"We've trained well over a thousand people throughout the company on @RISK," says Procter & Gamble's Bob Hunt, and now he's rolling out another Decision Tool, PrecisionTree. In fact, Hunt, who is Associate Director for Investment Analysis in P&G's Corporate Finance organisation, and serves as a resource to the business units, was on his way to China and Japan to introduce PrecisionTree to P&G Finance managers in those countries.
P&G has been using @RISK since 1993 when Hunt first introduced it for modelling production siting decisions. The company was evaluating some cross-border siting options, and these decisions required them to take into account not only uncertainties involving the capital and cost aspects of plant location but fluctuations in exchange rates as well. The company has since come to rely on @RISK for its "entire range of investment decisions" including new products, extensions of product lines, geographical expansions into new countries, manufacturing savings projects, and production siting.
More recently Hunt and his colleagues have been working with PrecisionTree. "Its attraction is its capacity to value complex decisions, which often involve multiple, sequential decision steps". They find it particularly valuable in evaluating "real options". "We considered using financial option calculators to analyse the real options that are embedded in our complex decisions, but we found that they simply can't solve for the real option value in projects with multiple, sequential investment decisions. Decision trees are really the only tool that can correctly value multiple sequential decisions where uncertainty is private risk." Last spring, Hunt taught three (3) business units how to use PrecisionTree to test it as a tool for valuing complex decisions made under uncertainty. After a successful test, Procter & Gamble is now in the process of rolling out PrecisionTree to all of its major business units around the world.
Business units are evaluating investment options based on their impact on shareholder value, and PrecisionTree helps them make good choices and better decisions. "It has been very useful in helping us break complex projects down into individual decision options, helping us understand the uncertainties, and ultimately helping us make superior decisions." He also notes that a lot of the value derived from using PrecisionTree is realised during the process that the staff goes through in determining the probabilities, and laying out the decision sequence and the criteria for making those decisions. The combination of the different approach required to frame decisions, and the ease and effectiveness of the PrecisionTree software, says Hunt, "is really powerful for our company."
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