Oracle Crystal ball Simulation Example on Project Selection


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Oracle Crystal ball Simulation Example on Project Selection

  1. 1. Binary Semantics | Readings Crystal Ball Simulation for Project Selection Budget-Constrained Project Selection by Oracle Crystal Ball (Application - Project Management)Budget-Constrained Project Selection Expected Success Expected Initial ExpectedProject Revenue Rate Return Investment Profit Decisions1 $750,000 90% $675,000 $250,000 $425,000 12 $1,500,000 70% $1,050,000 $650,000 $400,000 13 $600,000 60% $360,000 $250,000 $110,000 14 $1,800,000 40% $720,000 $500,000 $220,000 15 $1,250,000 80% $1,000,000 $700,000 $300,000 16 $150,000 60% $90,000 $30,000 $60,000 17 $900,000 70% $630,000 $350,000 $280,000 18 $250,000 90% $225,000 $70,000 $155,000 1 Budget $2,000,000 Invested $2,800,000 Surplus ($800,000) Maximize total expected profit subject to budget constraint Total profit $1,950,000 Summary: The R&D group of a major public utility company has identified eight possible projects. A net present value analysis has computed: (1) the expected revenue for each project if it is successful, (2) the estimated probability of success for each project, and (3) the initial investment required for each project. Using these figures, the finance manager has computed the expected return and the expected profit for each project as shown in the Model worksheet. Unfortunately, the available budget is only $2.0 million, and selecting all projects would require a total initial investment of $2.8 million. Thus, the problem is to determine which projects to select to maximize the total expected profit while staying within the budget limitation. Complicating this decision is the fact that both the expected revenue and success rates are highly uncertain.
  2. 2. Binary Semantics | Case Study Crystal Ball Simulation for Project SelectionUsing Crystal Ball:Crystal Ball enhances your Excel model by letting you create probability distributions that describe theuncertainty surrounding specific input variables. This model includes sixteen probability distributions,referred to in Crystal Ball as "assumptions." Eight assumptions in Column C describe the uncertainty inthe expected revenue for each project. These distributions differ with the different conditions of eachproject. Each assumption cell is colored green.This model also includes one Crystal Ball forecast, shown in light blue heading. Forecasts are equations,or outputs, that you want to analyze after a simulation. During a simulation, Crystal Ball saves the valuesin the forecast cells and displays them in a Forecast Chart, which is a histogram of the simulated values.In this example, you want to analyze the Total profit.When you run a simulation, Crystal Ball generates a random number for each assumption (based on howthe assumption has been defined) and places that new value in the cell. Excel then recalculates themodel.After you run a simulation, you will see the forecast chart, which you can use to analyze the Total profitoutcomes. What is the mean Total profit? What is your certainty of making a profit of $1.95 million(your original prediction)? What is the certainty that you may lose money? Do the forecast values form asmooth curve? If not, why? What happens to the forecast if you decide against certain projects and re-run the simulation?
  3. 3. Binary Semantics | Case Study Crystal Ball Simulation for Project Selection Using OptQuest: As OptQuest runs, it uses multiple metaheuristic methods and techniques to analyze past results and improve the quality and speed of its process. You can watch OptQuests progress through the performance graph, which shows a flattened line as it converges to an optimal result. What is the best combination of projects that results in the highest mean total profit? Once OptQuest is finished, you can copy the optimal results back to your spreadsheet through the Copy Best Solution to Spreadsheet option in the Edit menu. Your spreadsheet now displays the optimal solution, and Crystal Ball displays the forecast chart for the simulation from the best optimization. You can use OptQuests Solution Analysis view to review the other quantities of products that resulted in high total profit values. Oracle Crystal Ball Features About Binary Semantics Binary Semantics Limited is an offshore development and a software services company incorporated in New Delhi. We have been providing Application Development & Management Services, E-Commerce Solutions, Digital Content Solution, BPO and Professional Consulting services in the North American market since 1996. We have been delivering services ranging from maintenance of existing applications to full life-cycle development of enterprise-wide business applications to the satisfaction of our customers competitively. Our proven and customizable Global Delivery Framework- Offshoring™ and ISO 9001:2008 certified processes ensure consistency and high quality of deliverables. We offer range of Statistical tools and software comprising tools for Risk Analysis, Forecasting and Planning, Optimization, Predictive Analysis, Statistical Modeling, Business Intelligence and Quality analysis that are used by industry leaders, Business Analysts, financial analyst and BI professionals.USA INDIA Indian Regional OfficesCorporate Office Technology Center 20, 2nd Floor, Arihanth 330 - Balaji Bhavan7 Lincoln Highway, Plot No. 38, Electronics city Complex B Wing, 3rd Floor,Suite 205, Edison, NJ-8820 Sector 18, 1st Cross, CKC Garden Plot No. 42 A,Phone: +1.732.548.9268, Gurgaon-122 015, India. (O_: Mission Road) Sector – 11, C.B.D. Belapur +1.732.791.2604 Phone: +91.124.4787200 Bangalore - 560 027 Navi Mumbai - 400614Fax: +1.732.548.8913 Fax: +91.124.2397655 Phone: +91.80.22240222 Phone: +91.22.22948594 Fax: +91.80.22277867 +91.22.22948598