Computation Section

The Estimate add-in creates a worksheet to hold the data for capital budget estimates or life-cycle cost estimates.

Capital budgeting uses the Work Breakdown Schedule (WBS) to organize the activities in a project. The WBS may have several levels of detail. At the lowest level are work packages (WP). Cost values are provided by the user for all WP's. A Summarize button, computes the total cost of the project and of all activities at the first level.

Life-Cycle costing uses the Cost Breakdown Schedule to itemize the costs and revenues that will contribute to the cash flows of the project during its life. Individual items may be further subdivided into additional levels of detail. Costs and revenues are estimated for the lowest level of detail. A Summarize button, computes the total life-cycle cost of the project and of all cost elements at the first level.

Individual estimates may be point estimates or described by probability distributions. When probability distributions are used the Random Variables add-in must be installed. Summarized budgets and costs are described by the mean and variance of the estimate. Monte Carlo simulation is used to obtain more detailed distribution parameters of the summarized items.

The estimates allow for time phasing of budgets and costs through a time table. In this way budget cash flows and life-cycle cash flows are generated. Present worth equivalents of the cash flows are provided.


When the model contains random variables as in the projects containing risk, functions from the Random Variables add-in are placed on the model form. These are used to evaluate moments, compute quantiles and simulate random variables. These functions cause problems when a model is opened on a computer different than the one on which it was created. When transferring workbooks to a different computer, choose the Links command from the menu and click the Freeze Functions button. This replaces all functions with their numerical values. The Freeze command also deletes the red buttons on the worksheet that cause linking problems. When the workbook is opened on the other computer choose the Link Functions command. It rewrites the functions in the proper cells.


The Actions command is a new feature that performs the same functions as the red macro buttons that were placed on the worksheet by earlier versions of the add-in. When you choose this command, the dialog below appears. The Summarize and Change commands are described on the next page of this unit. The red macro buttons are placed on the sheet with the Buttons command. The Links command on this dialog effects only the active worksheet. The Links command on the Estimate menu shown at the top of this page affects the links on all pages of the workbook.


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Operations Management / Industrial Engineering
by Paul A. Jensen
Copyright 2004 - All rights reserved

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