CASE STUDIES
Decision Support
Services
Decision Analysis for a Portfolio
of Seventeen Manufacturing Sites
The Opportunity
An international construction materials company needed to determine the least cost, lowest risk method of managing environmental liabilities at 17 industrial sites. These properties had been sold fifteen years earlier, but the client retained the environmental liabilities. In the year of our analysis, the new owners of the properties proposed that for $150 million, they would assume all historical environmental liabilities. Initially, the proposal seemed like a good method to eliminate environmental liabilities from the client’s books.
The Solution
A spreadsheet Monte Carlo decision model was created to help the client evaluate four alternatives: liability transfer, negotiated settlement, re-purchase of property, and maintaining the status quo. The analysis showed that the client was best served by maintaining the status quo for an expected value savings of $33 million. In addition, the results provided the client with a sound, defensible basis for justifying the decision to senior management and insurers.
Mine Closure and Restoration
Multi-Criteria Decision Analysis
The Opportunity
A Fortune 500 mining company needed to develop a mine closure plan for a large copper mine. The impediments to developing an effective closure plan included ambiguous lease agreement language with a Native American tribe, recent increases in copper prices, community impacts on tribe members, regulatory requirements, and long-term management of surface and groundwater impacts.
The Solution
A multi-criteria decision analysis model was created to evaluate three future mine operation strategies: closure in one year; continued operations for the next ten years and then closure; and expanding mine operations. The evaluation criteria were: community acceptance, cleanup standards achieved (residential/industrial), net present value, cash flow, and timeframe for site resolution. The results showed the best strategy not only scored better on all the criteria, but also provided a net present value savings in excess of $50 million over the next best strategy.
Multi-Criteria Decision Analysis for Mine Tailings Redevelopment as Solar Power Project
The Opportunity
A Fortune 100 mining company had completed a CERCLA FS to address a historical mine tailings area of approximately 300 acres. Upon completion of the FS, the alternative under highest consideration by the EPA and State involved a 3-foot soil cap placed over the entire 300 acres, along with long term operation of a pump and treat system and groundwater monitoring.
The Solution
A multi-criteria decision analysis approach that incorporated the EPA Green Remediation Initiative and the CERCLA remediation nine criteria analysis was used to analyze alternative mining reclamation strategies. The results provided the state and federal regulators with a rigorous, defensible analysis of alternatives that accurately captured the environmental, social, and economic impacts of the strategies. This analysis pointed to re-developing the mine tailings area with a 2 MW solar power facility and limiting the amount of soil cover required. This was accepted by the regulatory agencies and resulted in a $26 million savings. In addition, the solution provided benefits to the environment by limiting impacts to sensitive habitat, and to society by creating additional jobs. The total cost of the modeling effort was $80,000.
Capital Equipment Optimization
The Opportunity
A chemical manufacturing company was seeking a method of identifying the optimum combination of process equipment type and capacity alternatives to maximize net present value (NPV) in light of uncertainties in product demand and pricing.
The Solution
An optimization model was developed that considered a total of 32 possible design scenarios. The model identified an equipment design that provided $43 million dollars in additional profit compared to the original design.
Litigate or Settle Decision Analysis,
New Product Development
The Opportunity
A Fortune 500 manufacturing company had developed and patented a new product that it was seeking to bring to market. The company encountered a competitor that was preparing to enter the market with a similar product and with the claim of a prior technology. The competitor did not own a patent and depending on legal interpretations could be guilty of patent infringement. Our client was faced with the following options.
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Sue the competitor for patent infringement
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Settle with the competitor
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License the technology to the competitor
The Solution
A decision analysis model was created and the results indicated that licensing the product to the competitor would result in increased revenues in the hundreds of millions of dollars. Allowing the competitor into the market had the effect of increasing the overall size of the market, thereby increasing direct sales for our client as well as providing royalties from the competitor. The model was used to explain the decision process to management and a license agreement with the competitor was established.
Risk Analysis
Systems Model for Expert Testimony
The Opportunity
A family discovered that the groundwater beneath their ranch, located at a depth of approximately 500 ft. below ground surface, was contaminated by saltwater intrusion. The defendant owned an oil field near the ranch and was re-injecting production waters to a sandstone formation located at a depth of approximately 5000 feet.
