Additional Case Study Two: Property Risk Assessment: A Simulation Approach

Size: px
Start display at page:

Download "Additional Case Study Two: Property Risk Assessment: A Simulation Approach"

Transcription

1 Additional Case Study Two: Property Risk Assessment: A Simulation Approach This case study focuses on analyzing the risk of investing in income properties. The key point is that measures of central tendency, applied through probability analysis using Monte Carlo simulation, can be effectively used to evaluate investment property risk. This case study, prepared by Barrett A. Slade, PhD, MAI, can be read in entirety in The Appraisal Journal (Fall 2006), pages The subject matter is of particular interest to developers, commercial Realtors, real estate investors, appraisers and real estate consultants, but the statistical tools employed are of universal interest. Whereas Additional Case Study one assesses risk associated with dwellings, this case study uses statistical analysis to analyze risk associated with income properties. Although this case study applies the simulation tool Monte Carlo analysis, that has not been presented in this course, it also includes tools that have been presented such as: mean, median, mode, standard deviation, variance, skewness, range, and standard error 1. Simulation analysis leads to greater insights into the risk characteristics of investment properties by explicitly recognizing that many input assumptions are uncertain. It allows the analyst to realistically model this uncertainty and estimate the likelihood of an investment outcome. Compared to traditional risk assessment techniques, simulation analysis allows the investment decision maker to be much more informed. By applying modern simulation analysis to the investment analysis of an apartment property, this article illustrates the comparative advantages of modern risk assessment techniques over traditional methods. Business schools teach students that risk is the possibility that an investment s actual return may be different than expected, including the possibility that some or all of the original investment may be lost. Therefore, prudent investment analysis requires that this uncertainty be examined so that appropriate steps can be taken to mitigate potential loss. Risk assessment in real estate investment requires both qualitative as well as quantitative analysis, which is often referred to as the art and science of real estate investment analysis. Although the art, i.e. human judgment aspect, of investment analysis is an important part of the investment decision, the objective of this study is to illustrate the advantages of simulation analysis so that the science of risk assessment can be improved. Therefore, an important aspect of this study is to provide the reader with an introduction into the characteristics and benefits of simulation analysis for assessing risk in real property investments. Spreadsheet Construction Conventional risk assessment techniques generally begin with the construction of a spreadsheet that presents the expected future cash flows from an investment property. The spreadsheet in Table 1 below illustrates the expected cash flows from an apartment complex. 1 Monte Carlo Methods are techniques based on random numbers. Monte Carlo methods have been applied to a great variety of problems in the physical, social, and biological sciences. Monte Carlo methods have been used to simulate such things as the spread of cholera epidemics, the collision of photons with electrons, the scattering of neutrons in a nuclear reactor, traffic congestion on freeways, air turbulence and its effect on airplane wings, to mention but a few. In this way, methods based on random numbers make it possible to simulate the experiments which either cannot be performed in the laboratory (such as the spreading of an epidemic) or which would otherwise require prohibitively expensive equipment. Monte Carlo methods have also found wide application in business research, where they are used for solving inventory problems, or questions arising in connection with the allocation or resources, advertising, competition, and over-all planning and organization. UBC Real Estate Division 1

2 Table 2 below presents the reversion calculation. Table 3 shows important spreadsheet assumptions that are applied in Tables 1 and 2. Table 4 includes three important return measures critical to the overall acquisition decision, including the going-in capitalization rate, free and clear internal rate of return (IRR) after fees, and the leveraged equity IRR after fees. Don t concern yourself overly with the methodology of the discounted cash flow procedure as your primary interest is in the application of statistical analysis that follows the estimate of value flowing from the spreadsheet. UBC Real Estate Division 2

3 Traditional Scenario Analysis Traditionally an analyst will examine three scenarios: best-case, most-likely case (as shown in tables 1 and 2), and worst-case. These typical scenarios are shown on the following tables 5 and 6. In this traditional analysis there is no insight into the likelihood or probability of actually obtaining any of the three outcomes, which is not particularly comforting for the decision maker. Simulation Analysis At this point the power of statistical analysis for probability assessment and risk analysis is applied. Application of a Monte Carlo simulation analysis permits the analyst to simultaneously examine thousands of alternative scenarios and subsequently estimate the probability of an outcome. The analyst uses probabilistic input assumptions to generate forecasts or outcomes that can be analyzed statistically. Advancement in simulation software, both in technology and economy, have made simulation analysis much more practical for real estate investment risk analysis. The simulation software applied below is Crystal Ball, a Microsoft Excel add-in 2. For a simulation analysis, the analyst must first determine which input values are uncertain and then define the distributional assumptions associated with these values. An example of the way inputs are established is shown below in Figure 1. The analyst has forecast that market rents will grow from 1% to 6% annually and that the most likely growth rate is 3%. If the distributional characteristics of rent growth rates are unknown, the triangular distribution shown is applicable. This shape allows for identification of minimum, most likely and maximum values. The height of the triangle is least at the 1% and 6% points and highest at the 3% point. This tells the simulation program that values near 3% have a greater probability of occurrence; thus, when the simulation begins to run, values near 3% will be selected more frequently than values near the minimum and maximum points. 2 For more information on this software see UBC Real Estate Division 3

4 Other triangular distributions, with various degrees of skewness, are presented below in Figure 2 that provides the assumptions and relevant ranges for each uncertain input variable. Once the input variables have been identified and ranged, the output variables are specified as: going-in capitalization rate, free and clear IRR after fees, and the leveraged equity IRR after fees. At this point the number of trials is specified and the simulation started. Simulation results, after 1,000 iterations, are shown below in Figure 3. UBC Real Estate Division 4

