Tornado chart

Graphing and Reporting Improvements in @RISK 7.5

New to version 7.5, all graphs and reports in @RISK now feature a more streamlined interface, to accomplish more in fewer clicks.  One of the many additions made to help save time: you can now toggle between your default probability, cumulative and tornado graphs without having to click from each respective drop-down menu.

DefaultGraphs_LG
The new style of these easy-access buttons will allow you to more easily toggle between your favorite graphs.

In addition, graphs and reports support Excel’s built-in themes and colors. Now you can apply your company’s standard Excel themes to your @RISK reports, improving communication, consistency and efficiency!

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The same report with stylistic changes that happen with a click of the mouse.

»Learn about all the new functions in @RISK 7.5 and The DecisionTools Suite

New and Improved Tornado Graphs in @RISK 7.5

It’s often difficult to determine which factors require the most attention in business decisions which can lead to focusing on the wrong things while ignoring what’s most important.  Tornado graphs are an effective way to determine which aspects have the most impact on a business decision, so you can focus on what matters rather than negligible factors.  Palisade’s @RISK, which has been used for years by many companies who utilize tornado graphs for sensitivity analyses, was just given multiple improvements to its tornado graph functions that offer new analytical features and simpler use to increase the ease of understanding and communicating your results.

One of the new features of @RISK 7.5 is the ability to overlay multiple tornado graphs into one visual.  Creating a separate chart for each simulation and then comparing the results can be both difficult to compare and time-consuming.  With @RISK 7.5 you can simply overlay all of the simulations making comparison easier to see and communicate to others.  Rather than focusing on communicating the comparison, you can jump right to making more informed decisions!

TornadoOverlaysSM

Another new exciting feature in @RISK 7.5 is the Contribution to Variance tornado graph function.  This feature determines the amount of output variance is attributed to each factor so you can see which inputs are creating the most impact on the output.  You can choose whether you want to see the magnitude and direction of the variance or just the magnitude to more easily compare the contribution variance.

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Finally, we have added a shading option to the Change in Output Mean tornado graphs to quickly see whether the input associated with each bar is high or low when the output statistic increases or decreases.  In the example below you can see that when inputs such as Product Lifetime and Initial Unit Price are high, there is a positive impact on the net present value (NPV) of the project; when an input such as Initial Cost is high it will have a negative impact on the NPV.

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Using @RISK for a Drug Development Decision: a Classroom Example

Using @RISK for a Drug Development Decision: a Classroom Example At Illinois State University, Associate Professor of Finance Domingo Joaquin uses @RISK to demonstrate how simulation modeling can be employed to support the R&D decision of a pharmaceutical firm, illustrating countless risk evaluation examples to students.

Dr. Joaquin uses the example of the fictitious company “Drugco”, which has just successfully completed Phase I and Phase II clinical trials for a new pharmaceutical, “Newdrug”. Drugco must decide if it should proceed with Phase II, which takes two years to complete and requires an investment of $200 million. At completion of Phase III, a filing is made with the FDA, which then takes a year to assess the efficacy of Newdrug in treating the targeted ailment with acceptable levels of side-effects.

If the FDA approves, Drugco can either sell the rights to the drug for a pre-launch exit value of $400 million, or it can launch production by investing $70 million in fixed assets and $30 million in net working capital.

Clearly there is a great deal of uncertainty facing this hypothetical company, making it a perfect problem for @RISK to analyze. Dr. Joaquin has his students include key inputs, including: drug efficacy; market size and growth; initial and subsequent market share; initial and subsequent cost of goods sold to sales ratio, and terminal EBITDA.

After running these inputs through @RISK, students get histograms that depict key outcomes, including the Net Present Value (NPV), Internal Rate of Return (IRR), as well as the most serious risk drivers and influential inputs, as depicted by a tornado chart.

Net Present Value (NPV)

Net Present Value (NPV)

Internal Rate of Return (IRR)

Internal Rate of Return (IRR)

Tornado chart showing ranked inputs and their effect on NPV.

Tornado chart showing ranked inputs and their effect on NPV.

Dr. Joaquin uses @RISK in his classes to teach examples like the one described above, as well as many others, preferring @RISK over other competing products due to its versatility and power.“It makes the process of simulation very easy to do, as opposed to having to start the simulation using Excel,” he says.

Read the detailed case study here.