The Solution
A review of the historical oil field well records indicated that some of the wells in the oil field were not well maintained and properly plugged and abandoned. Using a combination of reservoir and groundwater modeling techniques, it was determined that the pressure in the injection zone increased over time and that the fluids from this zone entered and moved up the improperly abandoned and deteriorated wells; eventually reaching the drinking water aquifer beneath the ranch. Based on the extent of impact in the aquifer, it was determined that a fault or other permeability break must exist within the injection reservoir at distance approximately 1,500 feet away from the injection point. The defendant’s experts indicated that no such fault existed. Prior to the first deposition, we located a geologic map produced by the State indicating the presence of a fault within the distance of approximately 1,500 feet from the injection point. The case was settled out of court after we were deposed a second time. The settlement included the defendant purchasing the plaintiff a new ranch.
Portfolio Probabilistic Modeling,
Estimating Environmental Liabilities
The Opportunity
A large Fortune 500 company needed to better estimate their total environmental liability.
The Solution
A combination of decision tree analysis and Monte Carlo simulation techniques were utilized to estimate the total environmental liability. The modeling identified the opportunity to reduce environmental reserves by $44 million. The model was updated yearly for three years and consistently identified opportunities for reducing environmental reserves.
Hazardous Waste Landfill
Contribution Analysis
The Opportunity
A Fortune 500 company was in cost allocation settlement negotiations with the USEPA and needed a method to estimate the total quantity of solvents delivered by the client to a former landfill.
The Solution
Monte Carlo simulation was utilized to estimate the total quantities of solvents delivered by the client to a former landfill. The data provided involved sworn testimony taken during legal depositions of former manufacturing plant, trucking transportation company, and landfill employees. The modeling efforts indicated that the mean volume of solvents taken to the landfill was on the order of 103,000 gallons. In addition, the modeling indicated a 95% confidence level that the quantity did not exceed 157,900 gallons. The volume that the USEPA originally wanted to assign to the client was well in excess of 1 million gallons. The model was successfully defended and the allocation was reduced to the levels determined by the model. This led to cost savings on the order of magnitude of millions of dollars.
Process Simulation and Optimization
for Environmental Dredging Project
The Opportunity
A Fortune 100 manufacturing company was required to remove an extensive amount of contaminated sediment from a large river. The company needed a way to:
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Evaluate whether the required initial dredging could be completed in one construction season.
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Optimize the dredging process in terms of number of dredges, tug boats, barges, size of sediment staging area, and number of train sets for rail transportation.
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Communicate the impact of river operations on recreational boating and river lock use.
The Solution
Optima Analytics led a project to develop a discrete event (logistics) Monte Carlo simulation model. This model included animation features that allowed the user to monitor movement of dredges, tug boats, barges, and lines of traffic at locks. The model demonstrated that initial dredging could be completed in one season; accounting for uncertainties in dredge rates, river transfer times, rail car loading rates, and re-dredge possibilities. It was also used to negotiate with the river Port Authority regarding rules of recreational versus project use of locks. Lastly, the model indicated that the project could get by using four train sets of 75 cars each rather than the originally planned five train sets. This resulted in a savings of greater than $4 million. The total cost of the analysis for this project was $125,000.
Probabilistic Risk Analysis Assessment
of Foam Insulation Liabilities
The Opportunity
The predecessor of a large construction materials company had manufactured a type of foam insulation used on metal roofing structures. This insulation was later discovered to increase corrosion to the metal roofs when activated by water. A class settlement agreement was established whereby the client would be responsible for replacing either roof decking or total roof structure upon receipt of a claim and verification by company inspectors. The client required a method for estimating liabilities for reporting in annual financial statements.
The Solution
A Monte Carlo simulation model was developed to estimate total costs based on uncertain (i.e., probabilistic) input parameters. The uncertain parameters included, but were not limited to, the:
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Number of claims per year.
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Percentage of claims that include damage to roof decking only.
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Cost per square foot to replace decking.