5 The simulation results in Figure 3 illustrate the likelihood (probability) of a particular outcome. For example, with reference to the last chart Leveraged Equity IRR After Fees, the minimum and maximum leveraged equity IRR after fees are 4.66% and 24.68%, respectively. The mean and median are 15.52% and 15.54%, respectively. The proximity of the median to the mean suggests that the distribution is highly symmetrical, making statistical inference more reliable. The percentiles show that there is an 80% probability of achieving a leveraged equity IRR after fees of at least 12.55%. In addition to the foregoing, this simulation can also calculate the likelihood (probability) of obtaining a specific IRR. As shown below on Figure 4, there is a 66.97% probability of obtaining a leveraged equity IRR after fees that is greater than 14%. UBC Real Estate Division 5

6 Conclusion Simulation analysis leads to greater insights into the risk characteristics of investment properties by explicitly recognizing that many input assumptions are uncertain. The statistics accompanying the charts in Figure 3 permit the analyst to assess risk associated with each of the selected outputs and fine-tune the investment decision. See also: Arnold, Tom & Henry, Stephen "An Excel Application for Valuing European Options with Monte Carlo Analysis". Journal of Financial Education. 31 (Spring 2005). p This article illustrates the basic intuition of Monte Carlo simulation within an Excel spreadsheet framework, demonstrating the use of Monte Carlo simulation techniques to price options without additional sophisticated software. The skills and intuition developed also provide the basis for much more complex simulation techniques. UBC Real Estate Division 6

One-Minute Spotlight. The Crystal Ball Forecast Chart

One-Minute Spotlight. The Crystal Ball Forecast Chart The Crystal Ball Forecast Chart Once you have run a simulation with Oracle s Crystal Ball, you can view several charts to help you visualize, understand, and communicate the simulation results. This Spotlight

More information

Risk Analysis and Quantification

Risk Analysis and Quantification Risk Analysis and Quantification 1 What is Risk Analysis? 2. Risk Analysis Methods 3. The Monte Carlo Method 4. Risk Model 5. What steps must be taken for the development of a Risk Model? 1.What is Risk

More information

Simulation and Lean Six Sigma

Simulation and Lean Six Sigma Hilary Emmett, 22 August 2007 Improve the quality of your critical business decisions Agenda Simulation and Lean Six Sigma What is Monte Carlo Simulation? Loan Process Example Inventory Optimization Example

More information

Monte Carlo analysis used for Contingency estimating.

Monte Carlo analysis used for Contingency estimating. Monte Carlo analysis used for Contingency estimating. Author s identification number: Date of authorship: July 24, 2007 Page: 1 of 15 TABLE OF CONTENTS: LIST OF TABLES:...3 LIST OF FIGURES:...3 ABSTRACT:...4

More information

Better decision making under uncertain conditions using Monte Carlo Simulation

Better decision making under uncertain conditions using Monte Carlo Simulation IBM Software Business Analytics IBM SPSS Statistics Better decision making under uncertain conditions using Monte Carlo Simulation Monte Carlo simulation and risk analysis techniques in IBM SPSS Statistics

More information

Building and Using Spreadsheet Decision Models

Building and Using Spreadsheet Decision Models Chapter 9 Building and Using Spreadsheet Decision Models Models A model is an abstraction or representation of a real system, idea, or object. Models could be pictures, spreadsheets, or mathematical relationships

More information

DIRECT MAIL: MEASURING VOLATILITY WITH CRYSTAL BALL

DIRECT MAIL: MEASURING VOLATILITY WITH CRYSTAL BALL Proceedings of the 2005 Crystal Ball User Conference DIRECT MAIL: MEASURING VOLATILITY WITH CRYSTAL BALL Sourabh Tambe Honza Vitazka Tim Sweeney Alliance Data Systems, 800 Tech Center Drive Gahanna, OH

More information

Quantitative Methods for Finance

Quantitative Methods for Finance Quantitative Methods for Finance Module 1: The Time Value of Money 1 Learning how to interpret interest rates as required rates of return, discount rates, or opportunity costs. 2 Learning how to explain

More information

<Insert Picture Here> Working With Dashboards for Risk Measurement

<Insert Picture Here> Working With Dashboards for Risk Measurement Working With Dashboards for Risk Measurement An OBIEE, Essbase and Crystal Ball Integrated Demo Risk Reporting Let s look at how we can use historical data and subject matter expertise

More information

Risk Analysis Overview

Risk Analysis Overview What Is Risk? Uncertainty about a situation can often indicate risk, which is the possibility of loss, damage, or any other undesirable event. Most people desire low risk, which would translate to a high

More information

INCOME APPROACH Gross Income Estimate - $198,000 Vacancy and Rent Loss - $9,900

INCOME APPROACH Gross Income Estimate - $198,000 Vacancy and Rent Loss - $9,900 INCOME APPROACH The Income Approach considers the return on Investment and is similar to the method that investors typically use to make their investment decisions. It is most directly applicable to income

More information

ModelRisk for Insurance and Finance. Quick Start Guide

ModelRisk for Insurance and Finance. Quick Start Guide ModelRisk for Insurance and Finance Quick Start Guide Copyright 2008 by Vose Software BVBA, All rights reserved. Vose Software Iepenstraat 98 9000 Gent, Belgium www.vosesoftware.com ModelRisk is owned

