@RISK Models Financial Uncertainty of Fehmarn Belt Fixed Link
The Fehmarn Belt Fixed Link is a planned immersed tunnel that will cross the Fehmarn Strait to connect Denmark and Germany. This large infrastructure project is mainly user funded, with an official projected payback period of less than 40 years. However, based on the latest research from RD&I Consulting based in Denmark, it is highly unlikely that this projected payback deadline will be met.
Hans Schjær-Jacobsen, Director of RD&I Consulting and former Professor and Director at the Technical University of Denmark, used Palisade's @RISK software to create financial models for the Fixed Link to determine the likelihood of project success – or failure – in terms of the payback period.
Uncertainty in the model was calculated by probabilistic uncertainty representation and Monte Carlo simulation, as well as interval analysis. Schjær-Jacobsen leveraged @RISK software's ability to calculate a genuine uncertainty profile by Monte Carlo simulation in contrast to just partial sensitivity analyses, using uniform and also triangular distributions as they were easily derived from double estimates (i.e. best- and worst-case), and triple estimates (i.e. best-, base- and worst-case), respectively. The simulation generated the probability distribution of the payback period for the Fehmarn Belt Fixed Link over 60 years, providing a project uncertainty profile presented in terms of a traffic light metaphor: green corresponds to a payback period of less than 40 years, yellow corresponds to a payback period of 40-50 years, and red corresponds to a payback period of more than 50 years.
For the Danish government, the only acceptable outcome of the model for the projected payback period is in the green light zone: less than 40 years. However, based on the model created by Schjær-Jacobsen, the Fehmarn Belt Fixed Link is a high-risk business case and the likelihood of financial project failure in terms of the payback period taking longer than 40 years is equal to 92.5% and substantially larger than acknowledged by the project proponents and presented to the public. This is due to several realistic uncertainties based on readily available facts, including traffic volume and income, construction costs, services and EU subsidies.
"As nobody had done this kind of analysis on the project before, the results were a surprise," explained Schjær-Jacobsen. "However, now that these results have been presented to Fehmarn A/S and the Commission of Transport, we will see how they impact future development of the Fehmarn Belt Fixed Link."
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Interpreting Change in Output Statistics in Tornado Graphs
Let's talk first about the default behavior for Change in Output Mean, which is the default statistic. We'll suppose that you have 2500 iterations in your simulation. The baseline is the overall simulated mean of that output.
The double-sided tornado has one bar for each selected input, and each bar has numbers at its edges. Each bar is prepared by considering one input and ignoring everything else but the output. The key here is that the inputs are first sorted in ascending order and binned in that order, then an output mean is computed for just the iterations in each bin. Click on the link below to discover more details on how the numbers on each bar are computed for Change in Output Mean.
Different shading beginning with @RISK 7.5 shows you which end of each bar represents high input values and which represents low input values. Thus you can easily tell which inputs have positive impact on this output (high inputs at the right) and which have negative impact (high inputs at the left).
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Palisade Corporation is the world's leading provider of risk and decision analysis software and solutions. Founded in 1984, its products @RISK and the DecisionTools Suite are used by over 95% of the Fortune 100, in nearly every industry around the world. Palisade is headquartered in New York State, and has offices in London, Sydney, Rio de Janeiro, and Tokyo.