268

Project Man aqement

Questions for Discussion

Cse requires application of 'Resource Rate' technique, which
is generally emploved
gzations executing projccts for clients as contract work (like engineerng
companies, etc.). Contractors, softwa
Develop the cost of project for Sundarm Computers based on the available
2.
Should Infotech data.
accept the Sundaram's counter olier:

CASE 5.5

Priyadarshi Melanmine Company

(Application of Monte Carlo Sinulation Technique for
Managing Risk in Project Cost Estimate due to
Variability of the Cost Elements)

Abstract
The phase of final approval and sanction of budget for a major project usually involves preparing a
techno-economic feasibility report with somewhat detailed project cost estimate. Traditionally, the
cost estimates prepared are built-up by Bottom-Up cost estimating technique from preliminary
planning data but based on somewhat detailed cost estimate with major deliverables suitably
decomposed into manageable size work packages. The cost estimates are 'definitive' in nature - a
single value estimate based on the best guess from available data and details. From its very nature, this
methodology does not address the 1sSue of uneertainties due to the variability in the costs likely during
actual execution.
With the availability of large capacity high-speed compuiers, it has become possible to build
complex models for project cOst elements and inchude in them the variability of individual cost
elements. Monte Carlo technigue is one of such very useful quantitative techniques for making
available at the project planning Stage a clearer picture of the risks and uncertainties in the costjor
conpleting the project. The ouput of Monte Carlo simulation presents in a graphicalform a range of
proiect cost estimates and the correspohang chance or probability associated with any individual
timate. In the last decade, ajor nternational corporations are taking increasing interest in this
techniquefor deeision nmaking. planing and managing major projects and programs.
explains the application of Monte Carlo technique for project cost. The techng
a
illustrated by taking the cuse oa p tprOct scenario of estinmating proiect costfor setting up
214114facuring facility. Using standaru Excet8 software, Monte Carlo siulation is developed for
 Estimating Project Times and Costs 269
working out total project cost while taking into
account variability in the individual cost
The step-wise description of the elements.
application
the simulation) to enable an interested
is in sufficient details (including cell
entries bullaing
jor
project professional to pick up fine nuances in the application
and use
the technique for some specific project on his hand, or as an aid for self-study or as a case to
be used for classroom teaching

CASE TEXT
1. INTRODUCTION
Cost estimating process involves
developing an approximate estimate in monetary terms for the
resources required to complete satisfactorily all project activities. During different phases of the
project life cycle, the reliability of the cost estimates, degree of attention to project activity details
for working out the costs, the time and
expenses involved in preparing the cost estimates, and
management levels participating in the cost estimating exercise need to be different.
Top-Down Cost Estimating Techniques for Initial Conceptualization Phase of Project:
During the project conceptualization and initiating phases of the project life cycles, emphasis is on
the big picture and not on fine details. At that
stage, the management would want to take a decision
on the economic
viability of the project and the order of magnitude of the resources necessary to
undertake the project compared to the organization's financial
capability.There is no time then for
working out the fine details; there is no need for spending efforts for working out fine details and
spending money. Therefore, at that stage, the cost estimating techniques employed are generally
Top Down" in nature. At this stage, Analogous Cost Estimating or Parametric Cost Estimating-
two popular Top Down cost-estimating techniques are most often employed. For
Analogous cost
estimation, the management relies on historical project cost data - from its own project files or
from published literature for different projects of similar nature and uses an
-

expert judgment in
arriving at the rough, order of magnitude cost, for the project under consideration. In case of
Parametric Cost Estimating, somewhat more attention to details is given. The project is first
analyzed in terms of major deliverables and the requirements of the system parameters to meet
these deliverables. The cost estimates for the constituent systems are worked out based on the
nature andquantity of the critical parameters influencing the cost of the systems. Both these Top
Down estimating techniques can be helptul in developing preliminary or order of magnitude cost
estimates useful at the conceptualization stage.
Bottom-up Cost Estimating Techniques for Detailed Project Planning and Contract-based Project
Executions:
Once the economic viability of the project is established and the project appears to be able to meet
the strategic goals of the organization adequately, the organization would want to define the
project details more clearly and develop far more reliable cost estimate of the resources for a final
review bcfore formally launching the
project. Bottom-Up cost estimating techniques are employed
to arrive at a far more reliable estimate of project cost at this stage. With the formal launch of the
project, the project team would work out the major and minor deliverables and develop them by
Turther subdivision - hierarchical decomposition into work
packages. These work packages
Would have well defined technical and performance specifications, the estimates for resources and
time required for completing the activities included in the work package activities and
Corresponding costs.
270 Project Management