More information

MBA 611 STATISTICS AND QUANTITATIVE METHODS

MBA 611 STATISTICS AND QUANTITATIVE METHODS MBA 611 STATISTICS AND QUANTITATIVE METHODS Part I. Review of Basic Statistics (Chapters 1-11) A. Introduction (Chapter 1) Uncertainty: Decisions are often based on incomplete information from uncertain

More information

The private equity J-Curve: cash flow considerations from primary and secondary points of view

The private equity J-Curve: cash flow considerations from primary and secondary points of view The private equity J-Curve: cash flow considerations from primary and secondary points of view By Christian Diller, Ivan Herger, Marco Wulff, Capital Dynamics 2 Introduction Investors should expect a greater

More information

Chapter 11 Cash Flow Estimation and Risk Analysis

Chapter 11 Cash Flow Estimation and Risk Analysis Chapter 11 Cash Flow Estimation and Risk Analysis ANSWERS TO END-OF-CHAPTER QUESTIONS 11-1 a. Cash flow, which is the relevant financial variable, represents the actual flow of cash. Accounting income,

More information

Stochastic Analysis of Long-Term Multiple-Decrement Contracts

Stochastic Analysis of Long-Term Multiple-Decrement Contracts Stochastic Analysis of Long-Term Multiple-Decrement Contracts Matthew Clark, FSA, MAAA, and Chad Runchey, FSA, MAAA Ernst & Young LLP Published in the July 2008 issue of the Actuarial Practice Forum Copyright

More information

Capital budgeting & risk

Capital budgeting & risk Capital budgeting & risk A reading prepared by Pamela Peterson Drake O U T L I N E 1. Introduction 2. Measurement of project risk 3. Incorporating risk in the capital budgeting decision 4. Assessment of

More information

Introducing Oracle Crystal Ball Predictor: a new approach to forecasting in MS Excel Environment

Introducing Oracle Crystal Ball Predictor: a new approach to forecasting in MS Excel Environment Introducing Oracle Crystal Ball Predictor: a new approach to forecasting in MS Excel Environment Samik Raychaudhuri, Ph. D. Principal Member of Technical Staff ISF 2010 Oracle Crystal

More information

In the business world, the rearview mirror is always clearer than the windshield. - Warren Buffett

In the business world, the rearview mirror is always clearer than the windshield. - Warren Buffett ENGM 401 & 620 X1 Fundamentals of Engineering Finance Fall 2010 Lecture 29: Sensitivity Analysis & Uncertainty In the business world, the rearview mirror is always clearer than the windshield. - Warren

More information

Extracts from Crystal Ball Getting Started Guide

Extracts from Crystal Ball Getting Started Guide Extracts from Crystal Ball Getting Started Guide This document consists of chapters 1 through 3 of the Crystal Ball Getting Started Guide. It contains two tutorials: Tutorial 1 is a ready-to-run simulation

More information

ORACLE S PRIMAVERA RISK ANALYSIS

ORACLE S PRIMAVERA RISK ANALYSIS ORACLE S PRIMAVERA RISK ANALYSIS KEY FEATURES Risk Analysis Guide Schedule Check Templated Quick Risk Risk Register Wizard Risk Register Risk Analysis Every project has risks. The organizations that succeed

More information

FRC Risk Reporting Requirements Working Party Case Study (Pharmaceutical Industry)

FRC Risk Reporting Requirements Working Party Case Study (Pharmaceutical Industry) FRC Risk Reporting Requirements Working Party Case Study (Pharmaceutical Industry) 1 Contents Executive Summary... 3 Background and Scope... 3 Company Background and Highlights... 3 Sample Risk Register...

More information

Sensitivity Analysis of Safety Measures for Railway Tunnel Fire Accident

Sensitivity Analysis of Safety Measures for Railway Tunnel Fire Accident Sensitivity Analysis of Safety Measures for Railway Tunnel Fire Accident Sanglog Kwak, Jongbae Wang, Yunok Cho Korea Railroad Research Institute, Uiwnag City, Kyonggi-do, Korea Abstract: After the subway

More information

AN INTRODUCTION TO REAL ESTATE INVESTMENT ANALYSIS: A TOOL KIT REFERENCE FOR PRIVATE INVESTORS

AN INTRODUCTION TO REAL ESTATE INVESTMENT ANALYSIS: A TOOL KIT REFERENCE FOR PRIVATE INVESTORS AN INTRODUCTION TO REAL ESTATE INVESTMENT ANALYSIS: A TOOL KIT REFERENCE FOR PRIVATE INVESTORS Phil Thompson Business Lawyer, Corporate Counsel www.thompsonlaw.ca Rules of thumb and financial analysis

More information

ProMS. Big Data: Big Deal or Big Yawn. Radley & Associates Ltd. Can the use of Big Data help commercial real estate investors make better decisions?

