MBA 580 Organization: Processes, Structure and Culture

Risk Management for Monte Carlo Simulation

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Project risk management

Monte Carlo Simulation Coursework and Report

Please note, the Monte Carlo simulation is to be done in a group and is worth 30% of

the total mark.

The final report is an individual effort and is worth 10%. For the simulation, every

group will use a unique set of values (refer to the table at the end of this document).

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The first part of the coursework concerns a decision about a production batch size for

a major event next summer. “Taking place over the weekend of Saturday 14th and

Sunday 15th August 2021 at INTU BRAEHEAD, Film & Comic Con Glasgow promises a

fun weekend where you can meet celebrity guests, browse the many trader stalls, get

hard to find items and enjoy some cosplay, a must for all fans of pop culture.”

The “Movie Merchandise Company” plans to produce a batch of souvenir books to

sell during the weekend of Comic Con. The book has been designed and priced, but

it has not yet been decided how many to produce. The company want to choose the

batch size that will maximise their profits. In order to help them make the right

decision they have asked you to perform a Monte Carlo simulation analysis of the

expected profits. They have provided you with the following information:

It is known that there will be fixed production costs of £10,000.

There will also be variable production costs. For each book the company produce

there will be an additional cost of £5.

The revenue from each book sold will be £12.

After doing some extensive market research it predicts that customer demand for the

book will be normally distributed with a mean value of VARIABLE 1 and a standard

deviation of VARIABLE 2.

Remember, the company cannot sell more books than it has produced – whatever

the demand. It is also assumed that there is no cost for disposing of any surplus

books that are not sold.

Due to a number of manufacturing constraints the options for the production batch

size are either VARIABLE 3 or VARIABLE 4. That is the decision the company has to

make and about which you have to advise them.

On the basis of your simulation analysis, you should provide the necessary

information for the company to make its decision. In particular, what are the expected

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profits for each production batch size? You should consider the key statistics (mean,

maximum profit etc) and a graph of the frequency distribution.

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The company in part A also has to plan when to start this particular project in order to

have the books ready in time for Comic Con which will take place during August

2021. The books will be on sale at INTU BRAEHEAD when the event is taking place –

but not available anywhere else or at any other time. Bear in mind, the company has

many other projects in progress, and does not have much space to store finished

goods before they are sold.

It has drawn up a project plan for the various stages of this project – including

manufacturing, packaging and marketing. They have identified the 10 main activities

and the dependencies between them. They have also predicted the duration time (in

days) for each activity. In each case, duration times are best modelled by a Normal*

probability distribution with the given means and standard deviations. This

information is in the table below:

Activity Depends on Estimated Duration (Days)

Mean Standard Deviation

A – 20 5

B A 24 6

C A 28 7

D B, E 20 5

E C VARIABLE 5 VARIABLE 6

F C 24 6

G F 20 5

H D 24 6

I H, G 16 4

J I 20 5

Your task is to find the expected duration of the whole project and then help the

company decide when it should start. There is a file on Moodle (Souvenir Book

Project) that has been set up to help you.

*A sample of manufacturing times were collected from a number of similar projects

and are shown in Appendix A. You may want to analyse this data and discuss

whether the choice of the Normal distribution is really suitable.

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Presentation. Each group should prepare a video recorded powerpoint presentation

(between 10 and 12 minutes) about the outcomes of their risk assessment. This

should be directed towards the company and help them make the decisions they

have consulted you about (preferred batch size and production start date). In

preparing your presentation you should pay particular attention to the issue of risk

communication; consider carefully how it would be best to present your findings to

the company. Think about the best use of words, numbers, tables, graphs, diagrams,

labels – or something else? Will your results be correctly understood?

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Spreadsheet. Your group should submit a spreadsheet showing your calculations for

Parts A and B. (Calculations of expected profits for both batch sizes and project

duration time). The spreadsheet should also include a separate sheet that describes

briefly how you have reached your conclusions. It should also include a brief section

where you discuss technical issues such as the choice of the correct probability

distributions and the number of iterations or repetitions to run; do you think your

models and results are realistic? You might also include some brief comments about

any extreme or unusual results.

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Once your group has finished the coursework you should write (individually) a short

report reflecting on the 2 different types of risk assessment you have studied in this

module – qualitative and quantitative. What do you think are the similarities and

differences between the two approaches? What are their key advantages and

disadvantages? You should consider the application of risk management in your

chosen discipline (project or supply chain management) – what would be some of the

practical issues in that discipline when conducting risk assessments. (Word count

approximately 500)

The following is a summary of what files should be submitted via Moodle/Turnitin,

and how they will be marked:

Group Coursework Format Marks

Calculation of expected profits for both

batch sizes. Calculation of expected project

duration time. Stats and graphs for both

parts. Technical issues – probability

distributions, number of repetitions etc.

Excel spreadsheet

(or equivalent)

15

Presentation of your results to the company.

Discussion about recommended batch size.

Discussion about recommended start date.

Any other issues.

Powerpoint slides

(or equivalent)

MP4 video

(or equivalent)

15

Individual Report

Comparison of qualitative and quantitative

risk assessments.

Word report

(approx. 500 words)

10

Presentation: Slides, spreadsheet and recording due no later than 4pm on 20th

August 2021. Individual Report submission: 4pm, 11 26th August 2021 – via

Moodle/Turnitin.

Please make sure you have re-read the assessment and group work guidelines

from the qualitative analysis course work.

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A sample of manufacturing times (days) from previous projects (P1–P5).

P1 P2 P3 P4 P5

A 28.2 36.0 34.1 30.8 33.4

B 37.0 34.0 38.9 29.8 28.7

C 37.0 31.1 28.1 34.2 29.7

D 28.5 30.4 32.5 35.3 29.0

E 33.0 33.7 45.0 30.0 25.7

F 31.4 42.0 31.2 26.3 26.3

G 30.4 36.4 35.3 43.0 41.2

H 30.3 37.0 30.6 31.9 32.0

I 38.0 42.0 33.4 35.0 31.9

J 33.8 28.0 32.4 27.5 35.6

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The following table gives the values reserved for each of the numbered coursework

groups. If you have not already added your name to the group list on myUWS, please

do so in order to determine your group number and corresponding values.

Group

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