Quantitative – GleeYM https://www.gleeym.com GleeYM offers complete risk management , PMO, Mind Mapping, Training and Digital Transformation Servces! Tue, 14 Jan 2025 03:59:32 +0000 en-CA hourly 1 https://wordpress.org/?v=6.9.4 https://www.gleeym.com/wp-content/uploads/2022/01/cropped-gleelogo-1-1-32x32.png Quantitative – GleeYM https://www.gleeym.com 32 32 166212591 5 Ways Risk Management Software Can Help Your Business. Are You Still Not Considering Risk Software? https://www.gleeym.com/2021/02/11/5waysrisk/ https://www.gleeym.com/2021/02/11/5waysrisk/#respond Fri, 12 Feb 2021 03:50:08 +0000 https://www.gleeym.com/?p=2368

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Keywords

Risk Management Software,  Software Implementation, Risk, Schedule Risk Analysis, Cost Risk Analysis, Monte Carlo Simulation, Risk Register, ERM, Qualitative Risk Analysis,  Quantitative Risk Analysis, Schedule, Cost, Dashboards, Data, Business Risk, Financial Risk

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Summary

Risk software is the most important asset of your business’s overall risk management system. You can’t afford to implement this technology without first understanding how it works, why you need it, and how it fits into your overall risk management strategy?

Mind Map for risk software by GLEEYM
Pic 1- Risk Implementation

Introduction

It’s not always easy to predict what the future will hold, so it can be difficult to understand how to manage risks in your business. However, with a risk management software solution, you’ll save time and money and help your company run more efficiently. 

Before an employee’s fingers hit their keyboard, they must make a decision about what kind of risk management software to use. Here are some tips on how to choose the right risk management software for your business and get started with implementing it.

GleeYM can help you with a valuable service to pick and incorporate risk management software for decision making and meeting strategic goals. Risk management software is critical to meet strategic goals. However, in this era of uncertainties, the best results happen when you implement risk management software that is easy to use, customizable, and fully integrated. While software selection, consider these following five points (5 ways) for more profitability, productivity, and sustainability:

  • Decision Making.
  • Schedule Risk Analysis.
  • Cost risk Analysis.
  • Project, Business and Financial Risk Analysis.
  • Key Risk Indicator.

Whether you want to select and implement a standalone or enterprise level software, we will walk you through the planning process and implementation methodology.

Contact GleeYM for more discussion.

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Quantitative

Risk software is the most important asset of your business’s overall risk management system. You can’t afford to implement this technology without first understanding how it works, why you need it, and how it fits into your overall risk management strategy.

While software selection, consider these five (5) following points for more profitability, productivity and sustainability:

1- Decision Making

Risk software can help to make decision making under uncertainty. Quantitative Risk analysis software has the capability to specify input and associated uncertainties and risks. After performing Monte Carlo simulation, decision makers can get the numbers to make decision. 

2- Schedule Risk Analysis

Schedule risk analysis helps assign uncertainty and risk(s) to a specific activity. It helps to understand the impact of activity delay and immediate milestone.

visit https://www.gleeym.com/qra

https://www.gleeym.com/blog for more details

3- Cost Risk Analysis

Cost risk analysis helps to identify key cost drivers after performing Monte Carlo simulation. Advanced what-If analysis helps to simulate various scenarios and compare results.

visit https://www.gleeym.com/qra

https://www.gleeym.com/blog for more details

4- Project & Business, Financial Risk Analysis

In this era of 2nd machine age, change is inevitable. Cost of doing business, sustainability and meeting strategic goals are becoming challenging. Therefore, businesses are continuously evaluating uncertainties and risk associated with project and business by assessing NPV, IRR (Discounted cash flows), Loans, Credit risk, currency risk, trading and market risk etc.

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https://www.gleeym.com/blog for more details

5- Monitor Key Risk Indicator (KRI)

Risk software helps to monitor key risk indicator (KRI). Analyzing KRI trends, helps to adapt decisions accordingly. 

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]]> https://www.gleeym.com/2021/02/11/5waysrisk/feed/ 0 2368 Integrated Cost and Schedule Risk Analysis (IRA). Why? 5 visuals explain it! https://www.gleeym.com/2020/03/12/ira/ https://www.gleeym.com/2020/03/12/ira/#respond Thu, 12 Mar 2020 15:42:02 +0000 https://www.gleeym.com/?p=1423

Summary

In Oil & Gas industry projects are always complex whether onshore or offshore. Remote locations, site access, communities, resource constraints and long lead items (LLI), etc. can be challenging to execute the project. Performed schedule and cost risk analysis with uncertainty using Monte Carlo simulation for Condensate Process and Storage Facility Project. 

Developing a schedule model for a level-I schedule is challenging and time-consuming. Then level-II & level-III schedule models will take more time and effort. After developing the model, it is a common understanding to use “index finger” to run simulations and that’s it. Although it’s required to run simulations many times to analyze the data and spread of the distribution. Adding time-dependent cost plays an important role in displaying the Schedule –cost Joint confident level (JCL). 