Risks in Project Cost Estimation: Developing

(
Techniques for Managing
Application of Simulation
Probabilistic Estimates of Cost) the estimates of the costs for
of the cost estimating techniques suggests,
As the above description in all future activities and
uncertainty or risk inherent
in nature. The
project activities are definitive
uncertainties on the project cost
is not taken intO
account in developing
of these
the possible impact for the organization s own benefits
of small projects or internal projects
the cost estimate. In case are to be executed for
However, when projects
this may not be considered a significant handicap. in terms of the contract, the
predetermined specific
orcost price
other organizations, with
the uncertainty or risk involved in
would want to arrive at a better estimate of
management in comparison with the
contract. Also, when the projects are large
undertaking the project the project
and when the necessity of completing
organization's current financial capability
adverse risks is paramount, the organization would
without major overruns even in face of some
to have a probabilistic estimate of cost,
which would attempt to take into account the future
prefer cost estimate, essentially, in
uncertainties and their impact on project costs. In such a probabilistic
associated with different likely costs based
place of one definitive cost estimate, the probabilities
are developed. The outcome of a
on assessed future scenarios and corresponding variability
probabilistic estimate would give an array of different cost estimates and the corresponding
probability of meeting that estimate. To illustrate this: the probabilistic cost estimate would provide
the probabilities corresponding to a range of project costs. For instance, from the graphical output
of the simulation, it would be possible to state," The probability of completing this project in R30
illions cost is 50%, the probability of completing the project in R35 million is 70%; the probability
of completing the project in F40 million is 95% ... " and so on.

Tlhustration of Monte Carlo Simulation Technique for Developing Probabilistic Project Cost
Estimates
This case presents the underlying principles and
general methodology of applying Monte Carlo
simulation technique. Then it goes on to illustrate the
estimation. The article explains the general
application of this technique to project cost
methodology for application of the technique using
standard Excel® software by taking a hypothetical case
up a manufacturing facility. The illustration is detailed
study of developing project cost for settingg
applying the technique, which would enable a project enough give step-wise instructions the
to for
management professional to grasp
operational details and apply it to his/her own project: input
output with analysis. details, simulation steps, and results

2.PRIYADARSHIMELAMINE
The
COMPANY
large mahogany table was slightly off centre in the
carpet and fully well-appointed office with
paneled walls with darkly polished veneer. maroon colored
corner, the tabletop was almost clear. At the table sat Except for small in-out trays in a sidc
Investment Bank. He Siddharth Mehta, Director
was a tall bespectacled man in his late forties. Projects, Indian
neatly stacked papers in the folder in front of him, there While he was shuffling tne
Desai entered. Mehta was a knock at
the door and Ms Moha
indicated her to take a seat and
started
preliminaries. "I was looking at the executive discussion immediately without
Melamine Company summary page of the cost estimate of any
project, which we would be Priyadarsn
appraising with a view to sanction a term
the project. I saw the project loan to
back-up working papers feasibility report prepared by Chemicals
prepared by you." Then he once more turned Project Consultancy and
over the
pages and added
 tstimating Project Iimes and Costs
2
while scanning the papers, "*The
includes adequate provision for project appears to have been planned well and
all project work. project cost estimate
in the feasibility report, Your back up working
properly justilfies papers, along with details
scope and price escalation you have made a estimates for all cost items. For uncxpected change in
ordinarily sutficient for provision'for contingency at 10 %, which should also be
Then Siddharth folded up the
a
project of this type and size." There was a
silence for over a minute.
papers, looked at Moha and said, "You know, there is one
doubt bothering me all these years about our basic nagging
cost estimating procedure and the manner in
which it addresses the issue of
managing risk in estimating total project cost. I just mentioned to
you that 10% contingency provision should
But, really what is the logical basis for our
adequately take care of unforeseen project expenditure.
taking that 10% figure? Why not less why not more?
What are our realistic chances for
managing to complete the project within the estimated cost?
Contingency provVision is just used as a tool for managing the project cost risk, an arbitrarily
guessed number without any logical and factual back up. We don't know how effective or
out. I
appropriate
to be more Our guess
aware of would turnelements
the risk wonder, ifthereactual
influencing
is
procedure
project cost methodology
a or allow
and to what todegree of
us

