Program: Software Engineering Class: VIII-A-B

Course Name: Modeling and Simulations Topic Simulation Using MS Excel

Instructor’s Name: M. Iftikhar Mubbashir Date March 22, 2025
Course Code: SE 405 Document Notes

Risk Analysis
PortaCom manufactures personal computers and related equipment. PortaCom’s product design group developed a
prototype for a new high-quality portable printer. The new printer boasts an innovative design and has the potential
to capture a significant share of the portable printer market. Preliminary marketing and financial analyses provided
the following selling price, first-year administrative cost, and first-year advertising costs:
• Selling price =$249 per unit
• Administrative cost = $400,000
• Advertising cost = $600,000
The costs of direct labor, parts, and the first-year demand for the printer are not known with certainty and are
considered probabilistic inputs. At this stage of the planning process, PortaCom’s best estimates for these inputs are
$45 per unit for direct labor costs, $90 per unit for parts costs, and 15,000 units for first-year demand. PortaCom
would like an analysis of the printer's potential profit for its first year. Because of PortaCom’s tight cash flow situation,
management is particularly concerned about the potential for a loss.
Further analysis by PortaCom led to the following probability distributions for the direct labor cost per unit, the parts
cost per unit, and first-year demand:
Direct Labor Cost: PortaCom believes that the direct labor cost will range from $43 to $47 per unit, as
described by the discrete probability distribution shown in Table 1.
Parts Cost: This cost depends on the general economy, overall demand for parts, and the pricing policy of
PortaCom’s parts suppliers. PortaCom believes that the parts cost will range from $80 to $100 per unit and is
described by the uniform probability distribution shown in Figure 1. Costs per unit, ranging from $80 to $100, are
equally likely.
First-Year Demand PortaCom believes that first-year demand is described by the normal probability distribution
shown in Figure 2. The mean or expected value of first-year demand is 15,000 units. The standard deviation of 4500
units describes the variability in the first-year demand.
Direct Labor Cost per Unit Probability
$43 0.1
$44 0.2
$45 0.4
$46 0.2
$47 0.1
Table 1Probability Distribution For Direct Labor Cost Per Unit

Figure 1Uniform Probability Distribution For The Parts

1
 Figure 2Normal Probability Distribution Of First-Year Demand

Direct Labor Cost per Unit Probability Interval of Random Numbers

$43 0.1 0.0 but less than 0.1
$44 0.2 0.1 but less than 0.3
$45 0.4 0.3 but less than 0.7
$46 0.2 0.7 but less than 0.9
$47 0.1 0.9 but less than 1.0
Table 2: Random Number Intervals For Generating Values Of Direct
Using an Excel worksheet, simulate the PortaCom project 500 times and generate useful statistics.

Inventory Simulation
The product is a home ventilation fan distributed by the Butler Electrical Supply Company. Each fan costs Butler $75
and sells for $125. Thus Butler realizes a gross profit of $125 - $75 = $50 for each fan sold. Monthly demand for the
fan is described by a normal probability distribution with a mean of 100 units and a standard deviation of 20 units.
Butler receives monthly deliveries from its supplier and replenishes its inventory to a level of Q at the beginning of
each month. This beginning inventory level is referred to as the replenishment level. If monthly demand is less than
the replenishment level, an inventory holding cost of $15 is charged for each unit that is not sold. However, if monthly
demand is greater than the replenishment level, a stockout occurs and a shortage cost is incurred. Because Butler
assigns a goodwill cost of $30 for each customer turned away, a shortage cost of $30 is charged for each unit of
demand that cannot be satisfied. Management would like to use a simulation model to determine the average monthly
net profit resulting from using a particular replenishment level. Management would also like information on the
percentage of total demand that will be satisfied. This percentage is referred to as the service level.
The controllable input to the Butler simulation model is the replenishment level, Q. The probabilistic input is the
monthly demand, D. The two output measures are the average monthly net profit and the service level. The
computation of the service level requires that we keep track of the number of fans sold each month and the total
demand for fans for each month. The service level will be computed at the end of the simulation run as the ratio of
total units sold to total demand. A diagram of the relationship between the inputs and the outputs is shown in Figure
-3. When demand is less than or equal to the replenishment level (D ≤ Q), D units are sold, and an inventory holding
cost of $15 is incurred for each of the Q ≥ D units that remain in inventory. Net profit for this case is computed as
follows:
Case 1: D ≤ Q
Gross profit = $50D
Holding cost = $15(Q – D)
Net profit = Gross profit - Holding cost = $50D - $15(Q - D)
When demand is greater than the replenishment level (D > Q), Q fans are sold, and a shortage cost of $30 is imposed
for each of the D - Q units of demand not satisfied. Net profit for this case is computed as follows:
Case 2: D > Q
Gross profit =$50Q

2
Shortage cost =$30(D - Q)
Net profit = Gross profit - Shortage cost = $50Q - $30(D - Q)

Figure 3: Butler Inventory Simulation Model

Using Excel, to simulate for 300 months. Generate the useful results related to the inventory system.

Hammondsport Savings Bank ATM Waiting Line

Hammondsport Savings Bank will open several new branch banks during the coming year. Each new branch is
designed to have one automated teller machine (ATM). A concern is that during busy periods several customers may
have to wait to use the ATM. This concern prompted the bank to undertake a study of the ATM waiting line system.
The bank’s vice president wants to determine whether one ATM will be sufficient. The bank established service
guidelines for its ATM system stating that the average customer waiting time for an ATM should be one minute or
less. Let us show how a simulation model can be used to study the ATM waiting line at a particular branch. The
customer interarrival times are assumed to be uniformly distributed between 0 and 5 minutes, past data from similar
ATMs indicate that a normal probability distribution with a mean of 2 minutes and a standard deviation of 0.5
minutes, a diagram of the ATM simulation model is in Figure-4.
Using an Excel worksheet, to simulate all 1000 customers. Mention the statistics for this system.

Figure 4: Hammondsport Savings Bank ATM Simulation Model

Simulation with Two ATMs

Let us assume that the bank has two ATMs. For the second ATM, we also assume that the service time is normally
distributed with a mean of 2 minutes and a standard deviation of 0.5 minutes. We assume that, when a new customer
arrives, the customer will be served by the ATM that frees up first. When the simulation begins, the first customer is
assigned to ATM 1. Use the Excel worksheet to conduct a simulation for 1000 customers using two ATMs.

The End