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Custom Development: Case Studies
Schedule and Cost Risk Analysis
using Monte Carlo Simulation

The Problem
A large engineering firm faced the challenge executing a multi-million multi-year infrastructure project. The contracting agency required this firm to perform an integrated schedule and cost risk analysis of the project to approve its funding. The firm needed to answer questions such as, “What is the probability of completing the different phases by the contractual target dates?  What is the required budget at a certain confidence level?  What is the contingency to be allocated in order to meet project objectives?”  The solution also needed to be capable of using schedule and cost information from third-party applications in order to assess the progress of the project and forecast performance completion at any point of time.

The Solution
Palisade Custom Development designed and implemented an Excel add-in application using the @RISK XDK that imports schedule and cost information from external applications to recreate the project schedule and its cost structure in an Excel environment.  The add-in also includes a risk event database that is used to create and maintain a risk register for assessing the project performance.  The solution automatically updates actual project data and runs an @RISK Monte Carlo simulation to predict the remaining duration and associated costs of the project.  Custom reports are created for management review so that decisions can be made promptly.  The project team is able to continually mitigate risks and exploit opportunities so the project is aligned to the desired level of performance.

 

New Product Valuation using Monte Carlo Simulation
and Probabilistic Goal Seek

The Problem
An automobile parts manufacturer needed a risk analysis application to assess if the development and commercialization of a new product will benefit its product portfolio. The company needed to deploy this model in different regions of the world and make it available to business analysts that were unfamiliar with probabilistic risk modeling.   Some of the variables that affected the value of the project included: the project duration, capital investments, fixed and variable cost for labor and materials, indirect time-dependent costs, sales prices and expected volume of sales that would change over time.   

The Solution
Palisade Custom Development helped the company enhance their existing model and adapted it to the latest technologies in Monte Carlo simulation in @RISK.  Palisade created an add-in application that creates the financial model structure given the project characteristics and the uncertain variables that affect the value of the project.  The automated solution reduced simulation time considerably and improved reports. The add-in also allows the user to assess negotiation strategies using @RISK’s probabilistic Goal Seek feature.  Users simply define the required parameters for the project using customized dialog boxes; the add-in does the rest!

 

VaR of Energy Futures using
Monte Carlo Simulation

The Problem
A utility company buying and selling futures contracts of natural gas approached Palisade Custom Development to better understand the risks they faced given the volatility and seasonality of gas prices.

The Solution
Palisade created an add-in that extracts historic price information from a database to perform a Principal Component Analysis (PCA) and uses that information in an @RISK simulation model to predict forward price curves for natural gas. The add-in also extracts the current position of the portfolio of contracts and assesses the portfolio’s VaR.  In just seconds, the application can analyze thousands of data points.

 

Web Deployment of Agricultural Risk Model
using the @RISK Developer Kit

The Problem
A research institution developed a risk analysis model using @RISK to assess the probability that cattle would get infected by a particular disease. The model also evaluated the optimal mitigation measures to take in the event of infection.  The institution needed to make this model accessible to analysts around the world.

The Solution
Using the @RISK Developer Kit, Palisade Custom Solutions utilized the existing Excel model to create a web-based application that allows users around the world analyze the risk of infection to their particular cattle herds.  Analysts simply log on to a web site and respond to simple questions about their current farm conditions.  In one click a simulation is run and the users can identify the best strategy for reducing the risk of infection in their cattle.

 

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