confidence we can estimate the costs."

"Very true, sir", Moha responded. Then after a pause she added, "The defense for that arbitrary
percentage would be its successful application in scores of projects in the last three years - sort of

empirical evidence!" and smiled.

"Well, in absence of any better measure, we can continue to usethatfigure Siddharth conceded.
But I always have some nagging doubt about this traditional mode of nmanaging project cost risk.
I always felt that some better procedure for arriving at the contingencyfigure should bedeveloped.
Moha thought for a while and then whispered a suggestion, "Sir, one month back, I had
Risk
attended at IIM a 1-week seminar on 'Application of Quantitative Techniques in Project
which would actually permit to
Management'. There Prof. Shah discussed a simulation technique,different cost items and the total
Simulate through a computer program the nature of variability
of
would have on the total cost of the project. This modeling
impact these random variations hundreds of such simulations,
would permit to carry out
technique, called Monte Carlo Simulation, The output would be
can churn out in a few hours.
which our high-speed large capacity computers total project
corresponding to any specific
in the form of graph showing cumulative probabilitythat there is
a
can read out say, 50% chance for completing
Cost. For example, from such a graph, you for
order to have confidence level of 80%, the provision
This project in F100 million, or that in
the estimate for total project
million and for 95 % confidence level,
project cost should be, say 120 need not be used.
at 130 million,
arbitrary contingency percentage
etc. The detailed
Cost should be pegged nature of the project
and the degree of
take into account the
h e seasoned manager could
m a c r o - e c onomic

the general trends in the industry,

Work that went into building
the cost estimate, on a total project
cost
'calculated risk' for deciding
Conditions in the country, etc. and take a
eliminated with this technique also.
is not entirely
arbitrariness element cost risk management."
the way for project
CStimate. Of course, and justifiable like to try
is a m o r e logical "Moha, would you
in my opinion, it surely then turned to Moha,
Dut o v e r that
for a while and
From what you say,
the technique does
SIddharth thought Melamine project?
on this Priyadarshi
out that technique simulation tor the project.
Monte Carlo
look interesting and promising." w a s busy building
the
trom The Evecutive
Summary
two weeks, Moha Cost Estimate (extracted
For the next
Project Consultaney).
The Definitive Chemical Projects
Exhibit 1 presents Report' prepared by
Techno-economical
Feasibility
ofthe
272 Project Management
ExHIBIT1
Priyadarshi Melamine Company
Definitive Project Cost Estimate
riyadarshi Melamine Company had
commissioned Chemical Projects Consuitants to prepare the techno-eco-
HOmiC Teasibility report for the project. The report submitted by Chemicai Projects Consultants had about 300
Ontained a 45-pages chapter on the project cost estimate. The supporting details included overall manufac.
pages
Turing facility planning for identifying
cost centers: master plan for plant layout showing major civil
HSt and constructions
preliminary specifications of major equipments, and budgetary quotations for critical or major equipment
or
Sub-systems. A section on the project cost estimate from the Executive Summary of tne report is
extracted and
presented below]
Ihe cost of New Fixed
Investment for the project to set up a plant near Mehsana, Gujarat, for an annual
production of 10,000 tons technical
grade melamine from purchased urea is estimated at I30 milion +10%. It is
based on a process
developed by Inventa A.G., W.Germany for manufacture of melamine from urea. The estimate
IS valid for the
plant construction to start latest by September 2011 and the construction to be completed in the next
18 months period. The breakdown of the
cost (at WBS Level 1) follows:

