How financial analysis helps to identify value opportunities in ship design and operations

2019-05-14T15:26:26+01:00May 2019|Categories: Article|

Making business decisions under uncertainty

A financial analysis serves as a very important decision-making tool in many maritime and offshore related businesses. Its development requires highly specialized skills in various disciplines, maritime financial modelling best practice and methodologies. A financial model lies at the center of the decision making process in most business situations. Whether deciding on installing a new Ampelmann motion compensated gangway, buying a new dredger, installing a scrubber, investing in a new harbour tug: in all cases a reliable, data driven financial analysis should form the basis for the decision.

Required skillset

Designers of planning and decision support tools, distil complex business situations, translating and reflecting these into useful financial models that can provide deeper insight and better enable the decision making process. Robust financial modelling requires a thorough understanding of the maritime commercial practicalities of the specific maritime, offshore or subsea related industry, accounting and finance knowledge, technical ability, quantitative analysis and logic.

In the case of modelling maritime assets, marine engineering skills are essential. Therefore these models are usually a joint effort of naval architects, offshore engineers, data scientist and financial planning and analysis analysts or chartered management accountants. Examples of engineering calculations include the production and cost per cubic meter of dredging vessel, the production of fishery vessels, weather windows for offshore support vessel operations, fuel consumption and speed-power-predictions. It is this mixture of ingredients that makes the maritime financial model very valuable and the Maitre d’ of these models hard to find.

How models create value

Business modelling can help enhance understanding with insightful analysis, enabling you to make better decisions and achieve greater stakeholder value. Financial modelling could assists the decision making process in many cases. Including investment decisions in new maritime assets by comparing and benchmarking vessels based on total cost of ownership. Models also help in due diligence processes for new business evaluations like the operation of a new ferry line. Models could help in planning and forecasting processes to analyze risks that lie ahead including interest rate shocks, oil prices fluctuations and wages rises and more.

Good financial models are data driven and are reviewed on a frequent basis to ensure that they maintain reliable. Reviewing includes testing mathematical accuracy, confirming logic to be consistent with commercial drivers of the business, and reviewing the reasonableness of the input assumptions. It is best to store the models in an auditable and controllable environment with version control.

Modelling is relevant when raising funds, capital restructuring, refinancing and credit rating. Financial analysis could be used in contract management and analysis, in product pricing and costing analysis.

Shipbuilding companies and operators should continuously use financial models when deciding on new strategy or perform policy simulations. Models can help the industry managing cash and treasury activities, tax planning, workforce planning and working capital management.

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