ProMS. Big Data: Big Deal or Big Yawn. Radley & Associates Ltd. Can the use of Big Data help commercial real estate investors make better decisions? ProMS Big Data: Big Deal or Big Yawn Can the use of Big Data help commercial real estate investors make better decisions? Radley & Associates Ltd Should the CEOs of REITS and CRE Fund Managers be losing

More information

Personal Financial Plan. John and Joan Sample Retirement Plan

Personal Financial Plan. John and Joan Sample Retirement Plan For Prepared by Newman Schimel 740 Waukegan Rd., Suite 205 Deerfield, IL 60015 847-317-9350 This presentation provides a general overview of some aspects of your personal financial position. It is designed

More information

Simulation and Risk Analysis

Simulation and Risk Analysis Simulation and Risk Analysis Using Analytic Solver Platform REVIEW BASED ON MANAGEMENT SCIENCE What We ll Cover Today Introduction Frontline Systems Session Ι Beta Training Program Goals Overview of Analytic

More information

Personal Financial Plan. John & Mary Sample

Personal Financial Plan. John & Mary Sample For Prepared by Donald F. Dempsey Jr. PO Box 1591 Williston, VT 05495 802-764-5815 This presentation provides a general overview of some aspects of your personal financial position. It is designed to provide

More information

Financial Modeling using Microsoft Excel

Financial Modeling using Microsoft Excel Module 1A: Valuation modeling Part 1 Introduction to valuation modeling Understanding integrated financial models - Basic valuation techniques: accounting-based, market-based and cash-flow based - Revenue

More information

Monte Carlo Simulations for Patient Recruitment: A Better Way to Forecast Enrollment

Monte Carlo Simulations for Patient Recruitment: A Better Way to Forecast Enrollment Monte Carlo Simulations for Patient Recruitment: A Better Way to Forecast Enrollment Introduction The clinical phases of drug development represent the eagerly awaited period where, after several years

More information

03 The full syllabus. 03 The full syllabus continued. For more information visit www.cimaglobal.com PAPER C03 FUNDAMENTALS OF BUSINESS MATHEMATICS

03 The full syllabus. 03 The full syllabus continued. For more information visit www.cimaglobal.com PAPER C03 FUNDAMENTALS OF BUSINESS MATHEMATICS 0 The full syllabus 0 The full syllabus continued PAPER C0 FUNDAMENTALS OF BUSINESS MATHEMATICS Syllabus overview This paper primarily deals with the tools and techniques to understand the mathematics

More information

EDUCATION AND TRAINING

EDUCATION AND TRAINING A Model to Quantify the Return on Investment of Information Assurance By Charley Tichenor Defense Security Cooperation Agency [The following views presented herein are solely those of the author and do

More information

Fairfield Public Schools

Fairfield Public Schools Mathematics Fairfield Public Schools AP Statistics AP Statistics BOE Approved 04/08/2014 1 AP STATISTICS Critical Areas of Focus AP Statistics is a rigorous course that offers advanced students an opportunity

More information

LOOKING BEHIND THE NUMBERS: METHODS OF RETIREMENT INCOME ANALYSIS. Answering the question: Where did the numbers come from?

LOOKING BEHIND THE NUMBERS: METHODS OF RETIREMENT INCOME ANALYSIS. Answering the question: Where did the numbers come from? LOOKING BEHIND THE NUMBERS: METHODS OF RETIREMENT INCOME ANALYSIS Answering the question: Where did the numbers come from? MAKE RETIREMENT INCOME PLANNING EASIER FOR YOUR CLIENTS TO UNDERSTAND Your clients

More information

OVERVIEW. The goals of this paper are to:

OVERVIEW. The goals of this paper are to: Private Equity Investments: A Review of Current IRR Practice and an Alternative Approach to Evaluating Private Equity Investments Stephen C. Johnson and Brian D. Uchikata OVERVIEW Generally, the analysis

More information

CHAPTER 8. SUBJECTIVE PROBABILITY

CHAPTER 8. SUBJECTIVE PROBABILITY CHAPTER 8. SUBJECTIVE PROBABILITY Frequentist interpretation of probability: Probability = Relative frequency of occurrence of an event Frequentist Definition requires one to specify a repeatable experiment.

More information

Last update: December 19, 2013. Global Master of Finance Dual Degree Course Descriptions. Foundation Courses. FIN B62 510. Introduction to Finance

Last update: December 19, 2013. Global Master of Finance Dual Degree Course Descriptions. Foundation Courses. FIN B62 510. Introduction to Finance Last update: December 19, 2013 Global Master of Finance Dual Degree Course Descriptions Foundation Courses FIN B62 510. Introduction to Finance The main topics to be covered in this course are (1) principles

More information

Chapter 12 Simulation 537

Chapter 12 Simulation 537 Simulation, CONTENTS 12.1 RISK ANALYSIS PortaCom Project What-If Analysis Simulation Simulation of the PortaCom Project 12.2 INVENTORY SIMULATION Butler Inventory Simulation 12.3 WAITING LINE SIMULATION

More information

A Robustness Simulation Method of Project Schedule based on the Monte Carlo Method

A Robustness Simulation Method of Project Schedule based on the Monte Carlo Method Send Orders for Reprints to reprints@benthamscience.ae 254 The Open Cybernetics & Systemics Journal, 2014, 8, 254-258 Open Access A Robustness Simulation Method of Project Schedule based on the Monte Carlo

More information

FINANCIAL AND RISK ANALYSIS WITH RETSCREEN SOFTWARE. SLIDE 1: Financial and Risk Analysis with RETScreen Software

FINANCIAL AND RISK ANALYSIS WITH RETSCREEN SOFTWARE. SLIDE 1: Financial and Risk Analysis with RETScreen Software Training Module SPEAKER S NOTES FINANCIAL AND RISK ANALYSIS WITH RETSCREEN SOFTWARE CLEAN ENERGY PROJECT ANALYSIS COURSE This document provides a transcription of the oral presentation (Voice & Slides)

More information

CORPORATE FINANCE RISK ANALYSIS WITH CRYSTAL BALL ARE WE ADDING VALUE?

