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2014
PALISADE

Regional Risk Conference

Best Practices in Risk and Decision Analysis

August 21st, 2014 • Sydney
2014
  PALISADE

Regional Risk Conference

Best Practices in Risk and Decision Analysis

August 21st, 2014, Sydney

A Key Event for Quantitative Risk and Decision Analysis

Palisade invited attendees from a range of industries to an intensive 1-day conference in Sydney. This “must attend” event proved once again to be an invaluable resource for professionals dealing with risk in any sector. Industry experts presented a selection of real-world case studies about innovative approaches to managing risk and uncertainty in a wide range of business applications. The program also included practical software training classes presented by Palisade trainers and consultants. Participants learned how to get the most from @RISK and the DecisionTools Suite through example models demonstrating the features that make risk modelling powerful and accessible.

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A Global Resource

This 2014 Palisade Risk Conference is part of a global, annual series of meetings where professionals share ideas and advance the practice of risk and decision analysis. With over fifteen events on six continents this year alone, the Palisade Risk Conferences have become a truly global resource for decision-makers.

Information about 2014 Conferences

Schedule

  General Sessions      
  Software Presentations      
  Industry Case Studies

Thursday 21 August 2014 · Sydney

Please note the conference schedule may change without notice.

 

08:00 - 09:00
Registration
09:00 - 09:40
WELCOME

Welcome and Overview of Decision Making
Duncan Hickman
Palisade Corporation

09:40 - 10:40
10:40 - 11:00
Morning Break
11:00 - 12:00
12:00 - 01:00
Lunch
01:00 - 02:00
CASE STUDY

Simulation Risk Models for Interest Rates, FX and Commodity Prices
Mark Huirua
National Australia Bank

02:00 - 03:00
CASE STUDY

Corporate Valuation using DecisionTools Suite
James O'Brien
PricewaterhouseCoopers

03:00 - 03:30
Break
03:30 - 04:30
SOFTWARE PRESENTATION

Optimisation with Evolver and RISKOptimizer
Rishi Prabhakar
Palisade Corporation

04:30 - 05:00
CLOSING REMARKS

Duncan Hickman
Palisade Corporation

Presenters

  Duncan Hickman

Australia and New Zealand Regional Sales Manager
Palisade Corporation

Duncan Hickman is responsible for looking after customers and growing new business for Palisade throughout Australia and New Zealand. Prior to joining Palisade, Duncan consulted on business structure and growth strategies for software products in financial services, sustainability, energy efficiency and the growing carbon trading market. Duncan is an accredited equities and derivatives adviser with several years of experience in the financial services sector, including the establishment and sale of an online financial services company.

  Dr. Stephen Hinchliffe

Principal Strategic Consultant
Jacobs SKM

Dr. Stephen Hinchliffe has Masters Degrees in Engineering, Business Administration and Commercial Law. He is a Fellow of the Institution of Engineers and Technologies (UK), a Chartered Engineer, and a Registered Professional Engineer of Queensland. Stephen has over 20 years’ experience in the power sector. An electrical engineer by profession, Stephen has worked on electricity market reform mechanisms, renewable energy project development, and strategic advisory projects. He has advised the Australian government on policy development in the renewable energy sector and supported the development of a Geothermal Industry Development Framework and Technology Roadmap for the Australian Government. He has recently advised the Indonesian state-owned electricity, oil, gas, and geothermal development company PLN on mechanisms to assist reaching agreement on tariffs for geothermal projects. This included managing a multidisciplinary international team of geoscientists, reservoir engineers, drilling engineers, power plant specialists and financial modellers in reviewing nine geothermal sites in Indonesia with a combined power capacity of close to 1GW and developing Monte-Carlo-based financial models to project required tariff to meet a target internal rate of return.

  Mark Huirua

Associate Director
NAB Advisory
National Australia Bank

Mark’s professional background includes markets risk advisory, corporate finance advisory and private equity management. Mark has worked for NAB since 2008 where he specialises in market risk advisory services to ASX 50 clients and the Resources sector.

Mark holds an MBA and an MSC (Physics).

Mark oversees and manages all aspects of financial derivatives model development tailored to specific client requirements. Mark has extensive experience in modelling financial derivatives in foreign exchange, interest rates and commodities.

Prior to joining NAB in 2008, Mark was a Principal in BDO’s corporate finance team advising mid-market clients. Prior to BDO, Mark helped to establish and manage the private equity funds of Goldman Sachs JBWere based in Auckland, New Zealand. The Hauraki Private Equity Funds successfully raised NZ$100 million of equity capital and primarily invested in leveraged buyouts in both mid and large transactions. Prior to GSJBW, Mark worked for Ernst & Young where he specialised in corporate finance advisory. In the 90s Mark worked in operational roles for two of New Zealand’s largest corporates (Telecom NZ and Work and Income NZ).

