The document discusses a team that is analyzing liquidity and working capital management using Monte Carlo simulations. The team is exploring how to incorporate risk from the pandemic into planning models and analyze the impact on liquidity. Monte Carlo simulations are introduced as a method to perform sensitivity analysis, scenario analysis, and obtain probability distributions needed for decision making under uncertainty. The team aims to build a liquidity model supported by Monte Carlo simulations to help optimize working capital management and answer critical questions about customer payment policies.

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Team members:
Jörn Ney, Luiza Arcab, Mariusz Rzeźnikiewicz, Anita Lazovic
Team 1:
„Liquidity”
Final meeting ICV Work Group 2020
06.11.2020

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?

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How to consider
RISK (of pandemic) in
the planning model?
Liquidity – Our Approach

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What can be an impact
on our liquidity?

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How far can we influence
Working Capital
to stay safe with cash
position?

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Monte-Carlo-Simulation

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Monte-Carlo-Simulation
A Monte Carlo simulation is a model used to predict the probability of
different outcomes when the intervention of random variables is
present.
Monte Carlo simulations help to explain the impact of risk and
uncertainty in prediction and forecasting models.
Only with MCS is possible to:
• perform thousands of sensitivity analysis and scenario
analysis
• simulate and aggregate the different risk
• get the probability distributions,
which are necessary for
making business decisions

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Liquidity Model
as supporting tool
 From very beginning
 Own team work
 Knowledge investigtion
Creation

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5. Interpreat the outcomes
Liquidity Model
1. Define the key risk input variables
2. Define assumptions (range,distribution parameters)
3. Add the risk (likelihood/impact) to the model
4. Run the simulation with Monte Carlo

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Define the key risk input

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Assumptions - range & distribution parameters
Add the risk (likelihood/impact) to the model

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Run the simulation with Monte Carlo
Interpreat the outcomes
There is a 40% chance of a cash forecast value being
equal to or less than 0 € in FY2021.

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Monte-Carlo-Simulation

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Liquidity Management
How to optimize
working capital
management in your
company to stay with
positive cashflow ?

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Liquidity Management
Customer Payment
Terms Management
Policy
DSO = 84 days
+/- 30 days

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Customer Policy - Critical Questions to Answer
What is the probability of running out
of cash if customers on average pay
20 or 30 days later ?
How many additional days of
collecting receivables could I accept
to be 75% sure of having positive
cash flow at the end of year ?
What is the expected value of days of
collecting receivables to lower probability
of running out of cash to 3%?
Then, how many days I should shorten
collecting receivables on average ?

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How to find answers in a few minutes?

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What is the probability of running out of cash
if customers on average pay 30 days later ?

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How many additional days of collecting
receivables could I accept to be 75% sure of
having positive cash value at the end of year ?

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What is the expected value of days of
collecting receivables to lower probability of
running out of cash to 3%?
Then, how many days I should shorten collecting receivables on
average ?

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What is the best customer payment terms
management policy – based on Monte-Carlo-Sim?

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Monte-Carlo-Simulation
https://youtu.be/BZZLRpwrDLI

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