27-01-2005 01:27									#421
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Oh and kid

just curious but have you ever done a risk weighted assessment for a project? The ones I have reviewed can be quite detailed and really focus you on the key elements of a project.

Its actually amazing the number of variables that are considered and the level of detail that is necessary. It also gives a sense of the level of risk that faces a capitalist on a major project.

For example a relatively minor fluctuation in the price of gas and reservoir performance can take a project from very profitable to unprofitable. When the capitalist is deciding whether or not to invest the billion bucks required, the "risk " they care about is the chance of profit and loss.

	27-01-2005 01:31									#422
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Flubber,

I'm not interested in how you do your analysis. I'm interested in how normal people do it.

Are you saying that companies buy insurance but don't consider how they will pay for it? Of course they consider their OH costs when they price their products. Don't be so ridiculous.

	27-01-2005 01:42									#423
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quote: Originally posted by Kidicious The fact is that companies buy insurance. They do so because they have a cost that they want to avoid. If you have 10 years of experience and don't understand that then there are no websites for you to look at. You are too silly to bother with.

I'm too silly

yes companies buy insurance. Actually some don't for some risks but so ?

I never denied that companies buy insurance. That decision is actually something that is subject to its own risk weighted analysis. I actually participated in a decision to maintain various coverages. The reality for most large companies is that although they have to pay more in premiums than they are LIKELY to recoup in benefits (the p mean is that you lose money buying insurance), the worst case ( and I think they used a 1 in 10000 likelihood here) was such a catastrophic loss that the purchase was a no-brainer. Note in the insurance case, the maximum upside would be saving the premium while the downside was losses of something like a thousand fold the premium.

So the decision to buy insurance is one just like any other-- subject to a risk assessment.

	27-01-2005 01:49									#424
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quote: Originally posted by Flubber So the decision to buy insurance is one just like any other-- subject to a risk assessment.

D'uh. Even more simply put companies analyze risk and make a decision whether or not to buy insurance. This must be to simple for you. It seems that the more simple things are the more trouble you have.

	27-01-2005 01:56									#425
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quote: Originally posted by Kidicious Flubber, I'm not interested in how you do your analysis. I'm interested in how normal people do it. Are you saying that companies buy insurance but don't consider how they will pay for it? Of course they consider their OH costs when they price their products. Don't be so ridiculous.

Not ridiculous at all. I thought we were talking about profit and the necessity for the likely projected profit to be sufficient to warrant the risk of the investment.


Pricing decisions gets into marketing where I am not expert. (I am very experienced in project analysis but not in marketing-- producers of commodities like oil and gas generally have no pricing decision to make).

But marketing 101 tells me that yes cost will be a factor although I know of many instances where products are priced below cost as part of a long term strategy to attain market share or simply because the market has changed and the product is now obsolete. I would suspect that often costs will play NO part in the pricing decision. If you want to maximize revenue now you simply project sales at various price points for the available inventory -- whatever you paid for them in the past is gone and costs are irrelevant.

You have taken enough business to hear tell of a "sunk cost" right??


Now if you want to get back to investment decisions, the decision to produce more of the product will definitely consider all incremental costs required.


This is all basic stuff.

	27-01-2005 01:58									#426
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quote: Originally posted by Kidicious D'uh. Even more simply put companies analyze risk and make a decision whether or not to buy insurance. T

Double duh-- thats what I just said

quote: Originally posted by Kidicious This must be to simple for you. It seems that the more simple things are the more trouble you have.

I'm not sure where I had difficulty since you parroted me

	27-01-2005 02:03									#427
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ok kid I am enjoying my day off work here but will soon have to run.

What exactly are you trying to say about insurance premiums-- err excuse me risk cost?

My assertion is that many projects have no additional insurance premium cost and if they do its a cost like all others.

I also say that when people talk about "risk' that needs to be compensated in projected profits they are talking about the probabilities of various outcomes (which cannot be or are not insured against). That any incremental cost of insurance would be part of the cost of the project is so simple that its at a 7th grade economics level.