CORPORATE FINANCE RISK ANALYSIS WITH CRYSTAL BALL ARE WE ADDING VALUE? Proceedings of the 2005 Crystal Ball User Conference CORPORATE FINANCE RISK ANALYSIS WITH CRYSTAL BALL ARE WE ADDING VALUE? Huybert Groenendaal Vose Consulting US LLC 14 Green Street Princeton, NJ, 08542,

More information

Chapter 8 Subjective Probability

Chapter 8 Subjective Probability Making Hard Decisions Chapter 8 Subjective Probability Slide 1 of 45 A Subjective Interpretation Frequentist interpretation of probability: Probability = Relative frequency of occurrence of an event Frequentist

More information

The definition of contingency and how to estimate it

The definition of contingency and how to estimate it RISK.03 The Monte-Carlo Challenge: A Better Approach John K. Hollmann, PE CCE The definition of contingency and how to estimate it are among the most controversial topics in cost engineering. While there

More information

STATISTICAL ANALYSIS WITH EXCEL COURSE OUTLINE

STATISTICAL ANALYSIS WITH EXCEL COURSE OUTLINE STATISTICAL ANALYSIS WITH EXCEL COURSE OUTLINE Perhaps Microsoft has taken pains to hide some of the most powerful tools in Excel. These add-ins tools work on top of Excel, extending its power and abilities

More information

Using Risk Maps to visually model & communicate risk

Using Risk Maps to visually model & communicate risk Using Risk Maps to visually model & communicate risk Martin Neil Agena Ltd & Risk Assessment and Decision Analysis Research Group, Department of Computer Science, Queen Mary, University of London London,

More information

Foundation of Quantitative Data Analysis

Foundation of Quantitative Data Analysis Foundation of Quantitative Data Analysis Part 1: Data manipulation and descriptive statistics with SPSS/Excel HSRS #10 - October 17, 2013 Reference : A. Aczel, Complete Business Statistics. Chapters 1

More information

CA200 Quantitative Analysis for Business Decisions. File name: CA200_Section_04A_StatisticsIntroduction

CA200 Quantitative Analysis for Business Decisions. File name: CA200_Section_04A_StatisticsIntroduction CA200 Quantitative Analysis for Business Decisions File name: CA200_Section_04A_StatisticsIntroduction Table of Contents 4. Introduction to Statistics... 1 4.1 Overview... 3 4.2 Discrete or continuous

More information

USING QUANTITATIVE RISK ANALYSIS TO SUPPORT STRATEGIC DECISIONS 1

USING QUANTITATIVE RISK ANALYSIS TO SUPPORT STRATEGIC DECISIONS 1 USING QUANTITATIVE RISK ANALYSIS TO SUPPORT STRATEGIC DECISIONS 1 David T. Hulett, Ph.D. President, Hulett & Associates, LLC, www.projectrisk.com, david.hulett@projectrisk.com, +1-310-476-7699 ABSTRACT

More information

FUNBIO PROJECT RISK MANAGEMENT GUIDELINES

FUNBIO PROJECT RISK MANAGEMENT GUIDELINES FUNBIO PROJECT RISK MANAGEMENT GUIDELINES OP-09/2013 Responsible Unit: PMO Focal Point OBJECTIVE: This Operational Procedures presents the guidelines for the risk assessment and allocation process in projects.

More information

Case Study. Retirement Planning Needs are Evolving

Case Study. Retirement Planning Needs are Evolving Case Study Retirement Planning Based on Stochastic Financial Analysis Fiserv Helps Investment Professionals Improve Their Retirement Planning Practices Many personal financial planning solutions rely on

More information

PENSION MANAGEMENT & FORECASTING SOFTWARE

PENSION MANAGEMENT & FORECASTING SOFTWARE PENSION MANAGEMENT & FORECASTING SOFTWARE PMFS Copyright 2012 by Segal Advisors, Inc. All rights reserved. Table of Contents Overview... 1 Policy Analysis... 2 Financial Planning & Forecasting Actual Illustrations...

More information

Chapter 11 Monte Carlo Simulation

Chapter 11 Monte Carlo Simulation Chapter 11 Monte Carlo Simulation 11.1 Introduction The basic idea of simulation is to build an experimental device, or simulator, that will act like (simulate) the system of interest in certain important

More information

Republic Polytechnic Continuing Education & Training Course Structure for : Finance Management

Republic Polytechnic Continuing Education & Training Course Structure for : Finance Management Republic Polytechnic Continuing Education & Training Course Structure for : Finance Management Module Finance Management Description Finance Management is a module that serves to cover key financial aspects

More information

Biopharmaceutical. Planning Pharmaceutical Manufacturing Strategies in an Uncertain World. William C. Brastow, Jr., and Craig W.

