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Engineering | Architecture | Design-Build | Surveying | GeoSpatial Solutions
Decision & Risk Analysis
Pac Rim Bio 2013
December 9, 2013
Agenda
I. Merrick Overview
II. Introduction to D&RA
III. Brief Overview of D&RA Methodology
IV. Conclusion
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
What is Decision & Risk Analysis?
Decision & Risk Analysis (D&RA) is an analytical decision-making methodology
Use D&RA to navigate uncertainty
and complexity
D&RA can also be used to develop a compelling business case to attract needed funding
Goal of D&RA:
Make Better Decisions Sooner!
D&RA Produces Results
Has been used for decades in:
Oil & Gas
Military
Finance
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
Value
Project Timeline
D&RA, Strong
Project Definition
Good Project Execution
Good Project Execution
D&RA Process
Framing
Frame the Problem and Identify the Issues
Modeling
Build an Influence Diagram
Quantify the Risks and Uncertainties
Build Financial Analysis Model
Analysis
Monte Carlo Simulation
Tornado Diagram
Decision Tree
Make Decisions
Develop and Implement Decision Strategy
Framing
Modeling
Analysis
Make Decisions
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
Modeling
Influence DiagramQuantify Risks &
UncertaintiesFinancial Analysis
Model
Independent Variables
Dependent Variables
Bottom Line
Feedstock
Availability
Plant Size
20yr IRR
EBITDA
Capital
Costs
Operating
Costs
Revenue
Product
Production
Co-Product
Production
Feedstock
CompositionProduct
DemandMarket Share
Waste
Generated
Feedstock
Pricing
Waste
Disposal Costs
Product
Pricing
Co-Product
Pricing
Electricity
Pricing
Natural Gas
Pricing
Regulations
Process
Performance
Feedstock
Throughput
Modeling
Influence DiagramQuantify Risks &
UncertaintiesFinancial Analysis
Model
Assign a range to each Independent Variable
Characterize uncertainty using ranges
Some parts of the range are more likely than others
The ranges are based on:
• Data
• Experience
• Intuition
E.g. Fermentation Productivity (g/L/hr)
Modeling
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
Influence DiagramQuantify Risks &
UncertaintiesFinancial Analysis
Model
Analysis
Tornado Diagram
Decision Tree
Monte Carlo
Simulation
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)
100
Iterations
500
Iterations
2000
Iterations
0
20
40
60
0 5 10
CapitalCost$MM
0
20
40
60
0 5 10
CapitalCost$MM
0
20
40
60
0 5 10
CapitalCost$MM
Electricity Pricing ¢/kWh
0 500 1000 1500 2000
CalculatedAverage
# Monte Carlo Iterations
Monte Carlo Estimation is more accurate with each iteration
Monte Carlo Average True Average
Analysis
Tornado Diagram
Decision Tree
Monte Carlo
Simulation
The Tornado Diagram graphically depicts the impact of uncertainty on the Decision Criterion.
What’s important?
0 25 50 75 100 125
Electricity Pricing
Feedstock Pricing
Equipment Costs
Technology Performance
Feedstock Composition
Fermentation Productivity
Product Pricing
NPV $MM
Tornado Diagram
Make Decisions…Rinse and Repeat
Framing Modeling AnalysisMake
Decisions
Framing Modeling AnalysisMake
Decisions
Framing Modeling AnalysisMake
Decisions
Time
- Implement Strategy -
- Implement Strategy -
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!
“The only certainty is that nothing is certain”
- Pliny the Elder, Roman scholar, 23-79 CE
0 25 50 75 100 125
Electricity Pricing
Feedstock Pricing
Equipment Costs
Technology Performance
Feedstock Composition
Fermentation Productivity
Product Pricing
NPV $MM
Tornado Diagram
Contact Information
Dr. Alan Propp, PE
Merrick & Company
303-353-3561
Peter Dixon
Merrick & Company
425-985-2406
