Decision & Risk Analysis. Pac Rim Bio 2013

Transcription

1 Decision & Risk Analysis Pac Rim Bio 2013 December 9, 2013 Engineering Architecture Design-Build Surveying GeoSpatial Solutions

2 Agenda I. Merrick Overview II. III. Introduction to D&RA Brief Overview of D&RA Methodology IV. Conclusion

3 Merrick & Company Headquartered in Greenwood Village, CO International engineering, architecture, design-build, surveying & geospatial solutions firm Founded in 1955 Employee owned; $111 Million 18 offices (14 in US; 2 in Mexico; 1 in Canada, 1 in the U.K.) 55+ LEED Accredited Professionals

4 What is Decision & Risk Analysis? Decision & Risk Analysis (D&RA) is an analytical decision-making methodology Use D&RA to navigate uncertainty and complexity Goal of D&RA: Make Better Decisions Sooner! D&RA can also be used to develop a compelling business case to attract needed funding

5 D&RA Produces Results Has been used for decades in: Oil & Gas Military Finance Value D&RA, Strong Project Definition Good Project Execution Good Project Execution Project Timeline Merrick assists bio-processing clients with D&RA Saved over $1 million in conceptual engineering costs Cut project development time by several months Improved project value by over $30 million

6 D&RA Process Framing Frame the Problem and Identify the Issues Modeling Framing Build an Influence Diagram Quantify the Risks and Uncertainties Build Financial Analysis Model Analysis Monte Carlo Simulation Tornado Diagram Decision Tree Make Decisions Modeling Make Decisions Analysis Develop and Implement Decision Strategy

7 Framing Objectives: what are we trying to accomplish? Scenarios: what could the future look like? Major Risks & Opportunities Choices: what decisions need to be made? Decision Criteria: what is the bottom line (e.g. 5yr NPV, 10yr IRR)? Decisions: Technology Selection Research Direction Feedstock Selection Scope of Pilot Plant Stage Product Off-take Agreements Strategic Partnerships Uncertainties: Product Pricing Feedstock Composition Feedstock Pricing Technology Performance Utility Pricing Equipment Costs Incentives and Regulations

8 Modeling Influence Diagram Quantify Risks & Uncertainties Financial Analysis Model Feedstock Composition Market Share Product Demand Feedstock Availability Feedstock Throughput Product Production Co-Product Production Product Pricing Process Performance Plant Size Capital Costs Revenue Regulations Waste Generated 20yr IRR Co-Product Pricing Waste Disposal Costs Operating Costs EBITDA Independent Variables Dependent Variables Bottom Line Feedstock Pricing Electricity Pricing Natural Gas Pricing

9 Modeling Influence Diagram Quantify Risks & Uncertainties Financial Analysis Model Assign a range to each Independent Variable Characterize uncertainty using ranges Some parts of the range are more likely than others E.g. Fermentation Productivity (g/l/hr) The ranges are based on: Data Experience Intuition

10 Modeling Influence Diagram Quantify Risks & Uncertainties Financial Analysis Model Build Financial Analysis Model using the Influence Diagram as a basis The Model will be used to analyze to understand impacts of risks and opportunities The Model is capable of handling uncertainty The Model is capable of processing different decisions

11 Analysis Monte Carlo Simulation is one of the best ways to analyze an uncertain and complex system. Determine the uncertainty in the Decision Criterion (e.g. NPV) Monte Carlo Simulation Decision Tree Tornado Diagram Capital Cost $MM Capital Cost $MM Capital Cost $MM Electricity Pricing /kwh 100 Iterations 500 Iterations 2000 Iterations Monte Carlo Estimation is more accurate with each iteration Calculated Average # Monte Carlo Iterations Monte Carlo Average True Average

12 Analysis The Tornado Diagram graphically depicts the impact of uncertainty on the Decision Criterion. Monte Carlo Simulation Tornado Diagram Tornado Diagram Decision Tree Product Pricing Fermentation Productivity Feedstock Composition Technology Performance Equipment Costs Feedstock Pricing Electricity Pricing NPV $MM What s important?

13 Make Decisions Rinse and Repeat Framing Modeling Analysis Make Decisions - Implement Strategy - Time Framing Modeling Analysis Make Decisions - Implement Strategy - Framing Modeling Analysis Make Decisions

14 In Conclusion D&RA: Make Better Decisions Sooner Navigate uncertainty (i.e. risks and opportunities) Simplicity on the other side of complexity Proven methodology, D&RA gets results! Tornado Diagram Product Pricing Fermentation Productivity Feedstock Composition Technology Performance Equipment Costs Feedstock Pricing Electricity Pricing NPV $MM The only certainty is that nothing is certain - Pliny the Elder, Roman scholar, CE

15 Contact Information Dr. Alan Propp, PE Merrick & Company Peter Dixon Merrick & Company