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
Useful
Information
Uncertainty &
Probability of
Risk
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
Feedstock
Technology
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 C
Waste

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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 Recovery
Efficiency
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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