@RISK models financial and social impact of increased train travel
Risk analysis software from Palisade (
www.palisade.com) has been used by the Slovak Rail Company (SRC) to model potential train travel over the next 30 years in order to determine the viability of investment in new rail carriages. The move was driven by the Slovakian Ministry of Transport, Ministry for Finance and the SRC (all of whom were to co-finance the project with the EU regional finance fund), requiring a risk-based methodology to be used before committing to going ahead with the project.
Palisade's risk analysis software, @RISK, was recommended by the European Investment Bank for the task of modelling potential train travel over the next 30 years. The EU Commission also confirmed that the SRC could use this method of decision support to determine whether investing in new rolling stock was feasible.
To continue to provide a viable rail transport system, SRC's rolling stock required modernisation, with end-of-life vehicles being replaced by double-deck electric or diesel units. However, a key risk in undertaking this task was that the dwindling passenger numbers opting for rail travel would result in revenues not being high enough to warrant the investment in new carriages.
@RISK was first used to ascertain whether buying new rolling stock would have a positive or negative outcome on SRC's revenues. Revenue-related inputs to the @RISK model centred round rail fares, state subsidies and trends in passenger numbers. Historical data was used to help predict future train use, along with the effects of revised timetables (aimed at making trains more frequent and convenient in order to encourage people to make journeys by train), and the outcome of introducing the new carriages. This was balanced with inputs relating to operational costs such as materials, energy, salaries, rail track charges and repair and maintenance cost.
SRC believed its revised strategy of new carriages and upgraded timetables would make train travel more attractive. (Travel by car, the main competitor to rail transport, was seeing a seven to eight percent increase per year). Therefore it also used @RISK to investigate the socio-economic impact of people taking more journeys by train. Historical road statistics were used to calculate the reduction in traffic accidents as a result of more people using the safer option of the train. In addition, the environmental impact of fewer car journeys, such as a reduction in pollution, was factored into the @RISK model, along with the decrease of operational costs as a result of less road use reducing the necessity of repairs.
Despite some uptake in passenger journeys as a result of new rail carriages, the revenue modelling showed that the rail company would not be profitable and the system would therefore need subsidies. In contrast, investigating the socio-economic impact of the investment showed that the rail upgrade was worthwhile because it resulted in advantages in terms of better quality journeys, fewer car accidents and less pollution.
As a result of SRC using @RISK to enable informed decision-making, the European Union and Slovakian Ministry of Transport approved the investment in its new rolling stock. Some carriages are now in operation, and all 32 new units will be in use by 2013.
Working for Eurotarget, a business consultancy that advises SRC and the Slovakian Ministry of Transport, Jozef Dančo, was a consultant on SRC's project. He explains: "@RISK was recommended as a result of its excellent track record with a wide variety of other projects. Flexible and fast, it was also the only decision support tool that enabled the complex modelling and depth of risk analysis that was required to provide an informed view of the overall risk presented by SRC's investment proposals."
