Johnson Graduate School of Management Prof Examines FiveThirtyEight Election Predictions using @RISK

Using @RISK for a Drug Development Decision: A Classroom Example
At Illinois State University, Associate Professor of Finance Domingo Joaquin uses @RISK to demonstrate how simulation modeling can be employed to support the R&D decision of a pharmaceutical firm, illustrating countless risk evaluation examples to students. 

Dr. Joaquin uses the example of the fictitious company “Drugco”, which has just successfully completed Phase I and Phase II clinical trials for a new pharmaceutical, “Newdrug”. Drugco must decide if it should proceed with Phase II, which takes two years to complete and requires an investment of $200 million. At completion of Phase III, a filing is made with the FDA, which then takes a year to assess the efficacy of Newdrug in treating the targeted ailment with acceptable levels of side-effects.

If the FDA approves, Drugco can either sell the rights to the drug for a pre-launch exit value of $400 million, or it can launch production by investing $70 million in fixed assets and $30 million in net working capital.

Clearly there is a great deal of uncertainty facing this hypothetical company, making it a perfect problem for @RISK to analyze. Dr. Joaquin has his students include key inputs, including: drug efficacy; market size and growth; initial and subsequent market share; initial and subsequent cost of goods sold to sales ratio, and terminal EBITDA.

After running these inputs through @RISK, students get histograms that depict key outcomes, including the Net Present Value (NPV), Internal Rate of Return (IRR), as well as the most serious risk drivers and influential inputs, as depicted by a tornado chart.

Dr. Joaquin uses @RISK in his classes to teach examples like the one described above, as well as many others, preferring @RISK over other competing products due to its versatility and power.

@RISK[@RISK] makes the process of simulation
     very easy to do, as opposed to having to
     start the simulation using Excel.
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                        Domingo Joaquin, Associate Professor of Finance
                        Illinois State University

 » Read the Case Study
 » Related paper published in Social Science Research Network
 » More about @RISK

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Teaching Tips & Examples

The DecisionTools Suite is a great way to present quantitative techniques in a straightforward, easy-to-understand way for students.

Pricing Products to Maximize Profit
Excerpted from Evolver Solutions for Business,
by Roy L. Nersesian, published by Palisade Corp.

A company makes a product with a maximum plant capacity of 2,000 nominal units per operating period. Marketing research has been conducted on how price affects sales. The conclusion of the study is that everything produced can be sold if the price is low enough and nothing can be sold if the price is high enough. Use the downloadable example file below, in conjunction with Evolver, to walk through an example of how a company would determine what pricepoint to set their products at.

» Download example file and step-by-step instructions

Tech Tip of the Month

Scheduling Rework in a Project

When a certain task, call it Task 3, is finished, there's a 20% probability that the work may not be acceptable, in which case Task 3 will have to be redone. (The rework might include one or more predecessors of Task 3 too.) How do I set this up with probabilistic branching in @RISK?

Probabilistic branching can go only forward, not backward. You could have a rework task, as a successor to Task 3, and branch around that rework task with probability 100%–20% = 80%. However, there's a more straightforward solution: use a RiskProjectAddDelay function in your Risk Register.

» Download an example file and learn how by visiting
   Palisade's Knowledge Base

Featured White Paper

The DecisionTools Suite is part of complex analyses published in white papers.

Using Simulation to Support the R&D Decision of a Pharmaceutical Firm
Domingo C. Joaquin and Han Bin Kang; June 29, 2014,
'Social Science Research Network'

This paper is at the root of the above featured story. It illustrates how simulation modeling can be employed to support the R&D decision of a pharmaceutical firm. The authors use a simplified but realistic example, where a drug company has just successfully completed the second phase of a three-phase process for assessing the effectiveness of a proposed drug in treating a targeted ailment with acceptable levels of side-effects.

Palisade  Read the full paper here


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Palisade 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.

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The DecisionTools Suite is the world’s only integrated set of risk and decision analysis programs. The Suite includes @RISK for Monte Carlo simulation, PrecisionTree for decision trees, and TopRank for “what if” sensitivity analysis. In addition, DecisionTools Suite comes with StatTools for statistical analysis and forecasting, NeuralTools for predictive neural networks, and Evolver and RISKOptimizer for optimization. All programs work together seamlessly, and all integrate completely with Microsoft Excel for ease of use and maximum flexibility.

The Suite is offered in three affordable and flexible licensing options for those in academia: Student Versions, Course Licenses and Full Academic Versions.

» Schools using Palisade software
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In This Issue

» Using @RISK for a Drug
   Development Decision:
   A Classroom Example

» Licensing Options

» Teaching Tips &

   Pricing Products to
   Maximize Profit

» Tech Tip
   Scheduling Rework in
   a Project

» Featured White Paper
   Using Simulation to Support
   the R&D Decision of a
   Pharmaceutical Firm

» About Palisade and the
   DecisionTools Suite

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