Using @RISK in Project Risk
Assessments at Infineon
Dr. Martin Erdmann
Director Risk Management
Why Risk Management?
2-May-07
Copyright © Infineon Technologies 2006. All rights reserved.
Page 2
Agenda
„ Intro on Infineon
„ Risk Management at Infineon
„ Risk Analysis in R&D Projects
„ Risk Analysis of Business Plans
„ Roll out
„ Experience
2-May-07
Copyright © Infineon Technologies 2006. All rights reserved.
Page 3
The "New" Infineon at a Glance
„ More than EUR 4 bn in revenues in the fiscal year 2006,
EUR 958 m in the first quarter of the fiscal year 2007
„ Approx. 30,000 employees (incl. 6,000 R&D staff)
as of December 31, 2006
„ Strong technology portfolio with about 22,900 patents
and applications; more than 35 major R&D locations
worldwide
„ Focus on Energy Efficiency, Mobility & Connectivity,
Security & Safety
„ Majority holding of Qimonda
2-May-07
Copyright © Infineon Technologies 2006. All rights reserved.
Page 4
Our "New" Infineon Competencies
Core
Competencies
2-May-07
Analog/Mixed Signal
Power
Broadband
Access
RF
Solutions
Mobile
Phone
Platforms
Chipcard &
Security
Industrial
Electronics
Automotive
Application Fields
Energy Efficiency,
Mobility & Connectivity, Security & Safety
RF
Embedded Control
Copyright © Infineon Technologies 2006. All rights reserved.
Page 5
Organizational Structure
Infineon Technologies
Central Functions
LP
COM
LP
LP
LP
LP
LP
LP
LP
LP
IT
Qimonda
LP
LP
LP
2-May-07
AIM
LP
LP
AP
LP
Copyright © Infineon Technologies 2006. All rights reserved.
AC
Page 6
The Base: Risk Management (sub-) process
Risk
Reporting
„
„
„
„
„
1. Risk
Identification
Aggregation of risks
Creation of Top10 report
Annual report on Form 20F
Management Discussion
Creation of summary report
for supervisory board
„
„
„
4. Risk
Controlling
„
„
„
„
„
Control effectiveness of
measures
Take time and think!
Ask the experts
Check history
Compare with predefined
categories
Use Risk data base
Risk workshops
Use FMEA sheets
Risk
Management
2. Risk
Analysis
„
„
„
„
„
„
„
2-May-07
Define measures to
mitigate or eliminate
Define effort of
measures
Prepare and execute
3. Risk
Handling/Steering
Copyright © Infineon Technologies 2006. All rights reserved.
Define impact
Define probability
Analyze dependencies
Create Risk Model
„ Sensitivity Analysis
„ Decision Tree
„ Usage of MCS (e.g. @RISK)
„ Real Option Analysis
Page 7
Infineon’s expectation towards Risk Management
Legal Compliance
„ KonTraG
(1998)
„ TransPubG
(2002)
Risk
Reporting
1. Risk
Identification
„ BilReG (2004)
„ SOX (2002)
@RISK
4. Risk
Controlling
2. Risk
Analysis
3. Risk
Handling/Steering
Risk Management =
Management of a Decision
under uncertainty
Management Methodology
2-May-07
Copyright © Infineon Technologies 2006. All rights reserved.
Page 8
Risk Management System
„ AR RM responsibility
„ BG responsibility
† Definition of objectives and rules
† IFX Risk Reporting
† Support on process implementation
Details on
Risk Reporting
† BG Risk Reporting
† BG related process
implementation
– Risk Assessments
Risk Management Objectives
and Corporate Rules
Risk Internal & External
Communication (Reporting)
Risk Management Process
2-May-07
Risk
Identification
Risk
Analysis
Risk
Controlling
Risk
Handling
Risk Management System
Analysis
Copyright © Infineon Technologies 2006. All rights reserved.
Page 9
Quantification of Risk Events
Probability
0,7
Medium=
30%
0,3
Deviation from
plan
-50’
2-May-07
0
Copyright © Infineon Technologies 2006. All rights reserved.
Page 10
Decision Making Process
„ Using PrecisionTree: Risks are
described as good case or bad case
Uncertain
outcomes
2-May-07
Copyright © Infineon Technologies 2006. All rights reserved.