It is more challenging when schedule using different calendars and assign weather probabilistic calendar to one specific activity. Developing a schedule and cost stochastic model for risk analysis using Monte Carlo simulation requires time to work with key stakeholders including planners. Activity links also play a vital role in output.

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Keywords

Oil & Gas, Condensate, Processing Facility, Schedule, Cost, Level -1 Schedule, JCL, Risk, Risk Register, Quantitative, Qualitative, Quantitative Schedule Risk Analysis (QSRA), Quantitative Cost Risk Analysis (QCRA), Integrated Cost & Schedule Risk Analysis (IRA), Probability distribution, Cumulative probability Distribution, Monte Carlo Simulation (MCS) , Iteration, Uncertainty, Data, Data Analysis, data gathering, Calendar, Construction, Engineering, procurement, FEED, Resources, Resource Risk, 

Project Schedule for Condensate Storage Facility

Schedule risk analysis (SRA) helps to analyze the uncertainty in the project schedule using Monte Carlo Simulation. Deterministic schedule duration and finish date don’t provide enough information to answer the following questions:

  1. What is the probability of completing the project on the target date?
  2. What if the predecessor of an activity finishes late?
  3. What is the eighty (80%) chance of finishing the project?

SCR scope is:

  1. Schedule Risk Analysis (SRA) to analyze uncertainty
  2. Correlating the activities
  3. Probabilistic Branching
 

Level – I schedule is required to perform cost and schedule risk analysis during the feasibility or initial stage of the project. Level – I schedule is given with cost estimates below:

Level Schedule for Integrated cost and schedule risk analysis. www.gleeym.com
Pic 1 - level - I Schedule

Project Uncertainty and Risk

uncertainty to project activity can be a result of lack of information, sudden market up and down, inflation and inaccurate estimation etc. 

Following risk events has been identified after risk workshop with key stakeholders. risk management is an iterative process and new risks are identified during the complete project life cycle.  List of identified risk is:

Pic 2 - Schedule Risk
Cos risk - www.gleeym.com
Pic 3 - Cost Risk

Quantitative & Schedule Risk Analysis

Cost and schedule risk analysis is performed using Monte Carlo simulation. cost and schedule risks are linked to activities. Activities are correlated to avoid merge biased. It is very important to re-run the simulation and visualize the result. Before running simulation perform checking:

1- Schedule activity relationship and linkage.

2- Check for any soft and hard constraint. 

3- validate cost estimate.

4- Resource allocation, resource over allocation and resource leveling.

5- Project calendar(s) and linking of calendar to project activities.

6- It is recommended to perform DCMA 14 points analysis to validate the schedule.

Results are:

Probability Density Chart - www.gleeym.com
Pic 4 - Quantitative Schedule Risk Analysis Results
S curve - ww.gleeym.com
Pic 5 - Quantitative Cost Schedule Risk Analysis Results

Joint Confidence Level (JCL) is an integrated uncertainty analysis of   joint cost, schedule, uncertainty and risk. It helps to visualize schedule and cost results to make decision under uncertainty. 

Joint Confidence level for cost and schedule - ww.gleeym.com

Conclusion

Integrated Cost and Schedule Risk (IRA) is performed to analyze the complete project scenario as a whole with associated uncertainty and risk. It also helps to validate the project estimates and budget. It also useful to calculate contingency reserves to manage risks.

Thank You

@RISK

]]> https://www.gleeym.com/2020/03/12/ira/feed/ 0 1423 Decision Tree Analysis for Making Decision Under Uncertainty https://www.gleeym.com/2020/03/06/decisiontree/ https://www.gleeym.com/2020/03/06/decisiontree/#respond Fri, 06 Mar 2020 18:03:26 +0000 https://www.gleeym.com/?p=1291

Why Decision Tree Analysis?

Product Development:

Before discussing anything on product development let us discuss what is the product? Precisely, a product is ‘Any Thing or Things produced’. More precisely, as per engineering and manufacturing perspective, products are purchased as a raw material and sold as finished goods. In a real world, Product can be tangible or intangible.

Typically, either conceiving a design using CAD/CAM tools or reverse engineering is practiced as the best methods for a product development. Although these either conventional processes save time and cost to a launch product, but because of poor product feasibility and financial analysis product fails earlier before meeting the foresee financial gains. So what needs to be followed to develop the product? Are designers really following the correct path to develop the product? Do designers ever think to follow Product Life Cycle tools & techniques to achieve optimum solutions? What are the significance of following Product Life Cycle phases in terms of cost, efficiency, quality, reliability, durability, productivity and much more? It requires a lengthy topic to cover all answers to these questions. In brief Product life Cycle and its significance are described in the next section.

Product Life Cycle:

Traditionally, it is deemed to visualize the product life cycle with engineering perspective only as shown in figure-1:

Free trade, rapid product evolution and increase demand for a cheap product have changed the way to product development concept and visualization. In a broader spectrum, product Life Cycle is a process from product initialization to product sales & marketing.  Even today it covers CRM (Customer Relationship Management).

