@RISK Modeling Tips
» Mumbai 13 January
High-Risk R&D Project Valuation at Novelis, with the DecisionTools Suite
Dave MacAdam, Senior Manager of Innovation Strategy at Novelis, relies on the DecisionTools Suite. "Within our research and technology department, there was previously little to no structure put around the risk evaluation of projects," says MacAdam. "The process was perfunctory and overly reliant on input from the commercial side. While commercial input is necessary, we found more information from the scientific side of the company was needed to accurately assess risk and more integration was needed between those two schools of thought."
Using @RISK and the DecisionTools Suite, MacAdam introduced a method in which models could be built that incorporated all assumptions from the different Novelis teams. "By going through this process, I was able to refine the assessment of the risk of each project from the project leads themselves," says MacAdam. "This becomes an integral part of our risk assessment process and portfolio optimization." (Read more detail about MacAdam's models in the complete case study.)
"[@RISK's] graphs make explaining the risk of a project easier," MacAdam says. "In particular, @RISK's tornado graph feature allows us to take the inputs from all the different participants on a project —from R&D, operations, marketing, etc.— and articulate what the biggest risks are in a hierarchical way. It's an opportunity to challenge people's assumptions and get at the heart of the real risks in a project."
MacAdam uses PrecisionTree to show project leads how each stage of a project influences the next.
MacAdam has been able to demonstrate to key decision makers which areas contribute most to a project's overall risk, often revealing areas underestimated in their significance. "We're all making sausage, and no one wants to see how it gets made," he says. "The more succinct and clear you make those graphs, the more effective the decision-making process can be."
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Linskbridge, SPC, a consulting firm that advises international development organizations in determining what efforts have the highest impact along with the best value for money spent, recently used @RISK, RISKOptimizer, and PrecisionTree to help determine the best method of introducing a life-saving medicine in developing countries. The process requires analytical forecasting of both demand and supply of the drug, as well as a detailed market analysis. With the aid of Palisade's DecisionTools Suite software, the consultancy has been able to offer clients sound advice on which ventures have both humanitarian impact and fiscal soundness.
"Palisade's DecisionTools Suite is a very important component to our work," says Khatuna Giorgadze, an associate with Linksbridge. "Since 2011, it has enabled us to do the required market and investment analysis and make decisions. It's easy to use, and its compatibility with Excel makes it all the more appealing. We're very happy with how this software has enhanced our work."
@RISK is well suited to forecast the timing of major structural costs. The primary sources of uncertainty are the time to complete a project, the time after the project when the cost is incurred, and the size of the cost. This example shows how @RISK can be used to forecast structural costs by setting up the problem, modeling the uncertainty, determining the time at which key events occur, running a simulation and interpreting the results.
Introduction to BigPicture
Introduction to Risk and Decision Analysis using
Introducción al análisis de riesgo y
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