Page 11
Risk Analysis: @RISK
1.0
0.8
1.0
0.6
0.8
0.4
0.6
0.6
0.00000
0.0
-1.16315
0.8
0.4
CoS
2.32630
Revenues
0.2
1.16315
1.0
2.32630
0.2
„ Monte Carlo simulations are used to
aggregate and analyze effects on a
certain parameter
R&D
MCS
1.0
„ Application fields for Infineon:
† Schedule analysis in MSP
† Financial calculations
0.8
0.6
0.4
0.2
2-May-07
Copyright © Infineon Technologies 2006. All rights reserved.
2.32630
1.16315
0.00000
-1.16315
-2.32630
„ In 2002 Infineon selected @RISK
because of the product “@RISK for
Project”
0.0
EBIT
Page 12
2.32630
1.16315
-2.32630
0.0
0.00000
0.00000
-1.16315
1.16315
0.4
0.0
-2.32630
„ Uncertainty is defined by a range of
values and associated estimated
probabilities
-1.16315
0.2
-2.32630
„ A more sophisticated evaluation
technique by using probability
distributions
Risk Analysis in Projects (1)
Methodology:
STEP1
„ Identification of Top 10-20 Risks within a project
No
specific
tool
STEP2
„ Mapping of the risk’s to the project
„ documentation of implemented risks
STEP3
MS
project
„ Modeling & Simulation using @Risk for MSP
@Risk
STEP4
„ Involve the team to check your first estimates
and refine these
„ Prepare the transparent management
presentation
2-May-07
Copyright © Infineon Technologies 2006. All rights reserved.
No
specific
tool
Page 13
Workflow: STEP 1
3
7
3
4
2
5
0.25
0.5 0.75
1.0
Effort of Measures
0
1
2
0
1
6
2
0
1
Severity
3
„ Identification of Top 10-20 Risks within your project and
map these on a high level to your project
1
5
6
2
0
4
1
2
3
F(P;S)
Probability
1: Team not fully staffed
4: Analog Expert not avail.
7: GOX reliability
2-May-07
7
3
2: IP delivery delayed
5: Design errors
3: bottleneck in verification equipment
6: Testing not possible (Probe card)
Copyright © Infineon Technologies 2006. All rights reserved.
Page 14
Workflow: STEP 2
„ Create a Mapping chart for your MSP plan
3
k
s
Ri
A11 Design
90%
Synthesis
+ Layout
M6
Design
Analysis
10%
Redesign A12 needed
• Redesign
• Fab
• Design analysis
M7
Qualification
…
M9
1
sk
i
R
Procedure
1) Draw only the work package structure
necessary to how you want to model
2) Map the risks to the work packages
add additional work packages if required
3) Quantify risks
2-May-07
[x,y,z]d
[best case
duration,
likely
Copyright ©
Infineon=Technologies
2006.
All rightsmost
reserved.
2
k
s
Ri
T9
Technology Qualification
delayed [0,40,100]d
duration, worst case duration] in days
Page 15
Workflow: STEP 3 is in Projects
Risk 2
Task A
Task B
1.0
1.0
Risk 1
0.8
0.8
0.6
0.6
1.0
0.4
0.4
0.8
0.2
0.2
1.16315
2.32630
0.4
0.00000
1.16315
-1.16315
0.00000
-2.32630
-1.16315
-2.32630
0.0
2.32630
0.6
0.0
0.2
max
2.32630
1.16315
0.00000
-1.16315
0.0
-2.32630
min
„ Employ uncertainties in the
project plan by using @Risk’s
distributions
M3
M4
M5
M6
M7
M9
M8
t
„ A single milestone date gets a distribution
of possible finalization dates
1.0
0.8
0.6
0.4
0.2
2-May-07
Copyright © Infineon Technologies 2006. All rights reserved.
2.32630
1.16315
0.00000
-1.16315
-2.32630
0.0
Page 16
Workflow: STEP 4
„ Involve the team to check your
first estimates and rework the
model
„ Prepare the Risk Presentation
† Tracking of risks
(i.e. Risk Lite)
† Explanation of modeling
† Separation of committed and
target date
† List of measures/
decisions to make
2-May-07
Copyright © Infineon Technologies 2006. All rights reserved.