So tell me again what the heck you were trying to prove?

	27-01-2005 02:03									#428
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quote: Originally posted by Flubber Not ridiculous at all. I thought we were talking about profit and the necessity for the likely projected profit to be sufficient to warrant the risk of the investment. Pricing decisions gets into marketing where I am not expert. (I am very experienced in project analysis but not in marketing-- producers of commodities like oil and gas generally have no pricing decision to make). But marketing 101 tells me that yes cost will be a factor although I know of many instances where products are priced below cost as part of a long term strategy to attain market share or simply because the market has changed and the product is now obsolete. I would suspect that often costs will play NO part in the pricing decision. If you want to maximize revenue now you simply project sales at various price points for the available inventory -- whatever you paid for them in the past is gone and costs are irrelevant. You have taken enough business to hear tell of a "sunk cost" right?? Now if you want to get back to investment decisions, the decision to produce more of the product will definitely consider all incremental costs required. This is all basic stuff.

Of course I know what sunken costs are. Sunken costs are still costs, are they not?

Look I'm going to give you thins formula. I don't want to debate about it. I'm done. If you don't understand it I will explain it to you.

a - b - c - d = e

a = Revenue
b = Non risk related costs
c = risk avoidance costs
d = Real costs of risks not avoided
e = profit

edit: fixed the error in the dim hope that Flubber will understand it.

	27-01-2005 02:07									#429
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quote: Originally posted by Flubber My assertion is that many projects have no additional insurance premium cost and if they do its a cost like all others.

If there are risks involved they need to be avoided or considered. If the risk is already paid for then of course you will not pay for it to be double avoided. The risk is still a cost, and paid for out of revenue, and the owner anticipates a profit that is greater than all of his costs (including risk).

	27-01-2005 02:11									#430
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quote: Originally posted by Kidicious Of course I know what sunken costs are. Sunken costs are still costs, are they not? Look I'm going to give you thins formula. I don't want to debate about it. I'm done. If you don't understand it I will explain it to you. a - b - c = d a = Non risk related costs b = risk avoidance costs c = Real costs of not risks not avoided d = profit

err not to debate you but its tough to see where you get a profit from a formula which has no revenue and where it appears that you are SUBTRACTING costs from each other .

If we are going to treat each other as idiots, I'll give an easier formula

Profit= Revenue minus ALL costs

The problem is at the decision point, you don't know revenue and you don't know costs. So you do a probability assessment of each.

	27-01-2005 02:18									#431
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quote: Originally posted by Flubber err not to debate you but its tough to see where you get a profit from a formula which has no revenue and where it appears that you are SUBTRACTING costs from each other . If we are going to treat each other as idiots, I'll give an easier formula Profit= Revenue minus ALL costs The problem is at the decision point, you don't know revenue and you don't know costs. So you do a probability assessment of each.

Holy Cow! So I forgot to add revenue to the left, and so you don't agree with the formula. There's no hope for you Flubber. As for what is wrong with you I can only say that you look at the world through an exremely warped lense.

	27-01-2005 02:20									#432
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quote: Originally posted by Kidicious If there are risks involved they need to be avoided or considered. If the risk is already paid for then of course you will not pay for it to be double avoided. The risk is still a cost, and paid for out of revenue, and the owner anticipates a profit that is greater than all of his costs (including risk).

Why do you make a self evident statement and act like I might have disagreed with at some time.

Do I need to repeat my formula??

We got into this on the topic of level of profitability a capitalist needs based on risk.

You googled an article on insurance premiums and have ever since been trying to backtrack ever since. I have said 10 times that an insurance premium may be a cost-- I never ever disputed that.

What exactly are you trying to say about its impacts on profits? . . and yes revenue must exceed all attributed costs for a project to be profitable.


Again its wording-- You know that when people talk about risk they mean the chance of making a loss. Thats the risk people care about and its the risk that requires higher profits to entice them to invest.