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Cost per square foot to replace enter roof (if needed).
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Percentage of valid claims.
The results of the model were reviewed and accepted by internal and external auditors.
Portfolio Financial Modeling
The Opportunity
The purpose of this project was to facilitate negotiations between two major oil and gas companies. As a result of a series of mergers and acquisitions, the client company was responsible for paying 50% of the remediation costs associated with the management of a portfolio of over 1,000 gas station and terminal sites. The other company was actually performing the day-to-day management of the portfolio of sites. Under the original agreement, the client company was required to take over the actual day-to-day management of the portfolio of sites for a period of 14 years. The client was interested in estimating in present value terms the cost to manage the entire portfolio over the 14-year period and used this number to inform negotiations for cashing out of their liabilities. In addition, in the event that the liabilities were not cashed out, the results of the model would be useful for understanding the cost of managing the portfolio for the 14-year period.
The Solution
The actual costs of the individual sites could not be known. However, the client had an internal database that indicated the annual costs to manage gas station and terminal sites as they moved through various life cycle phases. In addition, the database provided information regarding the number of years the individual sites spent in each phase. This database was used as a proxy to estimate the cost of new sites that would come into the portfolio. Probability distribution functions were fitted to the annual cost data by phase and to the data regarding the duration of each phase. A Monte Carlo simulation model was then developed which estimated the number of sites within each phase in a given year, as well as the total cost for all phases and the portfolio as a whole. All costs were then converted to present dollars. The results informed the negotiations and as a result the owner decided that taking over the management of the portfolio would be their least expensive option.
Cost and Schedule Risk Assessment
The Opportunity
A Fortune 100 oil and gas company encountered difficulty quantifying the duration or cost to complete the installation of a large-scale groundwater remediation system.
The Solution
Optima Analytics worked with the customer project team to develop an integrated spreadsheet and MS Project Monte Carlo simulation to estimate the cost and time to complete the construction of the groundwater remediation system. Optima Analytics facilitated the model framing session, developed the model structure, and provided results including risk profiles and sensitivity analyses. The model outputs were used to communicate cost and schedule risk to management and to focus risk management efforts on the primary risk drivers.
Sediment Remediation Project Cost
and Schedule Risk Assessment
The Opportunity
A Fortune 100 oil and gas company encountered difficulty quantifying the duration or cost to complete the site characterization effort for a large marine sediment remediation project due to unique complexities and the magnitude of contamination.
The Solution
Optima Analytics worked with the customer project team to develop an integrated spreadsheet and MS Project Monte Carlo simulation to estimate the cost and time to complete the site characterization phase of the project. Optima Analytics facilitated a model framing session with project team members located across the globe, developed the model structure, and provided results including risk profiles and sensitivity analyses. The model outputs were used to communicate cost and schedule risk to management and cost-sharing partners.
Portfolio &
Project Consulting
Environmental Portfolio Cost
Engineering Practice
The Opportunity
A Fortune 100 oil and gas company conducted an internal evaluation of their environmental project management practices and discovered a variety of gaps in their project management capabilities, particularly in the area of cost engineering.
The Solution
From 2009 through 2011, Optima Analytics staff served as cost engineering subject matter experts (SMEs) for the development and deployment of cost engineering (i.e., formalized project management processes) and information systems for the management of environmental remediation and decommissioning projects. Our work included:
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Developing a singular methodology: standardized planning and tracking processes using earned value analysis.
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Creating standardized work breakdown structures for managing remediation and decommissioning projects.
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Drafting governance and guidance documents for executing the standardized methodology.
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Creating and delivering training sessions on the overall process and the use of MS Project 2010.
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Providing contract cost engineering analysts to help plan, schedule, and track high cost, high risk projects.
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Consulting on the creation of an internal project management information system.
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Conducting cost schedule risk analyses on high impact projects.
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Mentoring the owner’s internal staff on cost engineering.
The cost engineering process that Optima Analytics helped to develop and deploy is being used to manage in excess of 2,000 projects with a combined annual expenditure in the hundreds of millions of dollars. The data that is being harvested from the implementation of this process is being used for benchmarking and continuous improvement regarding future planning and execution of projects.