Page 17
Main Objective
Target
Separation of
„ Date committed
to the customer
„ Internal target
dates
..by using explicit
numbers of
likelihood
2-May-07
Copyright © Infineon Technologies 2006. All rights reserved.
Commitment
t
Keep
customer
committed
date
(Delay=0)
Page 18
Infineon regulations
Distributionprobability
for M9 - activities/Finish
Cumulated
of reaching the M9 date
1,000
Mean=19.09.2004
P80
=
0,800
Customer
commitment
80%
0,600
P30
=
0,400
Internal
Target
0,200
0,000
22.06.2004
30%
28.08.2004
03.11.2004
P30 date P80 date
5%
28.07.2004
90%
09.01.2005
M9 date
5%
24.11.2004
Mandatory
Mandatory for
for important
important R&D
R&D projects
projects
2-May-07
Copyright © Infineon Technologies 2006. All rights reserved.
Page 19
I. R e v e n u e
Standard Product Plan (PPL)
Y e a r e n d d a te
S a le s p ric e
S a le s V o lu m e
R evenue
0 3 /0 4
3 0 .0 9 .0 4
0 4 /0 5
3 0 .0 9 .0 5
8 ,3 0
800
6 .6 4 0
0 5 /0 6
3 0 .0 9 .0 6
8 ,5 0
1800
1 5 .3 0 0
0 3 /0 4
0 4 /0 5
0 5 /0 6
€ /p c
kpc
k€
II. C o S / P r o d u c t io n C o s t s
W a fe r P ro d u c tio n (F A B )
C o s ts p e r W a fe r
W a fe r d ia m e te r
C h ip a re a
C h ip s /W a fe r
YF
W a fe r T e s tin g (S O R T )
T e s te r c o s ts p e r s e c F E
T e s t tim e F E
T e m p e ra tu re F a c to r F E
YFB
YB
A s s e m b ly (A S S Y )
P a c k a g e c o s ts
YM
B a c k e n d T e s tin g (T E S T )
T e s te r c o s ts p e r s e c B E
T e s t tim e B E
T e m p e ra tu re F a c to r B E
YP1
M a rk /S c a n /P a c k (M S P )
C o s ts M S P p e r c h ip
T o ta l P ro d u c tio n C o s t
Z U K F a c to r
T o ta l P ro d u c tio n C o s t in c l. Z U K
Discrete numbers for
• Revenue (S x V)
• CoS
•wafer cost
•chip area
•yield
€ /w a fe r
m m
2
m m
1 5 0 0 ,0 0
200
30
911
100%
1 4 0 0 ,0 0
200
30
911
100%
%
%
0 ,0 4
2
1
100%
7 0 ,0 0 %
0 ,0 4
2
1
100%
7 5 ,0 0 %
€
%
1 ,8 0
100%
1 ,7 0
100%
0 ,0 1
6
1
95%
0 ,0 1
6
1
95%
0 ,0 1
4 ,5 6
1 ,1 5
5 ,2 5
0 ,0 1
4 ,1 3
1 ,1 5
4 ,7 5
0 3 /0 4
50
80
4 .0 0 0
100
0 4 /0 5
40
80
3 .2 0 0
0 5 /0 6
30
80
2 .4 0 0
100
0
4 .1 0 0
3 .2 0 0
2 .4 0 0
0 3 /0 4
0 ,0 0
0 ,0 0
0
0 ,0 0
0
0%
0 4 /0 5
5 ,2 5
4 1 9 9 ,5 1
6 .6 4 0
3 ,0 5
2 .4 4 0
37%
0 5 /0 6
4 ,7 5
8 5 5 3 ,6 8
1 5 .3 0 0
3 ,7 5
6 .7 4 6
44%
1 ,5
1 ,5
%
€ /s e c
se c
€ /s e c
se c
%
€
€
€
III. R & D C o s t s
M a n m o n th s
A v g . C o s t p e r M a n m o n th
R & D M a n m o n th C o s ts
T a p e -o u t C o s ts
R e d e s ig n C o s ts
S u b to ta l M a s k s + W a fe r
E x te rn a l M a te ria l
C o n s u ltin g
R & D C o s ts T o ta l
•package costs
•R&D costs
m m o
k € /m m o
k€
k€
k€
k€
k€
k€
k€
IV . G r o s s M a r g in
N
Σ
n=0
“NPV” =
2-May-07
T o ta l P ro d u c tio n C o s ts p e r U n it in c l.
