On-Demand Webinar: “Introduction to Risk and Decision Analysis using the DecisionTools Suite”

Project and Pipeline Valuation

»Watch now: “Introduction to Risk and Decision Analysis using the DecisionTools Suite”

This webinar is designed to provide an entry-level introduction into probabilistic analysis and will show how Monte Carlo simulation and other techniques can be applied to your everyday business analyses. If you build models in Excel then Palisade solutions can almost certainly help you to make more informed decisions, right from your desktop.

The webinar will explore some of the ways in which organisations are applying Palisade tools. From oil and gas, insurance and finance through to healthcare, defence and construction, @RISK and the other tools in the DecisionTools Suite enhance the decision making capabilities of some of the world’s most successful companies.

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. The webinar will demonstrate how easy – and necessary – it is to implement quantitative risk analysis in any business.

» Watch “Introduction to Risk and Decision Analysis using the DecisionTools Suite” now

» Download The DecisionTools Suite – try it for yourself!

Is it Best to Hedge Your Lettuce? @RISK and StatTools Help Answer the Question

Agriculture is traditionally one of the highest risk economic activities. In California, many produce farm operations use a rule-of-thumb to manage their seasonal finances–often aiming to contract 80% of their crop in advance to buyers at set prices, and leaving the remaining 20% to be sold at spot prices in the open market. The rationale for this is based on an assumption that costs, and a reasonable margin, can be covered with 80% of production hedged by forward contracts. The hope is the remaining 20% of production will attract high prices in favorable spot markets, leading to substantial profits on sales. Of course, spot prices might not be favorable, in which case any losses could be absorbed by the forward sales.

Steven Slezak, a Lecturer in the Agribusiness Department at Cal Poly, San Luis Obispo, and Dr. Jay Noel, the Agribusiness Department Chair, used @RISK to conduct a case study on an iceberg lettuce producer that uses the rule-of-thumb approach to manage production and financial risks. “We wanted to know if the 80% hedge actually covers costs over the long-term and if there are really profits in the spot market sales. We wanted to know if the return on the speculation was worth the risk. We found the answer is ‘No’.”

Slezak and his colleagues created an @RISK revenue distribution model with inputs such as past revenue, harvest costs, and crop yields. They used StatTools to create the distribution parameters. Next, @RISK was used to simulate combinations of all costs and revenue inputs using different hedge ratios between 100% hedging and zero hedging. By comparing the results of these simulation in terms of their effect on margins, it was possible to determine the effectiveness of the 80% hedging rule of thumb and the value added by holding back 20% of production for spot market sales.

“While growers have to give up some of the upside, it turns out the downside is much larger, and there is much more of a chance they’ll be able to stay in business,” says Slezak. In other words, the cost-benefit analysis does not support the use of the 80% hedged rule-of-thumb. It’s not a bad rule, but it’s not an optimal hedge ratio.

Slezak is a long-time user of @RISK, and has relied on the software to perform economic and financial analysis on a wide range of problems in industries as diverse as agribusiness, energy, investment management, banking, interest rate forecasting, education, and in health care.

Read the complete case study here.

Professor Hooked on @RISK Brings its Benefits to Cal State Monterey Bay

Dr. Sumadhur Shakya, Assistant Professor of Operations Management & Agribusiness at California State University, Monterey Bay (CSUMB), has used @RISK in his own academic research and as a teaching tool in his classes, Operations Management and Supply Chain Management. Indeed, thanks to his championing of the software, 360 students at CSUMB will use @RISK, annually, either in Dr. Shakya’s classes, or in other business courses such as Commodity Trading.

Dr. Shakya says he ‘got hooked’ on Palisade’s software when he was in his Master’s program at North Dakota State University, and later in his Ph.D. at the Upper Great Plains Transportation Institute. He used it to apply  a ‘real option model’ for the valuation of random genetic traits, such as drought tolerance, in crop plants to determine their viability at various stages of development. @RISK was useful in accounting for the assorted uncertainties involved in these kinds of prospects, such as the size of the capital investment to develop the traits, rate of adoption post commercialization stage, and expected return to farmers/users in case drought occurs. Through using @RISK’s simulation models, Dr. Shakya’s research concluded that, after a few years of what looked like an out-of-money (financial losses) option, the traits ultimately became profitable after passing the third stage of development, and later during commercialization. “Had it not been for this model I developed via @RISK, most people would not have invested in the development of trait because in the first and second stage of commercialization, the option looked like it was a loss,” says Dr. Shakya.

Now, as a faculty member at CSUMB, Dr. Shakya has advocated for and introduced @RISK to his and other classes, so that students can learn the benefits of quantitative risk analysis in business and operations management. With support of CSUMB, he is in the process of helping to develop a bachelor’s program in AgBusiness  that will focus on supply chain management, perishable and non-perishable agricultural commodities, precision agriculture, alternative Ag technology (like vertical farming, genomics, water management etc.) and sustainability, while covering subjects like viticulture and Ag tourism to meet the needs of the Salinas Valley and beyond. It will complement the programs at UC Davis and Cal Poly, San Luis Obispo. This new program will have a rigorous training in using @RISK to evaluate and model uncertainties in crop rotation plans, inventory management, and the dynamics within the perishable commercial agriculture supply chain. “Our plan is to not just @RISK, but also the DecisionTools Suite,” says Dr. Shakya. “Particularly, we would use StatTools.”