Biopharmaceutical. Planning Pharmaceutical Manufacturing Strategies in an Uncertain World. William C. Brastow, Jr., and Craig W. Planning Pharmaceutical Manufacturing Strategies in an Uncertain World William C. Brastow, Jr., and Craig W. Rice Biopharmaceutical manufacturers face one of the most uncertain planning environments in

More information

TEACHING SIMULATION WITH SPREADSHEETS

TEACHING SIMULATION WITH SPREADSHEETS TEACHING SIMULATION WITH SPREADSHEETS Jelena Pecherska and Yuri Merkuryev Deptartment of Modelling and Simulation Riga Technical University 1, Kalku Street, LV-1658 Riga, Latvia E-mail: merkur@itl.rtu.lv,

More information

Driving Strategic Planning with Predictive Modeling. An Oracle White Paper Updated July 2008

Driving Strategic Planning with Predictive Modeling. An Oracle White Paper Updated July 2008 Driving Strategic Planning with Predictive Modeling An Oracle White Paper Updated July 2008 Driving Strategic Planning with Predictive Modeling With a functioning strategic planning process, users can

More information

Chapter 11 Cash Flow Estimation and Risk Analysis ANSWERS TO SELECTED END-OF-CHAPTER QUESTIONS

Chapter 11 Cash Flow Estimation and Risk Analysis ANSWERS TO SELECTED END-OF-CHAPTER QUESTIONS Chapter 11 Cash Flow Estimation and Risk Analysis ANSWERS TO SELECTED END-OF-CHAPTER QUESTIONS 11-1 a. Cash flow, which is the relevant financial variable, represents the actual flow of cash. Accounting

More information

The Total Economic Impact Of SAS Customer Intelligence Solutions Intelligent Advertising For Publishers

The Total Economic Impact Of SAS Customer Intelligence Solutions Intelligent Advertising For Publishers A Forrester Total Economic Impact Study Commissioned By SAS Project Director: Dean Davison February 2014 The Total Economic Impact Of SAS Customer Intelligence Solutions Intelligent Advertising For Publishers

More information

Quantitative Risk Analysis with Microsoft Project

Quantitative Risk Analysis with Microsoft Project Copyright Notice: Materials published by Intaver Institute Inc. may not be published elsewhere without prior written consent of Intaver Institute Inc. Requests for permission to reproduce published materials

More information

Financial Modeling & Forecasting. Jason MacMorran www.pncpa.com

Financial Modeling & Forecasting. Jason MacMorran www.pncpa.com Financial Modeling & Forecasting Jason MacMorran www.pncpa.com Presentation Outline I. Introduction and Learning Objectives II. Definitions and Standards Overview III. Uses for Financial Models IV. Basics

More information

Introduction to Statistical Computing in Microsoft Excel By Hector D. Flores; hflores@rice.edu, and Dr. J.A. Dobelman

Introduction to Statistical Computing in Microsoft Excel By Hector D. Flores; hflores@rice.edu, and Dr. J.A. Dobelman Introduction to Statistical Computing in Microsoft Excel By Hector D. Flores; hflores@rice.edu, and Dr. J.A. Dobelman Statistics lab will be mainly focused on applying what you have learned in class with

More information

CHAPTER 11. Proposed Project. Incremental Cash Flow for a Project. Treatment of Financing Costs. Estimating cash flows:

CHAPTER 11. Proposed Project. Incremental Cash Flow for a Project. Treatment of Financing Costs. Estimating cash flows: CHAPTER 11 Cash Flow Estimation and Risk Analysis Estimating cash flows: Relevant cash flows Working capital treatment Inflation Risk Analysis: Sensitivity Analysis, Scenario Analysis, and Simulation Analysis

More information

MS/Supply Chain Management Courses

MS/Supply Chain Management Courses September 2014 MS/Supply Chain Management Courses Summer Foundations Courses ACCT 560 Introduction to Financial Accounting In this course, we will study the three fundamental financial accounting issues,

More information

one Introduction chapter OVERVIEW CHAPTER

one Introduction chapter OVERVIEW CHAPTER one Introduction CHAPTER chapter OVERVIEW 1.1 Introduction to Decision Support Systems 1.2 Defining a Decision Support System 1.3 Decision Support Systems Applications 1.4 Textbook Overview 1.5 Summary

More information

PROJECT RISK MANAGEMENT

PROJECT RISK MANAGEMENT PROJECT RISK MANAGEMENT DEFINITION OF A RISK OR RISK EVENT: A discrete occurrence that may affect the project for good or bad. DEFINITION OF A PROBLEM OR UNCERTAINTY: An uncommon state of nature, characterized

More information

RISK MANAGEMENT IN THE INVESTMENT PROCESS

RISK MANAGEMENT IN THE INVESTMENT PROCESS I International Symposium Engineering Management And Competitiveness 2011 (EMC2011) June 24-25, 2011, Zrenjanin, Serbia RISK MANAGEMENT IN THE INVESTMENT PROCESS Bojana Vuković, MSc* Ekonomski fakultet

More information

Uses and Limitations of Ratio Analysis

Uses and Limitations of Ratio Analysis Uses and Limitations of Ratio Analysis Balkrishna Parab ACS, AICWA balkrishnaparab@jbims.edu F inancial statement analysis involves comparing the firm s performance with that of other firms in the same

More information

The Intuition Behind Option Valuation: A Teaching Note

The Intuition Behind Option Valuation: A Teaching Note The Intuition Behind Option Valuation: A Teaching Note Thomas Grossman Haskayne School of Business University of Calgary Steve Powell Tuck School of Business Dartmouth College Kent L Womack Tuck School

More information

ADD-INS: ENHANCING EXCEL

ADD-INS: ENHANCING EXCEL CHAPTER 9 ADD-INS: ENHANCING EXCEL This chapter discusses the following topics: WHAT CAN AN ADD-IN DO? WHY USE AN ADD-IN (AND NOT JUST EXCEL MACROS/PROGRAMS)? ADD INS INSTALLED WITH EXCEL OTHER ADD-INS

