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’ 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."

Mental health service modelling

Hadley Hunter acted as branch head responsible for mental health service modelling in the Department of Health for two years. This covered a wide range of work and several different projects including:

Budgeting for unlikely events

As part a periodic price review process, electricity distribution companies have to share their 25 year strategic plans with OFGEM. OFGEM have to be satisfied that any such plans are appropriate, and based on sound planning and cost assessment. Certain types of costs are notoriously difficult to predict because they depend on many uncertain factors. Liz Archibald advised on how to develop a list of risk events into a useful predictive tool. She constructed a Monte Carlo model, which used random numbers to simulate the outcomes over many possible futures. She then summarised these, which enabled EDF Energy to see at a glance the different possibilities and the chance that a given amount would be enough to cover the costs in each case. The strategy team was then able to select a level of financial allowance that was highly likely to be sufficient to cover the risks.

Client comments: “Liz expertly guided us through the process of turning a collection of risks and impacts into useful information. She explained the complexities in ways we could understand and responded very quickly to our queries.”