  Anuraag Malla

Power Sector - Utility Management & Regulation Consultant
Jacobs SKM

Anuraag Malla provides strategic consulting and advisory services to the power delivery sector, mainly involving electricity utility and associated stakeholders. He works in Jacobs’s ANZ Resources & Power business unit and is based in Sydney, Australia. In this role, he regularly undertakes frontend planning, feasibility studies, forecasting, auditing, regulatory review works, and quantitative modelling including building project financial models. He has successfully delivered a number of consulting and advisory projects requiring multidisciplinary resources as Project Manager. Malla is a member of EngineersAustralia with 11 years’ professional experience. He has a Bachelor Degree in Electrical & Electronics Engineering (BEng) and two Masters Degrees in Business Administration (MBA) and Management (MIM). Recently, he developed and simulated eighteen (nine sites × two sets of capex information) probabilistic models to determine the tariff range for nine geothermal projects in Indonesia. In 2013, he developed and rolled-out a ‘standard’ option appraisal NPV model that includes a tool to conduct sensitivity analysis and its guideline across a NSW electricity utility business. In the past, he has developed/co-developed the financial model for the Cibuni geothermal project in Indonesia and the San Jacinto Tizate Phase 1 geothermal project in Nicaragua.

  James O’Brien

Director, Corporate Value Advisory
PricewaterhouseCoopers

Jim’s first exposure to risk was as an officer in the Australian Army where he had the pleasure of jumping out of serviceable aircraft, rendering safe unexploded ordnance, and leading demining operations in Bosnia Herzegovina. Having gained a Master of Science in Operations Research and Statistics at the Defence Force Academy he decided to ‘de-risk’ a little by studying full-time at the Australian Graduate School of Management. On graduating with an MBA in 2002 James joined the Australian office of Stern Stewart & Co, a global corporate finance consultancy, and then 5 years ago joined PricewaterhouseCoopers to be a part of the Corporate Value Advisory team in Sydney.

  Rishi Prabhakar

Trainer, Consultant
Palisade Corporation

Rishi brings a broad range of experience and expertise to the Palisade team. He has worked in and consulted to the energy industry, telecommunications, scientific research, banking, and finance with an emphasis on operational risk and Basel II. Rishi has expert skills in the areas of statistical analysis, simulation, time series forecasting, risk/capital modelling, extreme value theory, and survey design and analysis. He holds a BSc Mathematics from the University of Technology, Sydney.

Abstracts

Welcome and Overview of Decision-Making

Duncan Hickman
PALISADE CORPORATION

We will briefly review goals of this year’s conference and ways you can benefit from the event before giving some context and background about Palisade as a company. We will also explain the added insights that tools like @RISK and the DecisionTools Suite bring to risk and decision analysis. More in-depth exploration of @RISK and DecisionTools Suite will be covered in later sessions.

Next, we’ll switch gears to touch upon the decision-making process itself. Building off a recent feature story in the Harvard Business Review called “Deciding How to Decide,” we’ll examine common bad habits decision-makers often exhibit. We’ll walk through a checklist of things to watch out for that can indicate you actually know less than you think, and when you should be considering a probabilistic approach.

Introduction to @RISK and the DecisionTools Suite: Using Monte Carlo Simulation under Uncertainty

Rishi Prabhakar
PALISADE CORPORATION

This presentation will use examples from different industries and applications for an entry-level introduction to @RISK and the other products in the DecisionTools Suite, to give you an excellent briefing on how to use and get the most from these tools.

The session begins with a tutorial on @RISK, walking you through a trial risk analysis using various example models. Key features of @RISK will be highlighted. You will experience the intuitive interface of @RISK as you define distributions, correlations, and other model components. During simulation, you will be able to see all charts, thumbnails, and reports update in real time, and can view your results with a variety of graphing and reporting options. We’ll also point out useful tricks to make risk modeling even easier.

The second half of the session will cover the DecisionTools Suite, an integrated set of programs for risk analysis and decision making under uncertainty. You will learn how the products of the Suite — @RISK, RISKOptimizer, Evolver, PrecisionTree, TopRank, StatTools, and NeuralTools — work together to solve practical problems in the real world. We’ll demonstrate how these tools integrate completely with your Excel program, how to browse, define and analyze your data, and we’ll reveal key tips for using the products together.

