Simulation and Scenario Analysis

Simulation and Scenario Analysis

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Simulation and scenario analysis are often used for budget planning, risk management or for valuation purposes.

Some organization have a stable business environment and forecasting the expected revenues, profitability for the coming years is not difficult. However, other organizations operate in a high uncertain environment and cannot predict the future by extrapolating the past results into the future. These companies benefit from our detailed simulation and scenario analysis to make decisions based on clear insight in the possible outcomes.

The below examples of our assignments clarifies the kind of analysis we provided:

Funding need for a Biotech company

The company has three products which were in early development/ clinical stage. The company has a clear cash constraint and cannot develop these three products on its own. A partner is needed to provide funds to further develop these products. Several partners are willing to provide funding in exchange for royalty payments.

For this case we provided the Biotech company insight in the cash need, the optimal milestone and royalty structure by building a Monte Carlo framework for the development of the three products. This information was used to select the right partner and to help negotiate the best deal for the company.

Portfolio of Electric Vehicle Charging Stations

A company has to opportunity to acquire a portfolio of 12.000 electric vehicle charging stations and has the wish to expand this portfolio to 20.000 charging stations. The current portfolio is loss making due to insufficient income. The utilization rate of the portfolio was too low but given the growth in the amount of electric vehicles this utilization is expected to increase. Furthermore the start tariffs and the variable tariff (price per kWh) is expected to increase.

The pace at which new charging points are placed is restricted to funding capacity of the company.

Key questions for this assignment were :

  • what is the expected cash flow from the existing portfolio
  • what is the expected cash flow after eliminating the unprofitable charging stations
  • how many funding is needed to realize the expansion of the portfolio
  • what is the expected rate of return of the portfolio

The answers on these questions were given with a sensivity analysis on key parameters.

Existing vaccines in new markets

The 12 vaccines were applicable for Adult, Adolescence and Child population, for the public and for the private market, hence for each vaccine six combinations so in total 72 combinations. Our client wanted to know which vaccines should be sold in which market in the 30 selected countries. The total combinations are 2.160 (72 multiplied by 30). Each combination has its own unique market entry expenses (registration, marketing and selling expenses, start up expenses). The market entry should be optimized to get the maximum value creation.

Key Questions for this assignment:

  • how many funds are needed to get the optimum value creations?
  • which combinations are executed at which time?
  • what is the financial performance for one country?
  • what is the expected value of each combination?

The insight is provided by building financial forecasts for each product (vaccine) market (country) combination.

Big Project, Potentially Big Losses

A construction company has asked us to help them calculating the real value of large projects and to provide insight in the risks of these projects. The income element of these projects was dependent on achieving certain milestones in time. The cost structure was dependent on several factors each with its own unique uncertainty.

We build a framework in which all elements were implemented. With this framework we performed a sensitivity check on key parameters. We further tested these key parameters with risk distributions so see the impact on the total value of the project. This outcome was used to mitigate risks elements which could perform serious losses for the project.

 

For more information please contact: info@valuebasedmanagement.com