Constellation Software / MECE Scenario Modelling

by a searcher

1 year ago

Hi fellow searchers,

While studying CSI I stumbled across their scenario modelling approach when evaluating investment prospects:

"We use a weighted four-scenario approach to assess investment prospects. Academics call this mutually exclusive collectively exhaustive scenario modelling or “MECE”. The cash flows of each of the four scenarios are probability weighted, allowing us to use a single hurdle rate across all investment prospects, even if the investments have very different risk profiles."

Does anyone know more about this particular approach? How does it differ from a basic base-case/bull-case/bear-case?

Looking forward to great discussions on modelling!

Cheers, Tobias

1 like
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2 comments

investor from Columbia University - Columbia Business School

I think most PE firms model a Upside, Base, and Downside case. Monte Carlo simulations of variables is kind of cutting edge. IMHO, most good operators have more balls than brains and often act quickly and don't flinch. Don't suffer from overanalysis paralysis. If you like the deal, make sure you can service the debt during a "storm" and pull the trigger.

1 year ago | like reply | 2 likes

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