National Grid UK, the electricity transmission system owner for England and Wales and the system operator for all of Great Britain, uses @RISK’s probabilistic modeling techniques to measure network restoration performance in a variety of simulated failure scenarios. In other words, if the system, or part of it, somehow breaks down, the people at the utility want to know what, and how long, it will take to get it working again, and what the challenges will be along the way.
@RISK can be used in conjunction with MS Project and Excel to model the schedule and cost risks inherent in large, complex projects. This example demonstrates the use of @RISK to build a complete model of the construction of a new commercial venue. The model includes uncertainty in task times, a Risk Register for calculating contingencies, and a link to real-time cash flows in an NPV calculation model.
@RISK probability distributions have been assigned to the durations of several tasks in the schedule, some with a distribution and others using Risk Categories. The uncertain task times are assumed to be uncorrelated.
A Risk Register lists three possible risk events that could impact the project schedule and costs. By using the RiskProjectAddDelay function, these risks introduce schedule delays and associated costs. Specifically, this function allows the model to generate new tasks dynamically, depending on whether the risks occur or not. Changes are reflected at run time only, so it is necessary to run a simulation to see the impact and results of the Risk Register.
The example also contains a model of cash flows that leads to the NPV of the project. In particular, the project costs create a Timescaled Data report. This collects the total cumulative costs during a simulation. After a simulation, you can see the total cumulative costs for the project as they grow over time.
The other reports generated are the NPV and the Contingency for the Risk Register, at different confidence levels. Finally, the cash flow also includes a Revenue Adjustment calculation that takes the portion of the year in which Sales are initiated and applies a discount to the predicted annual revenue.
Palisade’s @RISK software is used for countless tasks all around the world and in many different industries from research institutions to oil and gas companies. While the possibilities are endless, Solis Financial Forensics LLC has found their niche in applying @RISK to a wide variety of complex legal cases and modeling economic damages such as lost earnings, lost profits and the diminishment of value.
Solis Financial Forensics LLC, founded by David Solis, undertakes financial investigations and analyses, forensic economic services, and business valuations. Much of their work is in the form of consulting, litigation support, expert testimony, and analysis of other expert reports in lawsuits of all kinds, including personal injury , wrongful death, wrongful termination, malpractice, business interruption/lost profits, fraud, breach of contract, construction claims, and partnership/shareholder disputes.
Where @RISK and Monte Carlo simulation typically come into play is when Solis is looking to the future. He’s not only trying to forecast what will actually happen, but what would have if there had been no problems and business had proceeded as usual. To do so, he looks at a variety of factors like historical trends and management forecasts in sales and expenses, and economic factors like the demand for the manufacturer’s products and inflation, for example.
“Using @RISK allows for a range or distribution in regards to the inputs,” Solis says. “For example, with the inflation rate I can say I believe it will not exceed X, it will not be less than Y, and I believe it will be Z in the future. @RISK allows me to say that I looked at a range of possible outcomes in regard to unknown variables, and based on my analysis incorporating those ranges, I believe lost profits to be X with a reasonable degree of certainty.”
Gain additional insight into setting up and evaluating your risk analysis models in Excel, using @RISK. Learn how to incorporate correlation into your model to show how your input variables relate to one another while becoming familiar with basic concepts and terminology. Using @RISK’s correlation tables and copulas you will be able to acheive more accurate results.
Registrants also receive a link with example models and a slidedeck to accompany the presentation.
CONTI-Group has been a leader in the shipping industry since 1970, operating a large, deep-sea fleet in Germany as well as being an established global provider of ship investment funds. With commercial shipping being one of the most economical and ecological modes of transport for cargo, tangible shipping assets, including tankers and carrier vessels, represent an important form of financial investment.
After the financial crisis of 2007-2008, the European Union introduced new requirements for better regulation and supervision of the financial sector. These objectives aimed to introduce a new level of protection for investors by regulating and supervising all markets, and included the provision of quality and transparency in all capital market investments.
CONTI-Group was already unique in its reputation for financial transparency, but when these regulatory requirements for visibility were introduced, CONTI began using Palisade’s @RISK to construct financial models that capture and assess potential risks in the fluctuating shipping market. This has enabled the company to provide higher levels of transparency to its investors, successfully steer its shipping fleet, and subsequently generate above-average results on its investments.
“We wanted to find a risk management solution that would comply with the requirements of the new regulations, while also providing us with an even better way of tracking and managing financial risks,” explained Martin Stobinski, Managing Director for Risk Management, Compliance and Asset Valuation for CONTI KVG.
Now available in 5 languages: English, Spanish, Portuguese, German, and Chinese
This webinar provides an entry-level introduction into probabilistic analysis, and shows how Monte Carlo simulation and other techniques can be applied to your everyday business analyses. Using Monte Carlo simulation, @RISK analyzes many different scenarios at once, giving you more insight into what could happen. We’ll look at example models including a basic revenues/cost/profits model, an NPV model, and a Cost Estimation model, to give you an idea of how quickly you can get started in probabilistic modeling in Excel. If you build models in Excel, Palisade solutions can help you to make more informed decisions, right from your desktop.