More information

Lecture 8 (Chapter 11): Project Analysis and Evaluation

Lecture 8 (Chapter 11): Project Analysis and Evaluation Lecture 8 (Chapter 11): Project Analysis and Evaluation Discounted cash flow analysis is a very powerful tool, but it is not easy to use. We have already seen one difficulty: How do we identify the cash

More information

QMB 3302 Business Analytics CRN 10251 Spring 2015 T R -- 11:00am - 12:15pm -- Lutgert Hall 2209

QMB 3302 Business Analytics CRN 10251 Spring 2015 T R -- 11:00am - 12:15pm -- Lutgert Hall 2209 QMB 3302 Business Analytics CRN 10251 Spring 2015 T R -- 11:00am - 12:15pm -- Lutgert Hall 2209 Elias T. Kirche, Ph.D. Associate Professor Department of Information Systems and Operations Management Lutgert

More information

Don t Chance It: Getting More Out of Risk Modeling

Don t Chance It: Getting More Out of Risk Modeling Corporate Finance Don t Chance It: Getting More Out of Risk Modeling Risk analysis and modeling can be an important tool to support deeper, more insightful management discussions about a wide range of

More information

Software Project Scheduling under Uncertainties

Software Project Scheduling under Uncertainties Copyright Notice: Materials published by Intaver Institute Inc. may not be published elsewhere without prior written consent of Intaver Institute Inc. Requests for permission to reproduce published materials

More information

Project Risk Management

Project Risk Management Project Risk Management Study Notes PMI, PMP, CAPM, PMBOK, PM Network and the PMI Registered Education Provider logo are registered marks of the Project Management Institute, Inc. Points to Note Risk Management

More information

Graduate Certificate Project Management

Graduate Certificate Project Management Graduate Certificate Project Management Overview: 3 courses (3 credits each): 2 required courses, 1 elective. Required courses: o Systems and Project Management (ISEE-750) or Project Management (BUSI-710)

More information

Business Valuation Review

Business Valuation Review Business Valuation Review Regression Analysis in Valuation Engagements By: George B. Hawkins, ASA, CFA Introduction Business valuation is as much as art as it is science. Sage advice, however, quantitative

More information

Using Probabilistic Cost Models to Estimate Environmental Damages

Using Probabilistic Cost Models to Estimate Environmental Damages Session A, Transferts de responsabilites Liability Transfer Mechanisms for Environmental Liabilities Using Probabilistic Cost Models to Estimate Environmental Damages DELTA CONSULTANTS, INC. - USA Catherine

More information

How Many Times Will the Fed Raise Interest Rates in 2016?

How Many Times Will the Fed Raise Interest Rates in 2016? IN PARTNERSHIP WITH How Many Times Will the Fed Raise Interest Rates in 2016? Applying Agent-Based Modeling and Game Theory for Estimating FOMC Behavior FEBRUARY 11 2016 Global Impact Strategies deploys

More information

Should You Invest in Life Settlement Funds?

Should You Invest in Life Settlement Funds? Copyright 2012 by Glenn S. Daily. All rights reserved. Version: April 12, 2012 (original: March 7, 2012) Should You Invest in Life Settlement Funds? A life settlement is the purchase of a life insurance

More information

Raytheon and Vista Equity Partners form new cybersecurity company

Raytheon and Vista Equity Partners form new cybersecurity company Raytheon and Vista Equity Partners form new cybersecurity company Investor Presentation April 20, 2015 Dial In Number 866.825.3209 Domestic 617.213.8061 International Reservation Number: 48245306 Replay

More information

1.1 Introduction. Chapter 1: Feasibility Studies: An Overview

1.1 Introduction. Chapter 1: Feasibility Studies: An Overview Chapter 1: Introduction 1.1 Introduction Every long term decision the firm makes is a capital budgeting decision whenever it changes the company s cash flows. Consider launching a new product. This involves

More information

Lesson 4 Measures of Central Tendency

Lesson 4 Measures of Central Tendency Outline Measures of a distribution s shape -modality and skewness -the normal distribution Measures of central tendency -mean, median, and mode Skewness and Central Tendency Lesson 4 Measures of Central

More information

Whole of life cycle cost analysis in bridge rehabilitation

Whole of life cycle cost analysis in bridge rehabilitation Whole of life cycle cost analysis in bridge rehabilitation Report 2002-005-C-03 The research described in this report was carried out by Project Leader Team members Dr. Sujeeva Setunge Prof. Arun Kumar,

More information

Monte Carlo Simulation in Crystal Ball 7.3

Monte Carlo Simulation in Crystal Ball 7.3 Monte Carlo Simulation in Crystal Ball 7.3 Analytics Group Monte Carlo Simulation in Crystal Ball 7.3 Authors: Niels Jacob Haaning Andersen Jeppe Brandstrup Last updated: May 2008 Monte Carlo Simulation

More information

Glide path ALM: A dynamic allocation approach to derisking

Glide path ALM: A dynamic allocation approach to derisking Glide path ALM: A dynamic allocation approach to derisking Authors: Kimberly A. Stockton and Anatoly Shtekhman, CFA Removing pension plan risk through derisking investment strategies has become a major

More information

Consulting Project Assignment Optimization Using Monte Carlo Simulation and Nonlinear Programming

Consulting Project Assignment Optimization Using Monte Carlo Simulation and Nonlinear Programming Consulting Project Assignment Optimization Using Monte Carlo Simulation and Nonlinear Programming The following hypothetical example combines Monte Carlo Risk Analysis and Nonlinear Programming to optimize