	27-01-2005 02:22									#433
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quote: Originally posted by Flubber What exactly are you trying to say about its impacts on profits?

How does it impact profit?! Obviously I can not assume that anything is self-evident for you. It reduces profit just like all costs do.

	27-01-2005 02:29									#434
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quote: Originally posted by Kidicious Holy Cow! So I forgot to add revenue to the left, and so you don't agree with the formula. There's no hope for you Flubber.

If you add revenue to begin then our formulas are the same-- profit equals revenue minus costs-- Now that we got the greade school formula out of the way, what's next

Oh I still ask you what you mean by "real costs of not risks not avoided"-- Is the first "not " there in error

Also your categories seem artificial to me but thats largely irrelevant. Not all risk alters costs however. For example many risks will not impact costs but will materially impact revenue-- reservoir amd pricing are two.

quote: Originally posted by Kidicious As for what is wrong with you I can only say that you look at the world through an exremely warped lense.

Interesting from a guy that proposes the deconstruction of existing society by a presumably violent revolution.

	27-01-2005 02:34									#435
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quote: Originally posted by Flubber If you add revenue to begin then our formulas are the same-- profit equals revenue minus costs-- Now that we got the greade school formula out of the way, what's next

There is nothing else. That's it. Profit is not compensation for risk anymore than it is compensation for other costs. The costs are paid for out of revenue and profit is what's left.

	27-01-2005 02:36									#436
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quote: Originally posted by Kidicious How does it impact profit?! Obviously I can not assume that anything is self-evident for you. It reduces profit just like all costs do.

Again self evident. probably why I said " AND YES REVENUE MUST EXCEED ALL ATTRIBUTED COSTS FOR A PROJECT TO BE PROFITABLE.


Interesting that I predicted your self-evident quasi insult before you even made it.

Its so FUNNY when you try to insult me by saying I can't get some basic statement I just made

	27-01-2005 02:38									#437
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quote: Originally posted by Kidicious There is nothing else. That's it. Profit is not compensation for risk anymore than it is compensation for other costs. The costs are paid for out of revenue and profit is what's left.

All true. But the level of projected profit required for a capitalist to undertake an investment varies widely based on RISK--- yes RISK RISK RISK. Thats where risk matters in the capitalist system

	27-01-2005 02:40									#438
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OH and kid-- this was a vacation day for me so I made money and got ahead. Didn't employ anyone though so it was a slow day on the exploitation front.

	27-01-2005 03:05									#439
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quote: Originally posted by Flubber All true. But the level of projected profit required for a capitalist to undertake an investment varies widely based on RISK--- yes RISK RISK RISK. Thats where risk matters in the capitalist system

I never was arguing againt that point. If you go back and look I was telling che that profit is not compensation for risk. That's it. In fact you are bringing up a totally new point now. For shame on you.

	27-01-2005 03:06									#440
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quote: Originally posted by Flubber OH and kid-- this was a vacation day for me so I made money and got ahead. Didn't employ anyone though so it was a slow day on the exploitation front.

You need a permanent vacation.

	27-01-2005 03:09									#441
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quote: Originally posted by Kidicious I never was arguing againt that point. If you go back and look I was telling che that profit is not compensation for risk. That's it. In fact you are bringing up a totally new point now. For shame on you.

Go through my posts-- I must have talked a dozen times about a risk weighted assessment-- My only shame would be assuming you knew what that was

	27-01-2005 03:12									#442
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quote: Originally posted by Kidicious You need a permanent vacation.

Nah-- permanent vacations mean I don't get paid. THis day was relax and recharge while still getting ahead. Isn't it wonderful that I can get paid to relax? capitalism

	27-01-2005 03:13									#443
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quote: Originally posted by Flubber Go through my posts-- I must have talked a dozen times about a risk weighted assessment-- My only shame would be assuming you knew what that was

What kind of assessment are you doing when you choose to do something based on the risk involved. Risk is a cost. You don't make a decision on a project on the basis of how risky it is. You invest in the project if the projected benefits exceed the projected risks.