T o ta l P ro d u c tio n C o s ts
S a le s IF X
G ro s s M a rg in p e r u n it
G ro s s M a rg in to ta l
G ro s s M a rg in in % o f s a le s
Ebitn
(1+15%)
€ /p c
k€
k€
€ /p c
k€
%
F a c to r O v e rh e a d C o s ts
V . E B IT , N P V & P a y o f f P e r io d
n
0 3 /0 4
C o u n te r Y e a rs
E B IT
C u m u la tiv e E B IT
P a y -o ff Y e a r
D is c o u n t R a te
%
P a y - o f f p e r io d
NPV
N P V ta rg e t
yr
M€
M€
Copyright © Infineon Technologies 2006. All rights reserved.
M €
M €
1
-4 ,1 0
-4 ,1 0
0
15%
0 4 /0 5
2
-2 ,8 6
-6 ,9 6
0
0 5 /0 6
3
0 ,0 7
-6 ,8 9
0
5
0 ,2 4
2 ,0 0
Page 20
Quantitative Risk Analysis of Business Plans
Details
„ Uncertainties in sales price,
volume, R&D and production
costs are defined by using
@Risk’s distribution functions
„ The EBIT is changing from a
single number to a certain
distribution
„ Predefined templates visualize
the probability function of the
Net Present Value (NPV)
2-May-07
Copyright © Infineon Technologies 2006. All rights reserved.
Page 21
“Financial @RISK”
„ Standardized Outputs
90%
80%
Probability of NPV of at least x
† NPV
100%
70%
60%
50%
40%
30%
20%
10%
† POP
0%
-6,0
-4,0
-2,0
0,0
2,0
4,0
6,0
8,0
10,0
NPV, million euro
probability
60%
† Regression coefficients
(impact of each input on NPV
distribution)
40%
20%
0%
1
2
3
4
5
6
7
8
pay off period
Regression Coefficient (absolute value)
0,00
0,05
0,10
0,15
0,20
0,25
0,30
0,35
0,40
0,45
area
€/wafer / 07/08
€/wafer / 08/09
€/pc / 07/08
kpc / 07/08
€/wafer / 09/10
€/pc / 08/09
€/wafer / 10/11
kpc / 09/10
Package costs / 07/08
2-May-07
Copyright © Infineon Technologies 2006. All rights reserved.
Page 22
Templates provided by Central Risk Management
2-May-07
Copyright © Infineon Technologies 2006. All rights reserved.
Page 23
Rules & Guidelines within Infineon (1)
„ R&D projects whose budget exceed given limit
† Project Plan Analysis
– A quantitative risk analysis of the project schedule has to be applied
using "@Risk for Project".
† Financial Analysis
– profitability to be assessed using “released Excel-Templates” based on
@Risk for Excel
„ Investment projects (above given limit)
† Before those investments can be approved, a quantitative risk
analysis using the “Investment template” has to be applied
2-May-07
Copyright © Infineon Technologies 2006. All rights reserved.
Page 24
Rules & Guidelines within Infineon (2)
„ 1-day training is mandatory
†
@RISK
†
@RISK for Project
–
–
–
–
–
–
–
–
–
–
Basics on Statistics
@ RISK First Steps
@RISK Advanced Features
Business Plan Analysis
@RISK for Project
Risk Management Methodology
Basics on Statistics
@RISK Demonstration & Exercise
Case Study
Project Business Plan Analysis
„ Training organization
†
Bi-monthly courses in Munich (Headquarter)
–
2-May-07
Successful cooperation with Palisade since 2005
†
E-Learning courses for APAC and US
†
Courses for sites on demand
Copyright © Infineon Technologies 2006. All rights reserved.