(Costin Millions)
Land and site development 18.00
Buildings
Warehouses for raw materials storage 21.00
Main production plant building
78.00
Warehouse for finished product 45.00
Ancillary buildings (workshop, etc.) 28.00
Plant office and Quality Test Laboratory 16.00
Sub-total buildings 188.00 188.00
Plant and Machinery
Purchased equipment atthe site
325.00
Installation expenses 87.00
Auxiliary equipment 68.00
Sub-total plant and machinery 480.00 480.00
Lump sum Technical Know-how fees 35.00
Detailed Engineering. procurement and Site Construction Supervision
55.00
Miscellaneous Fixed Assets
42.00
Pre-operative Expenses 22.00
(Sub-total up to above: 840.00)
Provision for Contingency 90.00
10 million)
(approx. 10%, rounded to the next

TOTAL NEW FIXED INVESTMENT 930.00 million

Basis for the Cost Estimate:

Land: The cost for land is takenfrom th or sor land prices available in the Mehsana industrial beit. The site
tent costs for earthwork havo De
b a s u On ne
database available with the company from ea rlier
project
 Estimating Project firnes and Costs 273

Buildings: The preliminary layout and sizing of the plant buildings is carried out to dotermine the size and the
type of construction for the proposed production unit. The requirements for storage of raw materials and fin-
ished products (providing for 6 weeks storage capacity) have also been worked out for preliminary sizing of
these buildings. Again, the building costs have been estimated using parametric costing for similar construc
tions from our database. For this estimate, the price of structural steel is taken at 249,500 per ton, reinforcing
steel at 47,300 per ton and cement at 75,400 per ton.
Major Equipment & Installation Costs: Preliminary flow sheet for the production process was prepared and
the list of all major production equipment was finalized. Preliminary brief specifications for inviting budgetary
quotations from equipment suppliers were worked out, the quotations were invited (some on telephones) and
used for this estimate. The installation expenses include the civil foundations, mechanical erection at the site
and electric power cabling and earthing. The provision for auxiliary equipment (laboratory and firefighting

(office equipment, telecom equipment, cars and trucks) is based

equipment) and miscellaneous fixed assets
on our experience for similar recent projects.
to the terms of the draft
Technical Know-how Fees: Provision for technical knowhow fees is made according
agreement made available by Priyadarshi Melamine.
technical collaboration
and training expenses for key personnel and
Pre-operative Expenses: Pre-operative expenses include hiring
for 4 weeks (including raw materials, utilities and salaries)
cost of trial runs
for
is made at 10 per cent: 5% to take care of
Provision for Contingency: The total provision for contingency
escalations.
detailed project planning and execution and 5% for price
scope changes necessary during

3.DEVELOPINGTHESPREADSHEET MODEL
Simulation Variables
3.1 Inputs and basic s o u r c e of information for
Cost Estimate, presented in Exhibit 1, is the
The Definitive Project different cost centers like Land and
Exhibit 1 gives single-value estimates of
inputs for simulation. Know-how Fees, etc. However, it
Plant and Machinery, Technical
Site Development, Buildings, to be associated with the
cost estimated for any
of the variability likely and
does not give any
indication determine the nature of variability
is carried out at this stage to
work providing
cost center. Additional For normal distributions,
variability is defined by
parameters. the value alreadv
the variability defining
mean
addition to
estimates of each
cost center in
optimistic probabilities
the pessimistic and discrete values and corresponding
For discrete distributions, these details and the cell
1. Part 1,
given in the Exhibit estimated and provided. In A t t a c h m e n t A,
are tabulated.
for discrete values a r e the simulation model
building this variability,into
entry details for
Parts 1 and2)
Sheet Entries
(Attachment A,
3.2 Spread in two groups:
are
sheet entries is given in table o n
The Excel® spread in 3.1 above,
Cost Centers, mentioned made at
Variability of tor Contngency, arbitrarily
Data Entry for be n o t e d that
the PFrovision for risk management.