Project Management Training
The Opportunity
A large engineering and environmental consulting company was seeking hands-on, face-to-face training on a standardized environmental remediation project planning and control process (PPCP). The training was to be provided at 14 locations throughout the United States over the course of one year.
The Solution
A two-day training course was developed that included 7 one-hour lectures based on steps of the standardized project planning and control process. At the end of each lecture the attendees were provided with 30 minutes to complete an exercise based on the lecture. During the first-year training was provided to over 120 individuals. The training consistently received high evaluation scores from the attendees.
Mine Decommissioning Program
Management and Project Controls
The Opportunity
A Fortune 100 mining company was conducting decommissioning and environmental remediation projects at a recently closed molybdenum mine in the Southwestern United States. They needed a method to track overall project performance and understand the interfaces between the large and complex projects all being executed in parallel.
The Solution
Optima Analytics staff built and maintained resource-loaded schedules for each individual project and a master portfolio schedule. The project also involved collecting data from subcontractors, providing earned value metrics to project teams, and analyzing possible corrective actions to address project variances. The schedule helped to track all deliverables, including the many permits, contracts, and plans that had to be completed. Since multiple operations were occurring at the same time, resource conflicts, assurance of predecessor task completion, and verification of proper permitting was essential. Optima Analytics staff has also created the work breakdown structure for billing to the project following the guidelines of the American Society of Testing and Materials (ASTM) classification standard E2150.
Lastly the project included generating a monthly project controls report for the portfolio of closure projects at the site with total estimated cost of over $300 million. The report combined data from multiple contractors, project managers, and the internal accounting system to generate earned value metrics, future spend projections, breakdown of costs by work type, as well as health and safety, risk and operational metrics. The reports were used to communicate portfolio and individual project status to multiple levels of management in a consistent format.
Process
Improvement
Environmental Portfolio Cost
Engineering Practice
The Opportunity
A mid-size natural gas company was interested in implementing and standardizing capital program and project control processes. The company retained one of the ‘Big Four’ auditing companies to conduct a gap assessment and propose a scope of work for gap closure and project support. The proposed scope required a large financial commitment from the natural gas company.
The Solution
Optima Analytics was hired to conduct a third-party review of the gap assessment and proposed scope. While Optima Analytics found the gap assessment to be comprehensive, the proposed gap closure plan was on a compressed timeline and did not include a sufficient amount of detail to understand what the ultimate deliverables were and what costs were associated with each portion of the scope. Optima Analytics presented observations and recommendations for scope clarification to company managers, the CFO and the CIO. After the scope clarification meeting, the proposed scope of work was rejected. Optima Analytics was requested to present a revised scope of work and was retained to perform gap closure and project support activities.
Project Management Manual and Procedures
The Opportunity
The environmental department within a Fortune 100 automotive manufacturing company was seeking standardized processes and procedures for managing their environmental remediation projects. The processes and procedures included all steps in the project life cycle, including developing requests for proposal, documenting the project scope of work, releasing services orders, and tracking progress.
The Solution
A standardized project planning and control process (PPCP) customized to the needs of the environmental remediation industry and the culture of the company was developed. Procedures and forms were provided for RFPs and documenting service order scopes of work and progress reporting. A standardized WBS was developed along with a PM manual, and documented procedures. All documents were accepted for use by the company.
Project Management Training Manual
The Opportunity
A Fortune 500 engineering and environmental consulting company was seeking a training manual to improve environmental remediation project management. The firm sought a comprehensive training module that would provide practical project management processes and procedures geared to the needs of the environmental remediation industry and the culture of the company.
The Solution
A training module was developed that provided a project planning and control process (PPCP) and described the best practices for carrying out each step of the process. Sections of the module included:
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Developing successful proposals.
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Assembling project teams.
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Developing work breakdown structures.
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Network Scheduling.
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Cost Estimating.
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Project Tracking using Earned Value Analysis.
The module included case study description and case study exercises associated with each project step. It also included a standardized work breakdown structure for environmental remediation projects. The training module became required training for all remediation project managers.