	27-01-2005 03:15									#444
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quote: Originally posted by Flubber We may be getting into semantics here . Obviously in the assessment they look at the range of labour costs and materials costs etc and the ranges reflect various risks. But "risk" is never listed as a cost and there is NEVER a quantified risk cost listed anywhere. Its built into the probable rate of return in doing your p10, p90 and mean cases. I do big projects and look at the cost -benefit analysis. Bottom line is that there must be a probable rate of return sufficient to risk the capital. If a loss is made the corporation bears it and if there is profit they get it. Regardless of profit the workers get paid -- really well.

hmm just thought I would bump one of my one posts from about 3 pages ago to show that my point was NOT in fact new.

	27-01-2005 03:15									#445
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quote: Originally posted by Flubber Nah-- permanent vacations mean I don't get paid. THis day was relax and recharge while still getting ahead. Isn't it wonderful that I can get paid to relax? capitalism

I'm glad for you. Don't think at all about the peasants toiling in the field.

	27-01-2005 03:19									#446
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quote: Originally posted by Flubber hmm just thought I would bump one of my one posts from about 3 pages ago to show that my point was NOT in fact new.

Obviously you were responding to my statement with information that was not relevant.

Again, I don't know what kind of analysis you do, while I'm interested in it, I also know that the risk of loss is considered by your company whether is quantified in your analysis or not.

	27-01-2005 03:21									#447
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Admit it, Kid and Flub: you guys just love going at each other in this thread. THere's no other fathomable reason as to why you keep posting in them with such intensity

	27-01-2005 03:24									#448
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quote: Originally posted by Spiffor Admit it, Kid and Flub: you guys just love going at each other in this thread. THere's no other fathomable reason as to why you keep posting in them with such intensity

I just don't know why. I should be doing something else. I really need to spend less time here.

	27-01-2005 03:34									#449
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Kid

quote: Natural selection is not limited to killing within species. So it's compatable with libertarianism.

First, you didn't answer a single question I posed and you've repeatedly dodged my questions. Now you say natural selection is compatable with libertarianism because species kill each other. Does it matter that people eat other species to survive regardless of economics or ideology? I mean, you've jumped on Che's "capitalism is inherently violent and causes war" bandwagon without even acknowledging that violence and warfare (and eating other species) are inherently human.

And you're still wrong, survival of the fittest includes killing members of your species for reasons other than self-defense and libertarianism rejects this, therefore social Darwinism is not compatable with libertariansim. Does social Darwinism reject killing within a species for reasons other than actual self-defense or not? No, but Libertarianism does... So they are not compatable...

quote: In fact there are those libertarians who believe that it's good for society for the least productive producers to fail and be removed from the market place.

Of course, people who are lousy at running businesses are better off working for people who are good at running businesses. Why does that shock you?

quote: Have you heard of the Austrian School of Economics? The neoclassical school does not consider this beneficial, but they are only one type of libertarian.

You mean neo-classical libertarians believe it's good for lousy businesses to survive? How do they survive without intervening to prop them up? Once you prop them up, you're taking resources from better run businesses and the result is a less effective economy with increased waste.

	27-01-2005 03:40									#450
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quote: Originally posted by Kidicious What kind of assessment are you doing when you choose to do something based on the risk involved. Risk is a cost. You don't make a decision on a project on the basis of how risky it is. You invest in the project if the projected benefits exceed the projected risks.

Every business decision is based on the risk involved. A company may certainly invest for a guaranteed rate of return of 10 % but may reject a project with an 80% probability of a return of 20% if there is 15% chance of losing the entire investment and a further 5% chance of losses of 3 times the initial investment.

Different companies use different assessment methods and in fact may disagree greatly on the assumptions that go into the model. You see it all the time-- 2 big sophisticated companies are gung ho for a project while two more are unwilling to proceed.