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Decision-Making and Quantitative Risk Analysis
Decision-Making and Quantitative Risk Analysis
Project Risk Assessment
Black & Veatch Corporation is a leading global engineering, consulting and construction company with more than 100 offices worldwide.
As a company involved in the design and execution of hundreds of major capital construction projects, Black & Veatch is acutely aware of the impact of risk factors on the bottom line. Some risk factors are so significant and probable that funds must be held in reserve to protect the company from catastrophic losses. Other risks are less significant and/or have sufficiently low probability that reserving a percentage of the potential loss will offer enough protection.
The “art” is to understand the balance between adding in reserve funds for risk protection and not adding reserve funds for a competitive advantage in the bidding process. Until 2009, Black & Veatch struggled with anticipating and reacting to potential risks and market influences which tended to behave cyclically. As events such as weather, labor shortages, supplier interruptions and the like occurred, company management tended to increase contingency risk funding into project proposals. Over succeeding years, business was lost due to this increase and, as a result, the reserves were reduced to a point that losses increased from the impact of risk events and the cycle began again.
Through the application of risk modeling, including Monte Carlo analysis using @RISK, Black & Veatch has been able to better understand and predict the probability of the various risk factors. The increased accuracy and precision of the risk estimate has benefitted the company by improving the competitiveness of proposals while simultaneously protecting profits by appropriate reaction to identified risks. All major construction projects are now assessed using this model with senior executive review.
Some key features of new @RISK 6.0 are integration with Microsoft Project, improved graphs, better distribution fitting, and more. Other important new improvements in the Suite are Bayesian revision in PrecisionTree, the new OptQuest optimization engine in RISKOptimizer and Evolver, sensitivity analysis in NeuralTools, and scatter plot matrices in StatTools. There are many more enhancements, so we encourage you to take a look!
As a current Palisade software user, we would like to invite you to test new version 6.0 and send us your feedback. Your input will be help us improve version 6.0 as we prepare the final release. Please click the link below to download the DecisionTools Suite 6.0 beta:
The DecisionTools Suite Beta can be installed on the same system as a licensed copy of version 5.x of the DecisionTools Suite or @RISK. Both versions install to different directories and launch from separate icons. You cannot run both version 6 and 5.x in the same session of Excel; when running one version, exit Excel before launching the other version.
This Beta version expires on March 31, 2012.
Planning, budgeting and forecasting lay the foundation for any effective business plan, but economic uncertainty can make it difficult to set clear goals and objectives. During volatile economic times, this is more critical than ever for success and survival. By participating in this brief 10-minute survey, you will be able to see how your experiences in financial planning, budgeting, and forecasting compare with those of your peers, benchmark your performance, and see how you can achieve best-in-class results. The tendency of businesses in this current climate is simply to clamp down on expenses. In doing so, the potential for missed or lost opportunity increases. This study will provide a roadmap for organizations trying to improve their planning, budgeting and forecast processes so as not to miss out on these opportunities. Your participation is a vital part of the report development, and serves as the foundation of Aberdeen's research.
Individual responses will be kept strictly confidential, and data will only be used in aggregate.
Present Your Case Study in Sydney
All presenters attend the conference and social events at no charge.
“The greatest benefit has been reducing a number of significant uncertainties down to a single output that provides our senior leadership and board of directors with a realistic expected outcome,” said Stephen Johnson. Arc of Yates CFO. “Comparing the two outlying years in our three-year strategic financial plan has also provided advance warning that the next two years will be financially challenging. As a result, we have re-prioritized capital projects for 2011-2013 and will need to work more collaboratively with other similar agencies to reduce overhead and administrative expense.”
RISKOptimizer in @RISK Industrial can be used to maximize the profit of a loan portfolio given uncertainty surrounding potential losses. You can use optimization and simulation to account for the risk in various loans and see the effect on the portfolio at large.
Suppose a bank borrows money from its depositors and other sources at an average rate of 4.5%. The bank has seven investment grades for loans whereby interest rates rise to reflect the underlying risk. As loan creditworthiness declines, the expected loss probability rises along with the degree of loss.
Moreover there is a specific loan reserve associated with each grade of loan.
The bank has $100 million in capital. What is the optimal allocation of capital to maximize profits?
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