decision & risk analysis for industrial biotechnology

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What is D&RA?

Decision & Risk Analysis (D&RA) is a decision making tool

Screens a variety of options and bring greater clarity and value to each decision

Accounts for

Risk

Incomplete information

Complexity

Reveals where the really important uncertainties exist

Increases the rate at which valuable information is accrued

Industrial Biotechnology (IB) processes frequently use novel processes with high complexity and uncertainty. D&RA can mitigate and provide guidance throughout the design.


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Uncertainty in Novel Processes

Uncertainty is a lack of information.

Risk is the potential impact of making decisions without that information.

The D&RA “tornado” diagram depicts uncertainties ranked by potential impact to the decision criteria.

The larger the range, the larger combined risk and potential upside.

Tornado diagrams determine which variables warrant special attention (risk management).


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What Can D&RA Do For You

Use a consistent, established method of analysis to make better decisions.

Guide research and engineering, make better decisions sooner, identify and manage risk, boost project economics, see the big picture!

D&RA recognizes there are very few things we know for certain but we can be confident they will fall within a range.

Time

After D&RA

UsefulInformation

Uncertainty &Probability ofRisk

After D&RA

D&RA


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D&RA Process Details


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Example: IB Technology Selection

What is the problem?

What are the issues that created this problem?

What are the distinct alternatives?

A typical IB process flow with unknowns:

Biosolids

Feedstock

Pretreatment

Technology?

Core

Process

Product

Co-Product

Waste

Processing?Waste


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Example: IB Technology Selection

Alternatives

Core Process will require one of three viable pretreatment technologies

FeedstockTechnology

A, B, or C

Core

Process

Product

Co-Product

Processing waste from Technology A, B, or C will

have different capital and operating requirements.

Technologies A, B, and C have different capital and

operating requirements to process Feedstock.

Waste Processing

A, B, or CWaste


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Framing

Define Objective

Determine the best Front-End Technology to integrate with the Core Process and determine the optimal plant size to use as the basis for the front end design package.

Major Constraints

Feedstock supply and product demand

Capital cost

Waste output (environmental regulations)

Decision Criteria

Choose the technology and plant size that provides the highest “expected” IRR that satisfies the model assumptions and major constraints.


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Modeling

Determine the inputs to the financial model

Develop model of influence between the inputs


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Modeling

Use probability to define risks and ranges of uncertainty for all model inputs

10% probability (P10)

real value is less than P10



real value is more than P50



The P10/50/90 values are

based on data,

experience, and intuition

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

0.00 0.20 0.40 0.60 0.80 1.00

Pretreatment Conversion

Cumulative Probablity Curve

P10

P50

P90

0.09

0.27

0.52


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Analysis: What is a Tornado Diagram?

What happens if we change the value of one variable, but keep all others the same (at their P50 values)?

Pretreated Feed Recovered

Electricity Pricing

Product RecoveryEfficiency

Pretreatment Conversion

Total Installed Cost

Feedstock Pricing

Feedstock Composition

Product Pricing

20yr After-Tax NPV Millions

Low High

Default

Inverse

RelationshipP90

P90


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Analysis: Monte Carlo

The diagram on the right shows a simple tree of possibilities

~ 3 iterations / 2 variables

Monte Carlo Analysis = generate a really big tree

~ 1000 iterations

IRR vs many variables

Probability Distributions

Pretreatment

Conversion = .09

Pretreatment

Conversion = .27

Pretreatment

Conversion = .52

Cap Cost = $10M

Cap Cost = $15M

Cap Cost = $30M

Cap Cost = $10M

Cap Cost = $15M

Cap Cost = $30M

Cap Cost = $10M

Cap Cost = $15M

Cap Cost = $30M

IRR = 6%

IRR = 3%

IRR = 1%

IRR = 17%

IRR = 12%

IRR = 8%

IRR = 32%

IRR = 24%

IRR = 15%

E[IRR] = 3.3%

E[IRR] = 12.3%

E[IRR] = 23.7%

IRR vs two variables

E[IRR] = A+B+C

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A

B

C

E[IRR] = 13.1%

E[IRR] = Expected IRR = Probabilistically weighted average


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Make Decisions

We’ve made the decision to…

The major risks are…

How to manage these?

The major upsides are…

How to capitalize on these?

We should focus our efforts on…


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View The World Differently

In summary, D&RA is a decision making tool that…

Is a consistent, established method of analysis

Comprehends risk, incomplete information and complexity

Provides better decisions and direction sooner

Provides in-depth understanding of the issues

Reveals what’s important

Aligns team around common goal(s)

Forces us to look at the world differently

“I would give my life for the simplicity on the other side of

complexity.”

– Oliver Wendell Holmes

decision & risk analysis for industrial biotechnology

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