Business and financial modelling

Modelling ECGD’s financial performance

The Export Credits Guarantee Department’s aim is to benefit the UK economy by helping exporters of UK goods and services to win business, and UK firms to invest overseas, by providing guarantees, insurance and reinsurance against loss, taking into account HM Government’s wider international policy agenda. Following a period of substantial claims, ECGD were planning to introduce more advanced risk management systems, and were in discussion with HM Treasury on proposals to convert into a capitalised trading fund. Working with a team from the Operational Research and Portfolio Risk Analysis Division, Colin Elwood developed a financial framework model to help senior management better understand how a capitalised trading fund might operate, and how it would be managed. By simulating ECGD’s financial performance under different scenarios and operating rules, the model facilitated exploration of the impact of relevant policy levers, and informed discussion of appropriate targets and control mechanisms.

One extremely valuable feature of the model was its graphical representation of the business’s assets and liabilities, which provided a common frame of reference and enabled the team to visualise and explain complex dynamic behaviour over time. The model was successfully handed over to ORPRA, who were able to share it with ECGD’s Management Board, HM Treasury and other key stakeholders, to support decision-making and business planning. The understanding of ECGD’s business dynamics which was encapsulated in the model has provided a sound basis for all subsequent re-development and modelling.

Client comments: “This has been one of the most important pieces of work we have undertaken, enabling a new top management team to get to grips with strategy and planning in a rapidly changing world. Colin’s contribution, at a critical time for ECGD, went much wider than designing an innovative, flexible and transparent model. He was very good at explaining complicated concepts so that everyone had a common understanding of modelling issues and options. The combination of strong intellectual input and good interpersonal skills, together with Colin’s readiness to get to grips with all aspects of the problem and his ability to work as part of a team, resulted in a highly successful outcome which has continued to be of use long after his departure.”

Rail performance forecasting

A major train operating company required a new performance model to assist their franchise bidding by providing punctuality and reliability forecasts over the life of the franchise. Andrew Eaves developed a model in Excel with a seamless connection to MS Access which, uniquely within the industry, operated at the individual train level. The model allows the user to identify specific causes for delays and cancellations and apply targeted initiatives that seek to improve performance over time.

Cost of transformation

The client was preparing to conduct a major review of its structure, with the expectation that significant savings could be achieved by rationalising the organisation and reducing the number of operational units.  The client therefore required an initial assessment of the cost of making such transformations and the period over which those costs would fall. An analysis was performed of all likely components of transformation including staff redeployment and training and redundancy, and the costs of, and incomes from, disposal of facilities and assets. The estimated costs and timescales were then compared to transformations made by international companies with similar staffing levels.

Crimestoppers Trust – simulation modelling

Jane Parkin provided a thorough analysis of historical and forecast future contact volumes in order to plan staffing rosters for a planned increase in business. A model incorporating Monte Carlo simulation was constructed and several potential staffing rosters were assessed for customer service and efficiency.