Product Life Cycle covers:

  • Introduction
  • Growth
  • Maturity (Where Product gets maximum penetration in the market)
  • Decline

Decline phase is also referred to as the evolution phase where the shift of technology or advancement in existing product may occur. For example, VCR was very popular during 90’s and now it has been replaced by the DVD player.

 

Pic 1 - Product Life Cycle
Pic 2 - Product Life Cycle

Decision Tree:

Decision Tree Analysis is widely used for product selection, alternative process selection and cost-benefit outcomes, etc. Decision Tree is one of the best quantitative decision-making methodologies. It helps to calculate the Expected Monetary Value (EMV).

                                                                           EMV = P X I

(Where P refers to probability and I refers to Impact)

Decision Tree is required to construct from left to right with all possible alternatives. Then put all the possible outcomes of each alternative. Decision and chance node are a constituent part of it. It is important to know that the sum of the probability of each alternative at a chance node should not be greater than 100% of 1 (0-1). The figure given below illustrates a basic concept of a Decision Tree.

 

Pic 3 - Basics of Decision Tree

Decision Tree Analysis for Decision Making – Case Scenario:

In context to an earlier discussion, the right decision is important to achieve product objectives in a shorter time with minimum efforts. So I am going to discuss a real case scenario.

Company XYZ* decided to setup a manufacturing and assembling plant. They had available capital of more than $ 110 million. One of the directors of the company was a bit shaky to invest this amount because of the economic crunch, inflation, rapid trend changes, variety of similar products and decreasing buying capacity of the customers.

Therefore, company Top management decided to have an alternative solution and pick the best one on the basis of Quantitative Risk Analysis. It was decided to go with Decision Tree analysis along with other Quantitative Risk Analysis methodologies.

After initial assessment and research following data was obtained.

Data Sheet:**

  • Production:

Units/Day                    =                      3,000

Units/Month                =                      78,000

Units/Year                   =                      936,000

Units for 5 Year           =                      4,680,000

  • Cost***

Unit Price                    =                      $ 40

Unit Price excluding GST

(Ex Factory)                 =                      $ 25.70

Unit Cost                     =                      $ 13.70

Unit Profit                   =                      $ 12

  •  Internal Rate of Return (IRR) and Net Present Value (NPV)

As narrated earlier, factors that were taken-in-account for making right decision:

  • Economic Conditions
  • Capital In hand
  • Cash Flow
  • Loan Required
  • Interest Rate
  • Market Condition
  • Competitors etc.
Table-1: Setup Cost

Development of Decision Tree:

After thorough analysis, there were five proposed options to choose the optimum one. Options were:

  • Complete Product Development along with Sales and Marketing
  • Product Design
  • Prototyping
  • Production
  • Sales and Marketing

Solution one was a complete product development from product initialization to sales and marketing. Other options were product design, prototyping, production and Sales and Marketing respectively. The goal was to get maximum profit by spending less capital while catering other internal and external Constraints as described in the last paragraph of section-4. Collapsed Decision Tree is illustrated in figure 4.

Incomplete product development, a risk of financial loss was greater because of substantial capital as well as production costs.

Development of Decision Tree

                                                  Figure-4: Development of Decision Tree

Complete Decision tree

                                                   Figure-5: Complete Illustrated Decision Tree

 

Outcome of Decision Tree:

After analyzing Decision Tree got the following results. Table -2 illustrates Arrival Probability (This is the probability that this decision encountered, assuming you followed all the optimal choices.) and Benefit of Correct choice (This is the difference of expected values between the optimal choice and the worst choice for this decision.).

Outcome of Decision Tree:

After analyzing Decision Tree got the following results. Table -2 illustrates Arrival Probability (This is the probability that this decision encountered, assuming you followed all the optimal choices.) and Benefit of Correct choice (This is the difference of expected values between the optimal choice and the worst choice for this decision.).

Optimal Choice

Arrival ProbabilityBenefit of Correct Choice
Sales & Marketing100.0000%

     $ 31,173,826.80

                                                                   Table-2: Decision Table

 

Figure-6: Optimal Tree

‘Probability Chart’ and ‘Optimal Tree’ clearly supports the decision. The probability chart indicates the probability of the possible outcome of any decision. Figure-7 indicates that outcome for complete development and Sales and marketing in major. Graphically, it is evident, a possibility of financial loss with low and normal (medium) efforts to market and sell the Juicer Blender while aggressive generation revenue of more than $ 30 million in six years with marketing and sales only.

Figure-7: Probabilities for Decision Tree
Figure-8: Cumulative Probabilities for Decision Tree

Conclusion:

Expected Monetary Value (EMV) helped to select optimal part of Decision Tree. By sticking to Sales and Marketing only, the risk to financial loss minimized with a great opportunity to concentrate on one area only.

*Name of the company is not displayed as per request.

** Only shown relevant data.

Thank You

@RISK

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