@Risk for Excel
used to support
Investment Appraisal
Peter Wood
Peter Wood Associates
Decision Support Services
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Decision Support Services
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Overview
Good investment decisions need a realistic
view of the full range of possible results.
 @RISK used in conjunction with MS Excel
is extraordinarily powerful, but under-used.
 In practice, all key variables can be
combined in a single model.
 This allows fully rounded risk-based
predictions to be made.

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Case Study – Iron Ore Mine
WATER SUPPLY
CRUSHER
MINE
POWER
PROCESSING
PLANT
WASTE ROCK DUMP
STOCKYARD
RAIL
LOADING
TAILINGS
DAM
RAILWAY
CAR DUMPER
PORT
SHIP
LOADER
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The Shareholders want to know.....
What is the capital requirement?
 When can we expect the first shipment?
 What is the payback period?
 What is the life of the mine?
 What returns can we expect?
 What are the major risks?


How confident are we in the answers?
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Deterministic Results
BASELINE RESULTS
construction cost with contingency
contract award date
first shipment
break-even
life of mine
NPV
3,051
Apr-10
Jun-12
year 4
15.1
3,750
$m
years
$m
How confident are we in these results?
 There are significant risks to programme

 Consents and licences
 Long-lead items – process plant and rail equipment
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Results also depend on many variables...
Design
development
Physical
characteristics
Construction
costs
Operating
efficiency
Equipment
costs
Energy costs
Construction
timescales
External
dependencies
$
Inflation
Contracts /
agreements
Exchange rates
labour
costs
Finance costs
Markets
Taxation
... which can all be combined in the
@RISK Excel model
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Capital Requirement

A capital budget of $3.05bn has an 80% level of
confidence
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Expected Start of Operations

Completion in June 2012 is unrealistic, with a delay
of 6 – 12 months likely.
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Discounted Cash-flow

Break-even in year 4 is unachievable, but should be
reached in years 5 to 7.
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Net Present Value

Although the deterministic NPV of $3,075m is highly
unlikely, there is a good chance of an NPV over $2m.
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How Does @RISK for Excel do this?






Excel allows all inputs, together with the relationship
between them, to be expressed eg cost, quantities,
work-rate, discount rate.
Its calendar function allows the programme logic to
be modelled and viewed.
Time-related costs can be applied to activities.
@RISK functions allows risk and uncertainty to be
applied to the inputs at any level.
Excel functions allow time-related costs to be
distributed to the time period in which they occur.
@RISK outputs can be exported back to Excel,
allowing MS users to utilise the data.
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Schedule Logic
Baseline
ID
1
2
3
4
5
6
7
8
9

Task
Preparation to Contract Award
INFRASTRUCTURE
Tailing Dam
Water
Power
MINE
Order equipment
Civils
Commissioning
Pred
Lag
wks d
0
1+4m
1
1
1
1+1y
7,8,3
16
52
112
364
Duration
Start
Finish
wks d
17 119 01/01/2010 30/04/2010
60 420 20/08/2010 14/10/2011
90 630 30/04/2010 20/01/2012
100 700 30/04/2010 30/03/2012
70
30
30
490 30/04/2010 02/09/2011
210 29/04/2011 25/11/2011
210 25/11/2011 22/06/2012
Calendar function allows the programme logic
to be modelled ........
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Programme View
Preparation to Contract Award
INFRASTRUCTURE
Tailing Dam
Water
Power
MINE
Order equipment
Civils
Commissioning
PLANT
Procure equipment
Design & build
Commissioning
RAILWAY TRANSPORT
Railway construction
Terminals & product handling
Commissioning
PORT
Construction
Commissioning

......and viewed.
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Control Panel

Allows scenarios and key variables to be tested,
with visibility of impacts on results.
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Conclusion

Excel allows anything that can be quantified to
be modelled, complete with the linkages
between elements.

@RISK enables all uncertainty, opportunity and
risks to be expressed.

In combination, any measure of performance
can be tested on a risk-aware basis in a single
integrated model.
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