  Innovative use of @RISK to determine geothermal feed-in tariff required to meet developer target IRR

Dr. Stephen Hinchliffe and Anuraag Malla
Jacobs SKM

Indonesia has some of the best geothermal resources in the world. However, development has been slow. A principal inhibiter has, until recently, been the financial risk arising from relatively low price offered for the feed-in tariff. This feed-in tariff scheme was established by the Government with an intention to encourage the Independent Power Producers (IPPs) to invest and develop the geothermal sector, but it has not been able to achieve the aim.

Geothermal Tariff Study:
In 2013, Jacobs SKM was engaged by two Indonesian state owned enterprises--PGE, the geothermal development arm of PERTAMINA (Indonesia’s vertically integrated oil and gas company) and PLN, the electricity utility and single off-taker for geothermal energy, to undertake a review of the status of the geothermal developments. The data from this review was then used in a probabilistic model to determine the feed-in tariff required to achieve an agreed internal rate of return (IRR).

Problem:
To reach the target internal rate of return (IRR), it was necessary to use the financial model and @RISK, using probabilistic variables of CAPEX, OPEX, and various engineering characteristics to determine a range of possible tariff. However, typical models for these problems result in a circular reference, i.e. the requirement to determine an input (i.e. tariff) is based on the output (i.e. 14% IRR), and the output cannot be determined without inputting the tariff value in the model. This situation is further complicated by the fact that the IRR calculation itself is an iterative goal-seeking process.

Solution:
Jacobs employed an innovative approach of simulating the inputs independently (without direct links to the output), and vice versa. Jacobs developed and used a macro to ‘read’ the simulated 1000 iterations of each input variables and then ‘inserted’ them into the model to ‘indirectly’ determine the situation that meets the required IRR criteria. By using this innovative approach, Jacobs separated the @RISK output from @RISK inputs by isolating the output functions with the help of macro codes, thus enabling the required feed-in tariff probability function that would be required to achieve the target IRR.

Achievement:
Following successful delivery of the project, Jacobs’ clients, PLN and PGE, have now negotiate revised tariffs for each of the nine developments at a level sufficient to give PGE’s required rate of return. This has enabled these low-carbon-footprint energy projects to proceed.

  Simulation Risk Models for Interest Rates, FX and Commodity Prices

Mark Huirua
NAB Advisory
National Australia Bank

The session will demonstrate how NAB Advisory approaches risk analysis with the use of simulation modelling. A main focus will be to demonstrate the various simulation models being applied to produce random walk, path dependent scenarios as key inputs into quantitative risk analysis. The session will demonstrate several Excel simulation models with @RISK. Key model input assumptions will be discussed including mean reversion, volatility and correlation. The session may also touch on other potential applications of the approach. The session will focus on the practical considerations of addressing real world client risk management issues.

  Corporate Valuation using DecisionTools Suite

James O’Brien
PricewaterhouseCoopers

Valuation models developed for a decision-making purpose often consider risk by incorporating only a limited number of scenarios. Moreover, the selection of these scenarios is often arbitrary and does not take into account factors such as volatility, skewness and correlation between input assumptions. Such models can lead to sub-optimal decisions which leave value on the table, or even worse, significant value destruction.

Discounted Cash Flow analysis, which combines value drivers with probabilistic thinking, can significantly enhance the decision-making process. The approach can be useful for capital allocation decisions, M&A, and even the calibration of executive incentives. This session will discuss these valuation issues and the related application of TopRank, @RISK, and PrecisionTree.

Optimisation with Evolver and RISKOptimizer

Rishi Prabhakar
PALISADE CORPORATION

RISKOptimizer and Evolver use powerful algorithms to perform optimization in Microsoft Excel. RISKOptimizer – an advanced analytical tool that comes with @RISK Industrial – builds on traditional optimization by adding Monte Carlo simulation to account for uncertain (stochastic), uncontrollable factors in your optimization problem. RISKOptimizer and Evolver have long used genetic algorithms to arrive at solutions that are impossible to find using most traditional methods. New version 6.0 introduces new optimization methods that can find optimal solutions even faster than genetic algorithms.

This session introduces you to these powerful tools, showing you how to set up a model, define constraints within the model, and ultimately arrive at the optimal outcome. These steps will be illustrated by means of a detailed retirement portfolio optimization example.




Radisson Blu Plaza

The Palisade Risk Conference will be held at the beautiful and historic Radisson Blu Plaza Hotel Sydney.

Address: 27 O'Connell Street, 2000 Sydney NSW
Phone: +61 282140000
Email: res.sydplaza@radisson.com
Website: Radisson Blu Plaza Sydney

Palisade Corporation
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