Modellgestützte Strategie- und Finanzplanung

Step 4: Uncertain investment cost

In the 4th and last step, we analyse the impact of uncertainty regarding the cost of a plant. It is also possible to analyse the impact of delays, but again, this would add an unnecessary amount of complexity to the example.

Up until now, the cost of the factory was 125 MU and the plant was to be built in 2017 (beginning) and then written down/depreciated over 10 years.

If we are uncertain about the investment, this initial outlay can – again – be described in a distribution of values. Instead of a distribution of values over time, it is – in our example – just a distribution at one specific point of time. However, the management of numerous uncertain investments spread over time, even with varying depreciation assumptions, can be handled as well.

Let’s assume that instead of a fixed 125 MU investment, the investment is in the range depicted by the following chart:

Step 4: A value/probability chart of the factory investment in 2017

This new chart associates the span of the initial investment with a given probability. So for example, the investment will with a 60% probability cost between 119.5 MU and 130 MU.

A distributed investment like this has a number of impacts on future balance sheets and future P&Ls respectively.

Obviously, if the investment is uncertain, so is its depreciation:

Step 4: Uncertain annual depreciation for an investment of uncertain size.

Step 4: Depreciation schedule for an investment with uncertain size

These two charts show the range of expected annual depreciation amounts as well as the various depreciation paths that are now possible.

With an uncertain size of investment comes an uncertain amount of financing (remember that the factory is financed by loans):

Step 4: Matching Financing requirement

Given a fixed percentage annual coupon, the amount of financing required has an impact on the coupon payments and the payment at maturity. Here we show the annual coupons:

Step 4: Expected range of coupon payments

In this case, it was possible to tie financing directly to the uncertain investment. In more complicated cases the financing has to be tailored to the specific requirements of the investments and the business case.

To finish this case we include the P&L- and Balance-Sheet-projection which contain all the information on this case:

Step 4: Final Profit and Loss Statement (95% Case) (click to enlarge)

 

Step 4: Final Balance Sheet (95% Case) (click to enlarge)

Take-away from Step 4

  • Even if normally most uncertainty originates from within the P&L, uncertainty about investments and financing can be important sources of variation as well.
  • Uncertainty about investments triggers a sequence of consequences (depreciation, financing, cash flow) which need to be addressed properly, especially in the context of liquidity projections.