1. It should a d - h o c provision
an
Attachment A. Part the cost only
centers,
1s
worked o u t and the
the rest of center
a r e separately

10 % of the total of
cost
different scenar1OS TOr eaCn h e n c e the provision
costs,
for c o n t i n g e n c y is
simulation, divdual

In this model adding

these
arrived at by
total cost is
omitted.
274 ProjectManagement

Cell Eniries for Monte a Carlo lerations are

r l o lierations presented in the table
on
Attachment A, Part
Atachment

according to
to the fal. are pi
ording following rationale and methoao6
ken as the
For normal distributions, the pessimistic and optimisticstandard
Cst 3-standa
deviation is calculatord
deviation limits aound the mean, and accordingly, the
values. In of discrete dict. l6
Ce betwen the pessimistic and optimistic
case
tions. the cunulative probabilities are calculated and used as the table for VLOOKLID

tion for iterations.

are entered as shown. Forthe ne
he tormulae used for the first iteration of the simulation next
e t a t i o n s , the formula in first iteration is copied and formuid s pusted. 1ne printout pre
Sented in this paper includes only the first 25 iterations to economize On space. pre
Snce the random numbers put out in the spread sheet table would keep on changing with
very re-opening of the table. the values need to be 'fixed' for a particular study-set by "conv.
py-
n a pasting values". The table containing the "fixed values of first 25 of the total j
entries is shown in the print out.
The estimate for total cost for each iteration is worked out by summing up the estimate for
individual cost centers for each iteration. The Mean and Standard Deviation of the total e.
timated cost are calculated using standard Excel® formulae.
T h e Data Analysis tool of the Excel® software is used to analyze the resulis andplot the
cumulative frequency histogram.
The Confidence Interval for the Mean ( Standard Error of Mean) is calculated by the for.
mula: 95% Confidence Interval for the Mean = 1.96 x Std. Deviation/ (Sq. Root of iteration
numbers)
The provision for contingency for each iteration is calculated by the difference by which the
total estimated cost for the iteration exceeds the estimated total cost excluding contingency
provision F840 million in this case). If the total estimated cost for any iteration works out
to

be below 7840 million, the contingency provision required is taken as zero.

The provision for contingency in percentage terms is calculated from the contingency neces
as a percent of total cost (R840 million in this case).
sary for an iteration expresSed

Spread Sheet Output and Summary (Attachment B, Part 1)

3.3
. The specimen of spreadsheet developed using the data and methodology set down in
Attachment
5. The simulation is carried out with 100 iterations: ho
above is presented in
out of Attachment B attached with this paper includes only the tirst 25 1ter
ever. the print
economize on space.
tions to
Analysis tool ol EXCeD 1s plot the Oumulative Frequency Diagram
used to
The Data
luded in the Attachment B. From that diagram, the total cost estimate corresponding to
contidence (Cumulatuve probability) can be read
desired degree of
of estimated cost rOr tnis parucular case simulation (based on 100 iterations)1
Summary
follows:

Estimated total
cost, (R in million)
= 927
Maximum Value
= 779
Minimum Value
 tstimating Project Iimes and Costs 2/5

Mean Value = 851

Standard Deviation 38
Standard Error of Mean 4
95% Confidence Interval
for Mean Value = 851 t 8 or 843 to 859 Million Rupees

Provision for Contingency:

For this the maximum value of estimated cost from 100 iterations is
particular simulation,
is R840 million and
7927 million. The total estimated cost excluding contingency provision
to cover this extreme scenario.
10.4% provision for contingency would be necessary
low probability (less than 2.5%%, since the
Considering that extreme case scenario has very
from the mean value), the standard 10% contingency
value is 2.3 standard deviations away
variations visualized in this case.
provision appears reasonable for

4.0 CONCLUSIONSS
for analyzing and
Monte Carlo model simulation technique
application
illustrates of
This case Carlo technique for simulation modeling
risks in project cost estimation. The Monte
managing terms of cumulative
assessment of the risks, in
illustrated in this article provides quantitative individual constituent
value of total cost estimate, when the
probability in achieving particular With
a
detailed step-wise illustration of the technique, it
different variability. very
cost centers have a degree that can
this article the essentials of this technique to
imbibe from
should be possible to
for s o m e similar project. of contingency. The
help to apply the technique cost estimation is managed by provision
Ordinarily, the risk in project
identified
percent of
some sum of known andthe
is arbitrarily taken
as
risk is not known. Monte
provision of contingency contingency provision
c o v e r s the actual
be
this ad hoc confidence can
costs. To what extent
approach in which
the degree of
an alternative confidence
Carlo simulation provides with this technique, the
Cumulative Frequency Diagram developed and vice v e r s a .
judged. From the estimate c a n be determined
visualize the effect of
specific cost would be possible to
level associated with any models is that it c o n s t r u c t i o n costs or