More information

Tax Cognizant Portfolio Analysis: A Methodology for Maximizing After Tax Wealth

Tax Cognizant Portfolio Analysis: A Methodology for Maximizing After Tax Wealth Tax Cognizant Portfolio Analysis: A Methodology for Maximizing After Tax Wealth Kenneth A. Blay Director of Research 1st Global, Inc. Dr. Harry M. Markowitz Harry Markowitz Company CFA Society of Austin

More information

Activity 3.7 Statistical Analysis with Excel

Activity 3.7 Statistical Analysis with Excel Activity 3.7 Statistical Analysis with Excel Introduction Engineers use various tools to make their jobs easier. Spreadsheets can greatly improve the accuracy and efficiency of repetitive and common calculations;

More information

RISK MITIGATION IN FAST TRACKING PROJECTS

RISK MITIGATION IN FAST TRACKING PROJECTS Voorbeeld paper CCE certificering RISK MITIGATION IN FAST TRACKING PROJECTS Author ID # 4396 June 2002 G:\DACE\certificering\AACEI\presentation 2003 page 1 of 17 Table of Contents Abstract...3 Introduction...4

More information

Overseas Investment in Oil Industry and the Risk Management System

Overseas Investment in Oil Industry and the Risk Management System Overseas Investment in Oil Industry and the Risk Management System XI Weidong, JIN Qingfen Northeast Electric Power University, China, 132012 jelinc@163.com Abstract: Based on risk management content,

More information

Matching Investment Strategies in General Insurance Is it Worth It? Aim of Presentation. Background 34TH ANNUAL GIRO CONVENTION

Matching Investment Strategies in General Insurance Is it Worth It? Aim of Presentation. Background 34TH ANNUAL GIRO CONVENTION Matching Investment Strategies in General Insurance Is it Worth It? 34TH ANNUAL GIRO CONVENTION CELTIC MANOR RESORT, NEWPORT, WALES Aim of Presentation To answer a key question: What are the benefit of

More information

A Correlation of. to the. South Carolina Data Analysis and Probability Standards

A Correlation of. to the. South Carolina Data Analysis and Probability Standards A Correlation of to the South Carolina Data Analysis and Probability Standards INTRODUCTION This document demonstrates how Stats in Your World 2012 meets the indicators of the South Carolina Academic Standards

More information

How To Calculate Discounted Cash Flow

How To Calculate Discounted Cash Flow Chapter 1 The Overall Process Capital Expenditures Whenever we make an expenditure that generates a cash flow benefit for more than one year, this is a capital expenditure. Examples include the purchase

More information

Why Taking This Course? Course Introduction, Descriptive Statistics and Data Visualization. Learning Goals. GENOME 560, Spring 2012

Why Taking This Course? Course Introduction, Descriptive Statistics and Data Visualization. Learning Goals. GENOME 560, Spring 2012 Why Taking This Course? Course Introduction, Descriptive Statistics and Data Visualization GENOME 560, Spring 2012 Data are interesting because they help us understand the world Genomics: Massive Amounts

More information

Airline Fleet Planning Models. 16.75J/1.234J Airline Management Dr. Peter P. Belobaba April 10, 2006

Airline Fleet Planning Models. 16.75J/1.234J Airline Management Dr. Peter P. Belobaba April 10, 2006 Airline Fleet Planning Models 16.75J/1.234J Airline Management Dr. Peter P. Belobaba April 10, 2006 Lecture Outline Fleet Planning as part of Strategic Planning Process Airline Evaluation Process Approaches

More information

MANAGEMENT OPTIONS AND VALUE PER SHARE

MANAGEMENT OPTIONS AND VALUE PER SHARE 1 MANAGEMENT OPTIONS AND VALUE PER SHARE Once you have valued the equity in a firm, it may appear to be a relatively simple exercise to estimate the value per share. All it seems you need to do is divide

More information

Five Questions a Project Manager Should Ask About Every Estimate Anthony A DeMarco, President, PRICE Systems, L.L.C. Introduction

Five Questions a Project Manager Should Ask About Every Estimate Anthony A DeMarco, President, PRICE Systems, L.L.C. Introduction Five Questions a Project Manager Should Ask About Every Estimate Anthony A DeMarco, President, PRICE Systems, L.L.C. Introduction Every day, project managers make decisions based on estimates. Since each

More information

Investment valuations in private equity buyouts

Investment valuations in private equity buyouts By Brian Gallagher, Twin Bridge Capital Partners 11 Introduction Buyout investment math (or mathematics) is the means by which investment sponsors formally analyse the assumptions they make about the past

More information

Amajor benefit of Monte-Carlo schedule analysis is to

Amajor benefit of Monte-Carlo schedule analysis is to 2005 AACE International Transactions RISK.10 The Benefits of Monte- Carlo Schedule Analysis Mr. Jason Verschoor, P.Eng. Amajor benefit of Monte-Carlo schedule analysis is to expose underlying risks to

More information

RoseCap Investment Advisors, LLC The Next Generation of Investment Advisors

RoseCap Investment Advisors, LLC The Next Generation of Investment Advisors 8 RoseCap Investment Advisors, LLC The Next Generation of Investment Advisors PRESENTATION TO: Palisade Risk Conference Monte Carlo Resort & Casino Las Vegas, NV November 7, 2012 About the Firm Registered

More information