Scenario: Project Cost Estimation

Let$$s consider a fictional construction project where we need to estimate the total cost. The project involves building a new office complex. We have the following information:

$1.$ Cost Estimates:

o Foundation: $$200,000$

o Structural Framing: $$500,000$

o Electrical Installation: $$300,000$

o Interior Finishing: $$400,000$

$2.$ Uncertainty:

o Each cost estimate has some uncertainty due to market fluctuations, labor availability, and unforeseen events.

Steps to Create the Monte Carlo Simulation in Excel:

$1.$ Set Up Your Spreadsheet:

o Create columns for each cost item and label them.

o Define the mean and standard deviation for each cost estimate.

$2.$ Generate Random Values:

o Use Excel$$s NORM.INV function to generate random values based on normal distributions.

o Calculate the total cost for each simulation trial.

$3.$ Repeat Simulations:

o Run multiple trials $($e$.$g$.,1,000)$ by recalculating the random values.

o Store the total cost for each trial.

$4.$ Analyze Results:

o Create a histogram to visualize the distribution of total costs.

o Calculate the average, minimum, and maximum total costs.