Palisade Corporation

Risk modeling and analysis in Excel

Dave Bristol, Eastern Region Sales Manager

800-432-7475 x333, dbristol@palisade.com

http://www.palisade.com

Agenda
Palisade Corporation Overview
What is risk?

Using Excel modeling to better understand

how risk impacts our work

Palisade Corporation
Continuity and longevity:
Palisade Corporation is now in its 28th year as a provider of general
purpose quantitative decision-making tools and services, boasting the
same core development team since the initial release of @RISK:
World Headquarters:

Ithaca, New York

Palisade Europe:

London, England

Palisade Asia-Pacific:

Sydney, Australia

Palisade LTA:

Rio de Janeiro, Brazil

Palisade Japan:

Tokyo, Japan

Sales, Marketing, Training/Consulting, and Ops/Fulfillment also have

team members with 10+ years service time.
Palisade is proud to be employee owned.

Palisade Corporation - Education

Solid Academic Backing:

Palisade products are used in curriculums at more than 100 MBA

programs worldwide, as well as in thousands of other academic
fields at the undergraduate and postgraduate levels.
Palisade software is the featured Monte Carlo simulation
product in dozens of academic textbooks.
Allied with professional development organizations:
Palisade is accredited as a PMI R.E.P. or Project Management
institute Registered Education Provider.
Palisade is registered with the National Association of State
Boards of Accountancy (NASBA) as a sponsor of continuing
professional education on the National Registry of CPE Sponsors.
Other alliances available as needed.

Thousands of companies worldwide in all

areas of business and industry, including a
majority of Fortune 500 companies amounting to hundreds of thousands of
users, make productive use of Palisade
software every day.

What is risk, exactly?

Vague term used in many ways by many people

In modeling, it can be positive (opportunity)

Uncertainty (estimate accuracy)
Variability (random or quasi-random)
Likelihood of occurrence, size of impact

Everybody knows about them!

Common most likely estimates are hedged
Software allows us to incorporate ranges into
modeling

Where do we find risks to model?

Everywhere! (Its a multi-tool, not a hammer)

Investment
Retirement
Currency/options/VAR/DCF/etc.
Insurance
Losses/premium pricing/choosing a plan
Energy
Futures pricing
Production capacity consumption projection
Manufacturing
Equipment lifecycle
Inventory Management
Pharma/Health Care
R&D
Disease transmission and response planning

DecisionTools Suite
Integrated risk and decision analytics

All products add-in to Excel & include XDK

@RISK Simulation
RISKOptimizer and Evolver Optimization
PrecisionTree Decision Tree analysis
NeuralTools Neural network prediction

StatTools Statistical analytics

TopRank Sensitivity Analysis

@RISK combines Monte Carlo Simulation with other

statistical techniques to give you:
The relative likelihood of all possible outcomes to
your model.
The impact of variation within uncertain inputs has
on the outcomes of your model.
A breakdown of the key drivers in your model:
What pushes profits forward? What leads to
losses?
A better understanding of where to focus your
mitigation resources.

Clear, user-friendly graphs and reports to

communicate findings to decision makers
regardless of statistical savvy.

RISKOptimizer - Functionality
Included with @RISK Industrial and DecisionTools
Suite Industrial
Combines @RISKs Monte Carlo simulation with
genetic-algorithm based optimization
Allows for optimization of aspects of a distributed
objective and solving of complex non-linear models
More robust than a deterministic optimization
Customers originally combined @RISK and Excels
Solver for stochastic optimization

RISKOptimizer - Applications
Portfolio optimization and allocation
Project selection
Capacity planning and production optimization
Scheduling (job shop, manpower)

Bidding
Inventory management
Prototyping/component interaction

PrecisionTree - Functionality
Decision trees can be built directly in Excel
Allows for large-scale options models to be built over
underlying models
Evaluate tree by standard tree calc, objective function,
worksheet calc, macro, etc.

Can be combined with @RISK for stochastic decision

tree analysis
Customers originally combined @RISK and DPL/DATA

PrecisionTree - Applications
Real Options
Exploration/Production
Game theory
Structural integrity planning

Resource management
Classification/evaluation
Diagnosis/treatment

NeuralTools - Functionality
Palisades first product to truly meld qualitative and
quantitative analysis via Neural networks
Offers multiple neural network types and BestNet
search to determine best network
Requires no neural network expertise

Verifies its own results with instant LiveUpdates

Analyze categorical data in concert with statistics
LiveUpdate works with RISKOptimizer to find optimal
answers to questions based on your network

NeuralTools - Applications
Credit scoring/loan underwriting
Market pricing/prediction (energy, etc.)
Environmental analysis
Fraud notification

Counter-terrorism
Medical diagnosis/treatment
Drug efficacy

StatTools
Collection of statistical processes in Excel for data
analysis without leaving the spreadsheet
Forecasting & Regression
ANOVA/Correlation/covariance
Non-parametric tests
Much more
Replaces statistical processes identified by our clients
as unstable or inaccurate in Excel
Supports up to 16 million data points/variable

Created Excel 2007 before 2007 existed!

XDK for custom function creation

TopRank
Utility for sensitivity analysis in Excel
Determine which model inputs drive volatility
Can be used on *any* Excel model
Cut down on model-building time by identifying the
factors that require distributions for simulation
Risk analysis and mitigation in moments as well as
elimination of supposed risks

@RISK for Project

Simulation modeling in MS Project
Add uncertainty to:
Tasks
Durations
Calendars
Resources . . . anywhere in Project

Risk-adjusted Gantt chart w/criticality and cruciality

@RISK6 will blend @RISK for Excel and @RISK for
Project into a single unified application for
cost/schedule risk analysis.

Questions?
Dave Bristol
dbristol@palisade.com

802-876-7906