s @RISK

As the world continues to become ever more digital, companies from all industries need to have a strong digital commerce strategy. However, launching a digital commerce platform can be a complex undertaking, especially for established companies which have built their businesses on more traditional, paper-based processes that are better suited for ‘brick and mortar’ transactions. Netconomy Software and Consulting specializes in omni-channel and e-commerce software integrations, creating digital marketplaces for a diverse range of companies in the retail, wholesale, consumer, telco and transportation industries. This is where Netconomy has found its ‘sweet spot’: working with enterprise organizations to adapt and connect their business processes with state-of-the-art technologies to deliver scalable e-Commerce solutions. However, this is a fast-paced industry and the company is having to grow – and plan for that growth – rapidly.

For the first few years, the company utilized a classical budget process: taking a couple of months of the year to create a financial plan for the next year. However, this type of planning process has become less effective for Netconomy since the company is developing so quickly.  The company needed a planning process that would combine risk management with its budgeting and forecasting.

Now, the Austrian-based company uses Palisade’s @RISK to integrate risk management within its budgeting and financial planning processes, providing the management team with full visibility of the risks associated with each element of its budget. This in turn enables the company to make better, more informed decisions regarding capital expenditure, investment planning and future growth strategies.

Netconomy graph

» Read the full case study

Free Minicourse in Renewable Energy Modeling using @RISK, with example models

How do we insure a reliable energy supply when using renewable energy sources?

Renewable Energy Modeling

Solar power is inherently unreliable, fluctuating with time of day and degree of cloudiness. Wind power is a victim of air flow patterns. To prevent blackouts, renewable energy sources need to be backed up with conventional power sources. In effect, they require virtually 100% backup with fossil, nuclear, hydro sources of power. Think of the repercussions of a solar eclipse and calm winds on renewable energy output, which occurred in Europe in 2015.

In this free on-demand minicourse, Professor Roy Nersesian models the complexities of this problem – and demonstrates solutions – using @RISK for Excel.

Integrating Renewables with Electricity Storage, using @RISK

Materials include:

  • 1-hour webinar delivered by Roy Nersesian
  • Energy example models
  • 50-page whitepaper
  • Presentation slidedeck

» Go to free minicourse now

» Case study: @RISK Helps Integrate Renewable Energy Sources

Deloitte AIS Helps Client Avoid Overfunded Position of Several Billion Rands, using @RISK

Deloitte Actuarial and Insurance Solutions (AIS) is a specialist insurance and actuarial consulting team, based in South Africa, which operates in more than 40 countries worldwide. Their remit is to provide advanced analytical solutions that enable the financial well-being and solvency of their clients, who include many life and short-term insurers across the African continent, as well as energy and resource companies.

DeloitteDeloitte AIS had a long-standing client in the energy and resource sector, with significant interest across a number of large mining operations in South Africa. They looked to the Deloitte AIS team to help them plan for necessary environmental rehabilitation requirements such that they would reduce the risk of funding shortfalls – as well as the risk of overfunding and inefficient use of capital – while maintaining regulatory compliance and facilitating proper and responsible environmental care and sustainability.

According to Jaco van der Merwe, Director of Short-Term Insurance for Deloitte AIS, the challenge with formulating these strategies is, “both the financial liabilities and backing assets for the rehabilitation may exhibit volatility and random fluctuations, so it’s important for companies to select financial strategies which minimize the risk of a funding shortfall while avoiding inefficient use of funds.”

Palisade’s @RISK software enabled Deloitte AIS to quickly and efficiently construct the financial models they needed to capture the nature and profile of the risks for both the company’s liabilities and the assets. In the past, the team would construct models manually in Excel. These models took significantly more time and effort and often cost more, as they required extensive error checking. The @RISK software enabled them to quickly build, set-up and populate their models, and provided elegant visualizations of their Monte Carlo simulations which ultimately allowed them to focus on the risks, instead of worrying about the modelling.

“@RISK speeds up and significantly simplifies the stochastic model-building aspects of our work. We can focus more on the strategies and advice and less on model building, debugging and error tracing,” said van der Merwe.

“With @RISK, we were able to construct a projection model which reflected the risk of ‘mis-funding’ throughout the life of the mines and the subsequent rehabilitation periods,” explained van der Merwe.” As a result, we were able to highlight the appropriate funding options and strategies for our client which met their risk appetite and requirements.”

By modelling the risks with Palisade’s @RISK, Deloitte AIS was able to help their client avoid an eventual overfunded position of several billion rands.” In addition, we were able to reduce the amount of contributions required by almost half, simply by applying a sensible investment strategy,” added van der Merwe.

» Read the complete case study

University of Pretoria Creates an @RISK Model for Stopping the Spread of Avian Flu

UniversityofPretoriaThe avian influenza virus – or avian flu – is a fast-spreading infection that affects poultry and potentially people worldwide. While the risk to humans is not completely understood, stopping human exposure to the virus is critical. According to Dr. Folorunso Oludayo Fasina, a senior lecturer at the University of Pretoria’s Department of Production Animal Studies, it is important to understand “how the virus gets into the food system, how it spreads and how it can be managed. To do this, we need risk assessment and exposure assessment, as well as a response model. Once we have this information, we can implement measures to stop the risks.”

Dr. Fasina and his colleagues created a model for foodborne contamination that was specific to Africa, where the virus has already infected 12 countries. The team studied both biological and cultural aspects, including food processing, trade, and cooking-related practices, and collected data from more than 375 Egyptian and Nigerian sites including homes, local producers, live bird markets, village and commercial abattoirs and veterinary agencies. As a first step, the team used Palisade’s TopRank tool, part of the DecisionTools Suite, to analyze the sensitivity of each of the identified contributors to the overall risk. This helped the team understand which of the contributors were the most important.

Next, the team moved to @RISK to help predict the different ways the virus could be spread. Using Monte Carlo simulation, @RISK can quantify the probabilities of different outcomes – or infection rates – occurring, as well as determine the optimal preventive measures to mitigate the risk of animal-to-person infection.

The results revealed numerous opportunities for the avian influenza virus to be spread, and found that the estimated risk for humans was higher than previously reported. Says Dr. Fasina, “@RISK is a valuable tool to investigate these problems and do risk predictions either prospectively or retrospectively. Utilizing the outputs from models like this can help health policy planners and public health officials to take anticipatory measures to prevent future disasters associated with infectious diseases like the avian flu.”

» Read more about the study here