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The Actuary The magazine of the Institute & Faculty of Actuaries

SA firm uses risk analysis software for ‘unbankable’ projects

A South African infrastructure development company has used risk analysis software to ensure it attracts funding for projects to deliver basic community services that would otherwise be ‘unbankable’.


Palisade said that by using its @RISK software, Bigen Africa has been able to make informed decisions about implementing a programme, and also provide the detail needed to secure the commercial finance required to get a project off the ground.

While commercial finance programmes play a key role in meeting needs for services such as housing and water when government cannot meet the scale of need, it can be difficult to recoup the costs of projects due to poor planning, Palisade explained. This makes projects unattractive to potential commercial financiers – or ‘unbankable’.

Bigen Africa used @RISK to identify, manage and mitigate the risk associated with each project, to attract funding to and to make each development successful.

It developed a model to help it demonstrate that it is the number and type of houses that drives the nature, location and source of demand for services, both now and in the future. It forms the basis of engineering and planning, the financial model, the revenue model and affordability analysis. It also contributes to the integration between services such as housing and sanitation.

Palisade explained that the @RISK model provided the level of detail required by banks to make a decision on financing and, due to its simplicity, could be developed quickly and easily understood by a wider audience who identify with categorising demand according to housing statistics.

Tian Claassens, managing principal of development finance and advisory services at Bigen Africa, said @RISK was a seamless part of Excel and offered a wide array of functions.

‘This changes the whole approach to risk analysis. Rather than building very complex models in the hope that a finding emerges, @RISK facilitates a simpler model, but one which enables uncertainties and their impact to be easily identified. This is far more valuable, not least because it quickly allows decisions on costing to be made,’ he added.

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I have been using @risk for many years to calculate project time overrun risks for insurance underwriters and others. It works very well but needs considerable work to convert the statistical formulae into formats which are suitable for modelling expert judgements,in addition to creating formats for project applications, but is worth the effort!

Gerald Orman (12/07/2013 12:57:17)