Another merit in
building such c o n s t i t u e n t cost
centers say civil simulation
variation in the
individual
cost. From the basic
unusual larger and its effect
on total project the specific
procurement
cost, etc.-
nature studies
can be carried out by tweaking
equipment "What If?
analysis of Sometimes,
model, sensitivity these quantitative
techniques.
Excel input cells. in using unwarranted sense
of
the c a u t i o n
once more might give an
to repeat such techniques limitations
It would bear metrics
w o r k e d out by techniques have their own

numerical All mOdeling This simulation

the precise in
decision-making.
of any technique.
and
confidence
be w i s h e d away
by use
the pulse of the
proiect
assurance
of future cannot and feeling a t t e n t i o n to the
m a t u r e Judgment
importance oft
unpredictability meticulous
and The
with the acquire
o v e r the years.
p a r a m e t e r s is
a n o t h e r very
Would not do away m a n a g e r s the model
seasoned project for t o r m u l a t i n g after taking
these caveats
which the the d a t a But
cost, and analyzing the technique. o n e step
a p p l i c a t i o n of decision maker
collecting the project
details for m e a n i n g f u l
to bring
prerequisite
for
itely help
definite cost.
of the project
should
impor ortant
the
technique evaluation

into acc
ccount, and objective
focused
Closer in a
more
276 Project Management

Attachment A: Part1
Priyadarshi Melamine Company
Cell Entry Details Table for Monte Carlo Simulation For Project Cost
1. Data Entry: Variability of Cost Centers

Description CellNo. Cell Entry

Land and Site
Development
Type of Distribution Variability
B7:07 (Merged) Land&Site Development
D8 Discrete
Probability for 1st discrete value
C10 0.5
1s Discrete Value, Cost (R
Million) D10 10.00
Probability for 2nd discrete value
C11 0.5
2hd Discrete Value, Cost (Rest
Milion) D11 30.00
Raw Materials Warehouse
B15:015 (Merged) Raw Materials Warehouse
Type of
Distribution Variability D16 Normal
Mean value ( Million) D17 21.00
Optimistic value Million) D18 16.00
Pessimistic value ( Million) D19 25.00
Std. Deviation
020 =021-D20/6
Description Cell No. Cell Entry
Main Production Plant Building B23:023 (Merged) Main Production Plant Buiding
Type of Distribution Variability D24 Normal
Mean value (7 Million) D25 78.00
Optimistic value (R Milion) D26 70.00
Pessimistic value (7 million) D27 100.00
Std. Deviation D28 =(D27-D26)/6

Finished Products Warehouse 837:037(Merged) Finished Products Warehouse

Type of Distribution Variability D38 Normal
Mean value R Million) 039 45.00
Optimistic value ( Million) D40 40.00
Pessimistic value (R million) D41 50.00
Std. Deviation D42 ={D41-D40)/6
Ancillary Buildings B45:D45 (Merged) Ancillary Buildings
Type of Distribution Variability D46 Normal
Mean value (R Mllion) D47 28.00
Optimistic value ( Milion) D48 20.00
Pessimistic value (R million) D49 36.00
D50 =(D49-D48)/6
Std. Deviation
 Estimating Project Times and Costs
Attachment A: Part 1 (Contd) 27
Description
Office and a.c. Buildings Cell No.
Cell Entry
B53:D53
Office and a.C.
Type of Distribution Variability (Merged) Buifdings
D54
Mean value 7 Million) Normal
D55
Optimistic value (R Million) 16.00
D56
Pessimistic value (R Million) 15.00
D57
Std. Deviation 25.00
D58
Purchased Equipment at Site =D57-D56/6
F7:H7 (Merged)
Type of Distribution Variability Purchased Equipment at Site
H8 Discrete
Probability for 1st discrete value
G10 0.4
1s Discrete Value, Cost (T Million) H10 300.00
Probability for 2nd discrete value
G11 0.3
2nd Discrete Value, Cost R Million) H11 320.00
Probability for 3d discrete value G12 0.3
3rd Discrete Value, Cost Million) H12 370.00
Instaliation Expenses F15:H15 (Merged) instalation Expenses
Type of Distribution Variability H16 Normal
Mean value Million) H17 87.00
Optimistic value (T Million) H18 75.00
Pessimistic value milion) H19 100.00
Std. Deviation H20 =(H19-H186