For more than 30 years, Palisade software and solutions have been used to make better decisions. Cost estimation, NPV analysis, operational risk registers, portfolio analysis, insurance loss modeling, reserves estimation, schedule risk analysis, budgeting, sales forecasting, and demand forecasting are just some of the ways in which the tools are applied. This webinar will demonstrate how easy – and necessary – it is to implement quantitative risk analysis in any business.
Watch the webinar in your language:
- Introduction to Risk Analysis using @RISK (English)
- Introducción al análysis de riesgo con @RISK (Spanish)
- Introdução à Análise de Riscos e Decisões Utilizando o @RISK e o DecisionTools Suite (Portuguese)
- Einführung zur Risiko- & Entscheidungsanalyse mit @RISK und der DecisionTools Suite (German)
- 介绍如何使用 @RISK 进行风险分析 (Chinese)
Explore @RISK for Excel‘s tornado graphs and spider charts to learn how they can be used as a tool to help make more informed decisions. You will learn what the five different types of tornado graphs are, some of their additional features, and how they can be used to figure out which, and how much, the individual input variables impact the output variables that you are most interested in.
Registrants also receive a link with example models and a slidedeck to accompany the presentation.
Due in part to the significant impact of hurricane season on the Gulf Coast of the U.S., Louisiana is considered a “wet lab” for emergency preparedness. As part of its annual preparations, the State creates and maintains plans that involve the full coastal evacuation of entire hospitals and nursing homes in Southeastern Louisiana, mostly via aircraft. Palisade’s @RISK software plays a critical part in both estimating needs, and justifying resources.
“Palisade built a sophisticated model for us that allows us to take the configuration data and construct a model, quickly and easily,” said Henry Yennie of the Louisiana Department of Health (LDH). “@RISK is a really valuable tool that lets us perform up to 10 different scenarios based on patient numbers and other data, plus it has an interface that makes it ‘idiot proof’ for us.” For each scenario, modelers can change evacuation parameters such as airport and plane availability, or patient bed availability.
LDH worked with Palisade’s Custom Development team to create the model. A custom interface allows for easy configuration of model parameters, reducing errors. The LDH can plan ahead of time, and change parameters on the fly during a hurricane to plan during an actual hurricane. According to Yennie, “@RISK gives us benchmarks we can measure against actual patient movements, then lets us know the probabilities of success. By providing us with this estimate of success throughout the process, we’re able to figure out what we can do to fix it right away.”
“I’ve used other simulation software over the years and none has come close to the usability of @RISK,” reports Yennie. “It makes it really easy for a person who doesn’t have a PhD in statistics to build an accurate model of a real-world situation that has an impact.”
Real option valuations are used by existing or prospective owners of power plants to support acquisition, divestiture, development, or retirement decisions. Owners of power plants also use real option valuations to support capital decisions, such as the installation of environmental controls, the expansion of plant capacity, or equipment to improve efficiency.
L.E. Peabody & Associates, Inc., an economic consulting firm, specializes in supporting economic decisions around electric power generating facilities or “power plants.” The company uses Palisade’s @RISK software to measure a power plant’s real option value and define a power plant’s risk profile. Monte Carlo simulation is applied to simulate a power plant’s economic dispatch into uncertain power and fuel prices, thus helping the firm show current and prospective plant owners the full range of possibilities around strategic decisions.
“@RISK allows our firm to easily and comprehensively develop real options analysis for our projects that involve market uncertainty,” says Brian Despard, Vice President with L. E. Peabody & Associates. “As an Excel add-in, it integrates seamlessly into our various spreadsheet models. @RISK’s selection of distributions and functionality provide us with more than enough flexibility to develop our quantitative analyses.”
With $10 Billion in annual sales, 450 different products, 18 different plants and selling in more than 100 different countries, Amway‘s operations are vast and complex. Faced with a planned expansion that eventually added five new manufacturing sites, the Industrial Engineering team wanted to find a solution that required less time for data collection, thereby providing more time for critical analysis. So they partnered with Palisade and its Custom Development team to design a new interface and customize Amway’s Excel-based models, using @RISK in the background to power analyses. The result is a custom application Amway calls the Long Range Capacity Planning (LRCP) tool.
Users across the company were trained on how to use the LRCP tool. Plant managers and capacity experts can enter changes to variables such as demand, output rates, new products and run sizes in real time for a selected plant, and then run up to 20 different “what-if” scenarios individually or in combination and see results almost instantly. Results can be studied on their own or displayed alongside existing baseline scenarios for comparison.
Amway’s new tool has already proven its worth across the company, from both the Plastics and Liquids departments, where it was used to determine the feasibility of shift reductions, to the Nutritional Products plant, where it showed the need for new capacity for a series of new products.
Amway Senior Principal Engineer Phil Miclea expects the demand for the LRCP tool to increase, saying, “When you can satisfy a customer’s curiosity in a single meeting, you’ve gained a fan, a believer and a person who is going to ask you to come to the decision-making table more often.”