Page 25
Experience with QRA in projects and @Risk
for MSP
„ Pros
–
–
–
–
–
–
–
–
–
Basic features of the tool easy to use
For basic features similar user interface compared to @RISK
Existing project plans could be used
Applying Risk Management in projects improved planning accuracy
More objective decisions („kill-rate“)
Less fire fighting
Improved communication in project team
More efficient management of defined mitigation activities
Culture, sharpened awareness
„ Cons
–
–
–
–
Tool performance
Tool stability in early versions
Some resistance due to obligation to use @RISK
No structured process, just tool usage
– Too many risks
– No follow up
– Sometimes no serious usages (“change the inputs until it fits”)
2-May-07
Copyright © Infineon Technologies 2006. All rights reserved.
Page 26
Experience with QRA for finance applications
and @Risk for Excel
„ Pros
–
–
–
–
–
–
–
Perfect integration into MS Excel
Easy to understand user interface
“Viewer” concept
Tool performance
Applying Risk Management improved planning accuracy
More objective decisions („kill-rate“)
Culture, sharpened awareness
„ Cons
–
–
–
–
2-May-07
More guidance which pdf to choose
Some resistance due to obligation to use @RISK
No structured process, just tool usage
Low quality inputs destroy good projects - or vice versa
Copyright © Infineon Technologies 2006. All rights reserved.
Page 27
Biggest Difficulties
„ Culture
„ Training as prerequisite
„ Quality of inputs
2-May-07
Copyright © Infineon Technologies 2006. All rights reserved.
Page 28
Advanced Risk Analysis: Real Option Analysis
„ Decision Analysis
1.0
„ Risk Analysis
0.8
0.6
0.4
0.2
2.32630
1.16315
0.00000
-1.16315
-2.32630
0.0
„ Real Option Analysis: Value of flexibility
Value of P2?
2-May-07
Copyright © Infineon Technologies 2006. All rights reserved.
Page 29
Managing Uncertainty at Infineon …
… is being done sucessfully with @RISK !
2-May-07
Copyright © Infineon Technologies 2006. All rights reserved.
Page 30
THANK YOU !
Questions?
-> martin.erdmann@infineon.com
2-May-07
Copyright © Infineon Technologies 2006. All rights reserved.
Page 31
Backups
2-May-07
Copyright © Infineon Technologies 2006. All rights reserved.
Page 32
“Financial @RISK” (1)
Pert(7,2000; 8,0000; 10,000)
0,8
„ Sales price and volume
uncertainties are defined by their
minimum, most likely and
maximum values using PERT
distributions *
0,7
0,6
0,5
0,4
0,3
0,2
7,452
Year end date
Sales price
Min (P95 on Timeline)
Most likely (P80 on Timeline)
Max (P30 on Timeline)
Sales Volume
Min (P95 on Timeline)
Most likely (P80 on Timeline)
Max (P30 on Timeline)
Revenue
€/pc
€/pc
€/pc
€/pc
kpc
kpc
kpc
kpc
k€
10,5
10,0
9,5
9,0
8,5
90,0%
I. Revenue
2-May-07
8,0
7,0
0,0
7,5
0,1
5,0%
9,110
03/04 04/05 05/06 06/07 07/08 08/09 09/10 10/11 Total Years
30.09.04 30.09.05 30.09.06 30.09.07 30.09.08 30.09.09 30.09.10 30.09.11
8,20
7,06
6,50
5,95
4,96
4,96
4,46
7,20
6,30
5,85
5,40
4,50
4,50
4,05
8,00
7,00
6,50
6,00
5,00
5,00
4,50
10,00
8,05
7,15
6,30
5,25
5,25
4,73
21
98 1.967 9833,33 9833,33 7866,67 7866,67
37.486
18
60 1.200 6.000 6.000 4.800 4.800
22.878
20
100 2.000 10.000 10.000 8.000 8.000
38.120
25
130 2.600 13.000 13.000 10.400 10.400
49.555
168
694 12.783 58.508 48.757 39.006 35.105
195.021
* Prices and volumes could be correlated
Copyright © Infineon Technologies 2006. All rights reserved.
