Probabilistic Cost Modeling

Earth Tech evaluated potential future risks and costs for investigation and cleaning up environmental impacts at five sites formerly owned, operated, or received waste from a predecessor of Aventis. The California, Texas, and New Jersey sites were former manufacturing facilities where arsenic-based pesticides were produced. Arsenic has affected soil, groundwater, surface water, sediment, and wetlands at these sites. The Oregon site is a former manufacturing facility where organochlorine pesticides were synthesized, purified, blended, and packaged. Chlorinated solvents and pesticides have affected the soil, groundwater, surface water, and sediment throughout the site. The Washington site is a former commercial hazardous waste landfill that is being addressed under CERCLA. Drums containing wastes from pesticide manufacturing were deposited into one cell in the landfill.

To develop the cost models, Earth Tech used its proprietary RACER-DS® modeling system. Earth Tech first reviewed historical site investigation reports for each site to gain an understanding of the site layout and conditions, as well as the nature and extent of contamination. Earth Tech then interviewed environmental managers at Aventis and their environmental A/E consultants to obtain answers to questions about site conditions, extent of contamination, relationships and expectations of regulatory agencies, potential remedial solutions for each AOC, and key uncertaintities. Earth Tech divided each site into various Areas of Concern (AOCs) based on the operable units and/or media investigated at each site. Based on the document review and the interviews, Earth Tech then identified numerous remediation scenarios for each AOC. The remediation scenarios were organized using a series of decision trees, one for each AOC. The probability of occurrence for each remediation scenario was evaluated and added to the appropriate branch of the decision trees.

Earth Tech used their RACER™ cost estimating software system to develop single-point cost estimates for each remediation scenario for each AOC at each site; resulting in preparation of over 70 separate RACER cost estimates. After the RACER cost estimates had been developed, the estimates were converted into probabilistic cost models using RACER-DS. The RACER estimates were exported into spreadsheets and the Cost-Over-Time projections were converted into Discounted Cash Flow models. Earth Tech then ran “what-if” analyses using One-at-a-Time-Perturbation to identify the variables in each spreadsheet that had the greatest influence on the total cost. Probability Distribution Functions (PDFs) were developed for each key variable and the static numeric values in the spreadsheets were replaced with the corresponding PDFs. Earth Tech ran a series of risk simulations using Monte Carlo sampling techniques to evaluate financial risks for each site and for the portfolio on an aggregate basis. The results of the risk simulations were evaluated to verify that the models behaved as designed and the cost-versus-probability profiles generated by the models were reasonable given current understanding of site conditions and remedial approach.

Earth Tech prepared a report describing the site, summarizing the modeling methodology, and presenting the results from the financial risk simulation. The report is being used by the client and their insurance brokers to solicit quotes for environmental insurance coverage for the portfolio. Earth Tech is providing continuing assistance in updating the models and explaining/defending the models to the insurance underwriters.