If approved, this new Bachelor’s program would be active and running by 2017.

 » Read Dr. Shakya’s paper that got him hooked on @RISK
 » More about the DecisionTools Suite

VIDEO: Introduction to the DecisionTools Suite

Do you use @RISK but haven’t explored the other Palisade Tools? It’s time you branched out to explore the DecisionTools Suite, which, in addition to @RISK for Monte Carlo simulation,  includes PrecisionTree for decision trees, and TopRank for “what if” sensitivity analysis. In addition, the DecisionTools Suite comes with StatTools for statistical analysis and forecasting, NeuralTools for predictive neural networks, and Evolver and RISKOptimizer for optimization. All programs work together better than ever before, and all integrate completely with Microsoft Excel for ease of use and maximum flexibility.

To learn more, check out this introduction video to the Suite,  given by Palisade expert trainer Rishi Prabhakar:

The video will give viewers a good understanding of of each of these separate products and how they work together.




NeuralTools Nets More Dollars for Business Financing Firm

Fensterstock_BusinessBackerLending companies are only able to make a profit if their clients pay back their loans. But how do you know which client to lend to? And how much to lend? These are the type of questions that can make or break a financing firm, and that’s why Business Backer, a lending firm for small businesses, decided to tackle these questions head-on. While the company has had considerable success—they have secured $130 million in funding to more than 4,000 small businesses across the United States–they wanted to take guesswork out of the equation.

To answer their questions, they turned to Albert Fensterstock, Managing Director at Albert Fensterstock Associates, who specializes in improving risk analysis capability and collection department efficiency. Fensterstock, in turn, relied on Palisade’s NeuralTools software to help Business Backer begin refining their decision-making process. “I’ve used Palisade’s products for years,” says Fensterstock. “And I used it this time to answer a two-fold problem: How to make a loan with less risk, and how to come up with an appropriate credit limit.”

Specifically, Fensterstock used NeuralTools and StatTools to discover the most predictive variables when evaluating a potential client, as well as to determine how likely a debtor was to pay back a loan, and how much they were best-suited to borrow.

Overall, the models Fensterstock developed for Business Backer set an impressive precedent. “I’ve been doing this kind of work for 22 years, and I’ve never before built models that were able to do this in one task,” he says. “This model is better than anything I’ve ever developed.”

Read the full case study here.


Palisade Software Helps Major Electronics Retailer Save Millions

Nighthawk Intelligence Utilizes DecisionTools Suite to Revamp Major Electronics Retailer’s Financial Services Department A major electronics retailer was in trouble—their financial services department was near extinction, and needed to find a way to create greater savings.  As a solution, they looked at increasing the issuance and utilization of its private label credit card (PLCC) to offset some of the nearly $370 million in annual interchange fees (the transaction fee charged to merchants for using the cards) related to arbitrary rates imposed by issuing banks and card brands.

This idea was easier said than done—it required an entire corporate culture shift and a relationship reestablishment with its two issuing banks—all within an eight-month period.

To get buy-in from the company’s decision-makers, there needed to be clear data that showed that the strategy was likely to succeed. The company enlisted the services of Nighthawk Intelligence to examine inefficiencies in the PLCC application process and effectiveness of marketing campaigns geared toward PLCC holders. Drew Pulvermacher, founder and chief probability officer at Nighthawk Intelligence, utilized StatTools, @RISK and PrecisionTree—all part of Palisade’s DecisionTools Suite—to help the retailer with this process.

Using StatTools, Pulvermacher was able to show how a marketing campaign to promote customer PLCC sign-up would affect consumer activity, allowing the  retailer to adjust the messaging and price appoints to achieve the greatest likelihood of success for each marketing campaign. Additionally, using @RISK and StatTools, Pulvermacher was able to build a distribution library, which the retailer could use to audit variable assumptions.

Pulvermacher also used PrecisionTree to determine how best to streamline the PLCC application process (customers could get deterred by long wait lines at the customer service desk). Using PrecisionTree, Pulvermacher mapped out a series of customer decisions that took place when making purchases and where their interest in making a purchase broke down, and identified the departments that would benefit most from a faster, more efficient application process.

Within a year of implementing the strategy towards expanded PLCC usage, the company realized nearly $250 million in related accrued benefits, which included interchange savings, financing income, and enhancement services. Instead of finding a way to justify its existence, the financial services department became a vital part of the organization’s fiscal success. “Palisade…offered the resources necessary to quickly transform an entire organizational mind-set to embrace uncertainty and embed a systematic process of measuring performance,” said Pulvermacher.

Read the original case study here.