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LEGO’s Enterprise Risk
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Decision-Making and Quantitative Risk Analysis using @RISK
@RISK Plays Key Role in Toy Maker LEGO’s
Founded in 1932, LEGO is the world’s third largest toy maker. Operational risk management has been a key part of the company’s strategy for many years. @RISK is used to handle issues including supply disruptions, demand volatility, currencies, employee health and safety, and product quality and safety. Today, the sophistication of LEGO’s Enterprise Risk Management (ERM) framework is widely recognized. It is one of the foremost companies to use Monte Carlo simulations to quantify risk.
For example, suppose budgeted sales were set at €2 billion. If the @RISK model shows there is a 5% risk that sales won’t reach more than 81% of this level, the resulting revenue shortfall is €400 million – a significant sum to lose. Equally, a 5% chance that they will be €550 million over budget is also risky because the LEGO Group may not be able to manufacture this amount. However, knowing these figures in advance enables the company to take mitigating action and minimize the effects on the company.
LEGO believes that risk management is about extremes, not averages. It wants to know what will happen in the 10% chance that something does occur, not the 90% chance that it doesn’t.
“Today [@RISK] enables the ERM team to undertake in-depth
Palisade Featured in Actuarial Post
In “Monte Carlo … Or Bust?” Randy talks about the use of Monte Carlo simulation in the world of reinsurance. Several examples are discussed demonstrating how Monte Carlo can be useful when compared with traditional, more static measures.
New White Paper:
The modeling incorporates the uncertainty of some of the key inputs to both the capital cost and the operating cost models. Monte Carlo simulations reveal the expected distributions of key cash flow metrics and the sensitivity of the key cash flow metrics to changes in inputs. The analysis shows the risk of insufficient cash flows to the project developers and identifies those cost inputs and revenue generating assumptions whose changes generate the greatest risk of project failure.
The analysis is presented by FutureMetrics. FutureMetrics is a globally recognized consultancy in bioenergy project development.
Matthew Rosenberg discusses the use of Monte Carlo simulation and optimization to create customized personal financial plans for individuals. He also covers how the results of a personal financial plan are translated into a portfolio management strategy that will give an investor the highest probability of achieving a client’s financial goals.
@RISK and RISKOptimizer can be used to effectively model tolerance analysis in engineering and manufacturing applications. This model represents a tolerance analysis study performed to solve a potential assembly issue in a gear pump typically used in powerpacks, forklifts, and low noise emission machines.
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