Industries

Business

• What is the probability of meeting a target EBITDA, NPV or ROI?
• What do the cashflow streams of the investment look like?
• What are the key drivers that make the profitability uncertain, and how can we better control them?
• What are the major risks that would derail the project?
• How quickly can investors see a return for their money?
• What capital do we need to raise to finance the project?
• How does the project impact the global level of risk for the company?
• How should we split the investment and risk exposures with JV partners?

Business expansion and investment inherently face risks surrounding the financial performance of the project: sales volume and price, fixed and variable costs, raw material and energy costs, etc. Risk analysis has been used for many years in business to evaluate the level of risk of an investment and compare with other potential investments, or variations on the same investment, in an attempt to improve a company’s investment decisions and portfolio. The mathematics behind the Monte Carlo models tend to be fairly simple, making business risk modeling very accessible. The key areas of focus for business risk modeling are identifying the main drivers and risk events, and getting good subject matter estimates for uncertain quantities.

Clients

• Network Rail, UK
• Réseau Ferré de France, France
• Spectra Energy, USA
• Palamon Capital Partners, USA
• PKF, UK

Example Projects

FORECASTING DEMAND

Problem and solution

A market-leading manufacturer of construction material wished to estimate their worldwide sales over the next few years. Demand was known to be strongly driven by GDP growth by geographical region, and large changes in the competition to supply the demand were coming very soon. Using the company’s database and deep knowledge of the market, we worked with them to produce a defensible forecast that took into account the degree of correlation in GDP growth between regions, competing plants coming on line and the increased competitiveness of certain of the client’s plants due to planned improvements.

CAPITAL INVESTMENT IN THEME PARKS

Problem and solution

A capital venture company needed to evaluate the uncertainty in cashflows from the planned purchase of a group of European theme parks. The short investment horizons of capital venture partners, the relatively close location of the parks, and the highly seasonal revenue streams made it important to evaluate the risk from poor weather during peak periods over the first couple of years of ownership. Vose was engaged to help build a risk analysis model which evaluated historic weather patterns, correlations between sites, the effect of weather on traffic during peak periods and the amount spent per ticket. The capital venture company was able to establish that their proposed plan had very small risk of being derailed by poor weather and they were able to secure the investment capital required.