Posted by The Dynamic Economic Model: A Flexible Approach to Investment Analysis with Analytica
Life Cycle Cost Track
LC-5_Presentation_TheDynamicEconomicModel_King
Abstract:
Given the current economic crises facing the United States, government spending is being placed under more intense scrutiny. As a result, major investments are being more closely analyzed and pressure to be cost effective is of the utmost importance. In the world of cost estimation, the scrutiny is translating to increased demand for cost metrics prior to the establishment of clear scope requirements. For MCR, uncovering new tools and strategies to adapt to this type of environment has become a top priority. One way MCR improved versatility while maintaining our valued reliability has been to create economic cost models using Analytica®, a modeling software designed to enhance the capabilities of the modern spreadsheet tool.
One of the most successful employments of Analytica® has come in the form of cost and benefit analysis for the Federal Aviation Administration’s effort to modernize its air traffic control facility infrastructure. Such a task encompasses hundreds of facilities, and thousands of alternatives can be defined. Add in the large number of stakeholders and you create an extremely dynamic environment where both alternatives and requirements change rapidly. It soon became clear that standard cost models could not offer the flexibility needed to provide quick and reliable estimates in such a turbulent environment. To combat uncertainty the team created the “Dynamic Economic Model” (DEM for short) using Analytica® to provide a flexible solution that enables the team to quickly react to project definition modifications while maintaining fidelity in benefit, cost, and risk estimates.
Analytica® provides a visual approach to typical spreadsheet creation. The use of visual modules and variables allowed our team to create a visual multi-layer work breakdown structure that neatly separates methodologies from datasets and input variables. Users of the model are able to visualize methodologies rather than attempt to recreate them through cell by cell audits. The tool contains a built in Monte Carlo engine to assist with risk analysis and outputs can be easily linked with Microsoft products if more detailed reports are needed. The tool empowers analysts with the ability to create user friendly interfaces while keeping the complex functionality in the background. The Dynamic Economic Model allowed the client to assess the validity of many alternatives early on in the business case development process. This information assisted the client in making adjustments and involving key stakeholders as needed to make correct decisions and limit costly reprogramming activities.
Author(s):
Kevin King
MCR LLC
Kevin King is a lead associate at MCR Federal, where he leads a team that provides business case support for several government programs. Mr. King’s 10 years of experience has been in performing long term and quick response research and analytical tasks – modeling, simulation, cost/benefit, data analysis, and visualization for various government agencies. Mr. King received a B.S. in Industrial and Systems Engineering from Virginia Tech and an M.S. in Systems Engineering from George Mason University.
Jason Mehrtens