F23:H23 (Merged) Auxiliary Equipment

Auxiliary Equipment
H24 Normal
ype of Distribution Variability
H25 68.00
Mean value ( Million)
H26 56.00
Optimistic value (R Milion)
H27 80.00
Pessimistic value ( million)
H28
Std. Deviation J7:L7 (Merged) Technical Know-how Fees
Technical Know-how Fees
L8 Constant
Variability
ype of Distribution L9 35.00
Constant value Million) J14:L14 & J15:L15 Det. Engg. Procurement and
at Site
Procurement & Const. Supervision (Merged) Const. Sup at Site
Det. Egg.
L16 Discrete
Variability 0.25
Type of Distribution K18
discrete
value
Probability for 1st
278 Project Management

Attachment A: Part1 (Contd)

Description Cell No.
st Discrete Value, Cost (? Million)
Cell Entry
L18 30.00
Probability for 2nd discrete value
K19 0.50
2nd Discrete Value, Cost (R Million)
L19 55.00
Probability for 3rd discrete value
K20 0.25
3rd Discrete Value, Cost (? Million) L20 95.00

Miscellaneous Fixed Assets

J23:L23(Merged) Miscellaneous Fixed Assets
Type of Distribution Variability Normal
J24
Mean value R Million) J25 42.00
Optimistic value (7 Million) J26 35.00
Pessimistic value (R Million) J27 50.00
Std. Deviation J28 =(J27-J26)/6

Pre-operative Expenses J37:L37(Merged) Pre-operative Expenses

L38 Normal
Type of Distribution Variability
L39 22.00
Mean value 7 Million)
L40 10.00
Optimistic value Million)
L41 40.00
Pessimistic value ( Million)
L42 =L41-L40)/6
Std. Deviation
 Ftimafing Praject fim as an4Casts 279

Attachment A: Part 2
Priyadarshi Metamine Compay
Cell Entry Details Table for Mante Carle Simulation for Project Cost
2. Cell Entries for Monte Carto iterations
Description
Cell No. Cell Entry
B69 Iteration No.
B70 B94 teration ldentific ation No's 1 to 25

Land and Site Development C69 Land and Site Development

Iteration No. 1 C70 -ROUND(VLOOKUPIRAND), SBSI0:SD$11,31,0)
Iteration No. 2 to N (N=25) C71:C94 Copy and Paste Formula Cell C70
Raw Material Warehouse E69 Raw Malt. Warehouse
Iteration No. 1 E70 =Round (Norminv(RAND(), SDS17 SO$20),1)
lteration No. 2 to N (N=25) E71:E94 Copy and Paste Formula Cell E70

Main Production F69 Production Building

Plant Building
Iteration No. 1 F70 =Round (Norminv(RAND),.SD$25.SDs28),1)

Iteration No. 2 to N (N=25) F71:F94 Copy and Paste Formula Cell F70
Finished Products Warehouse G69 Fin. Prod. Warehouse
Iteration No. 1 G70 =Round (Norminv(RAND(), SD$39,SDS42),1)
Iteration No. 2 to N (N=25) G71:694 Copy and Paste Formula Cell G70
Ancillary Building H69 Ancillary Building
Iteration No. 1 H70 =Round (Norminv(RAND(), SDS47,SDS50),1)
Iteration No. 2 to N (N=25) H71:H94 Copy and Paste Formula Cell H70
Office and a.C. Building 169 Office and a.c. Build.
Iteration No. 1 I70 -Round (Norminv(RANDI), SDS55,SD$58),1)
Iteration No. 2 to N (N=25) 171:194 Copy and Paste Formula Cell 170