Page 33
“Financial @RISK” (2)
„ Wafer costs are defined by a
trend and a deviation over
time using PERT distributions
Yield
Area
„ Chip area is uncertain in the
first year and kept for the next
years
„ Chip area distribution is
negative correlated to yield
II. CoS / Production Costs
03/04
Wafer Production (FAB)
Costs per Wafer
Most likely
Change of most likely ("trend")
Min in % w.r.t. most likely value
Max in % w.r.t. most likely value
Wafer diameter
Chip area
Min
Most likely
Max
2-May-07
€/wafer
€/wafer
%
%
%
mm
2
mm
2
mm
2
mm
2
mm
1587
04/05
05/06
06/07
07/08
08/09
1460,04
1460,04
-8%
10%
10%
200
32
29
32
33
1343,24
1343,24
-8%
12%
12%
200
32
1235,78
1235,78
-8%
14%
14%
200
32
1136,92
1136,92
-8%
16%
16%
200
32
1045,96
1045,96
-8%
20%
20%
201
32
Copyright © Infineon Technologies 2006. All rights reserved.
09/10
962,29
962,29
-8%
25%
25%
202
32
10/11
885,30
885,30
-8%
30%
30%
203
32
Page 34
“Financial @RISK” (3)
back
„ Package costs and R&D costs are defined by their
minimum, most likely and maximum values using
PERT distributions
„ Gross Margin calculation based on sampled data
during simulation
„ NPV and POP distributions are created
V. EBIT, NPV & Payoff Period
03/04
Counter Years
EBIT
Cumulative EBIT
Pay-off Year
Discount Rate
Pay-off period
NPV
NPV target
2-May-07
M€
M€
%
yr
M€
M€
1
-10,10
-10,10
0
15%
04/05
2
-5,98
-16,08
0
05/06
3
-1,93
-18,01
0
06/07
4
1,75
-16,26
0
07/08
5
11,38
-4,88
0
08/09
6
6,61
1,73
6
09/10
7
10,66
12,38
0
10/11
8
8,75
21,13
0
6
1,81
2,00
Copyright © Infineon Technologies 2006. All rights reserved.
Page 35
Risk Reporting principle
Risk
Identification
Risk
Analysis
Risk
Controlling
Risk
Handling
Risk Report
AIM
Executive Board
Risk
Identification
Risk
Analysis
Risk
Controlling
Risk
Handling
Risk
Identification
Risk
Analysis
Risk
Controlling
Risk
Handling
Risk Report
COM
Supervisory Board
Shareholder
Risk Report
Summary
Risk Report
as part of
“Management
Disc.”
Risk Report
Infineon
Risk Report
as part
of “20-F”
Risk Reports
Central
Functions
Central Risk Management
2-May-07
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“ROIMT2”
2-May-07
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Exported Risk Reports
confidential
Business Group:
Period:
IFX (AIM)
2005/07 - 2006/09
previous Report 2005/04
R-No. Cat
Cross
Ref.
(1)
(2)
(3)
17862
18498
18460
1.4
3
4.2
RID
Risks
PL
(4)
(5)
xx' Mio € Sales Risk
Additional cost for xx
project xy
AIM
MC
AP
Total
Total
RID
O-No. Cat
17868
18558
7.1
2.2
18579
4
Total
Total
Cross
Ref.
Opportunities
PL
Net exchange rate effect
Project win
AIM
PMD
Various improvements (product mix)
32
FY
Month of
first rep.
Measures
(6)
(7)
(8)
Impact on
EBIT
Probability
R in FC,
ytd.
Impl. Status
(12)
(13)
(10)
(11)
05/06 2005/04 Improve xx
04/05 2004/07 Reduce efforts of xx
04/05 2003/10 reduce feature set
-10,0
-5,0
-3,0
medium
low
very low
04/05
05/06
-8,0
-10,0
Month of
first rep.
Probability
05/06 2005/04 hedging
04/05 2004/04 Customer engagement xx
Optimize product mix.
04/05 2004/04
Shrinks.
10,0
2,0
medium
medium
2,0
medium
04/05
05/06
4,0
10,0
Measures
Impact on
EBIT
Probability
R in FC ytd.
Impl.
Status
(17)
(14)
(15)
(16)
-5,0
medium
-5,0
low
-6,0
-6,0
-5,0
Impact on
EBIT
FY
actual Report 2005/07
O in FC,
ytd.
Impl. Status
5,3
high
-5,0
Impact on
EBIT
Probability
O in FC ytd.
5,0
2,0
medium
medium
5,0
5,3
Impl.
Status
high
high
5,3
2,0
5,0
5,3
5,0
back
2-May-07
Copyright © Infineon Technologies 2006. All rights reserved.
Page 38