Sub-total Buildings J69 Sub-total Buildings

teration No. 1 J70 =E70-F70+G70+H70+170)
Iteration No. 2 to N (N=25) J71:J94 Copy and Paste Formula Cell J70

C99 Purchased Eqpt. at Site

Purchased Equipment at Site
Iteration No. 1 C100 -ROUNDIVLOOKUPRAND), SFS10:SHS12.31.0)
Iteration No. 2 to N (N=25) C101:C124 Copy and Paste Formuia Ceit C10

D99 installation Expenses

Installation Expenses
Iteration No. 1
D100 -Round (Normin(RAND0. SHS17SHS20),
D101:0124 Copy and Paste Formula Call 0100
teration No. 2 to N (N-25)

E99 Auxiliary
Auxiliary Equiprment Equipmeot
 ddgement
Attachment A: Part2
Description (Contd)
Iteration No. 1 Cell No. s
Iteration No. 2 to N E100 Cell Entry
Sub-total Plant and (N=25) E101:E124 -Round (Norminv(RAND(, SHS25,SHS28),1)
Iteration No. 1 Machinery F99 Copy and Paste Formula Cll
E100
teration No. 2to N F100 Sub-total Plant and
(N=-25) Machinery
F101:F124 =C100+D100+E100)
Copy and Paste Formula
Technical Cell F100
Know-how fees H99
Technical
Iteration No. 1 Knowhow
Iteration No. 2 to N (N=25) H100 =L9
Detailed Engg. and Constn H101:H124 Copy and Paste Formula Cell H100
Supvn 199 Det. Engg and
Iteration No. 1 Constn Supvn
1100
Miscellaneous Fixed Assets =ROUND(VLOOKUP(RAND(), SJS18:SLS20,3),0)
J99 Misc. Fixed Assets
Iteration No. 2 to N (N=25)
J101:3124 Copy and Paste Formula Cell J100

Pre-operative Expenses K99 Pre-oper. Expenses

Iteration No. 1 K100 =Round (Norminv(RAND(), SJ$25,SJS$28),1)
Iteration No. 2 to N (N=25) K101:K124 Copy and Paste Formula Cell K100

TOTAL NEW FIXED ASSETS L99 TOTAL NEw FIXED ASSETS

Iteration No. 1 L100
=(C70+J70+F100+H100+1100+J100+K100)
Iteration No. 2 to N (N=25) L101:L124 Copy and Paste Formula Cell L100

Contingency Provision Required M99 Contingency Provision Required

teration No. 1 M100 MAX(L100-840),0)
Iteration No. 2 to N (N=25) M101:M124 Copy and Paste Formula Cell M100

as Per Cent N99 Contingency Provision Per Cent

Contingency Provision
Iteration No. 1 N100
N101:N124
=ROUND(M100/840) 100,1)
Iteration No. 2 to N (N=25) Copy and Paste Formula Cell N100

C127 Max(L100:L124)
Maximum Cost AA127:8127 Maximum Cost
(Merged)
C128 Min(L100:L124)
Minimum Cost AA128:B128 Minimum Cost
(Merged)
Estimating Project Times and Costs 281
 M
PROJECT CoST ESTIMATE: PRIYADARSHI MELAMINE COMPANY Attachment B - Part 2
Cost in Rs Million

Finished Products Warehouse

Pre-operative Expenses
Distribution Discrete Distribution Constant
Mean 45.00 Mean 22.00
Ogtimistic 40.00 10.00
Optimistic
Pessimistic 50.00 Pessimistic 40.00
Std. Devn. 1.67 Std. Devn. 5.00

Arnciliary Buildings
Distribtion Normal
Mean 28.0
Optiristic 20.00
Pessimistic 36.00
SAd Devn 2.67

Officer and Q C. Lab

Distribution Normal
Mean 16.00

Optirnistic 15000
Possirmistic 25.0
Std. Devn 1.67

6
1 GVDesai
 Estimating Project Times and Costs 283

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 Estimating Project Times and Costs 285

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