BU.610.625 – Simulation and Strategic Options, Spring 2020
Homework # 2
Please submit two documents: Your answers to the questions in .pdf format, and your Microsoft
Excel file for the question in .xlsx format. Please make sure you spell out the responses to the
questions asked. Please submit your assignment through Blackboard and name your files using
the convention LastName_FirstName_AssignmentNumber. For example,
Yazdi_Mohammad_2.pdf and Yazdi_Mohammad_2.xlsx.
Question 1: Introduction to Simulation
In this example, you are asked to use Microsoft Excel to develop a simulation model for the
example ROGOLABS. The description of this example is available in pages 1-3 of
“Introduction to Simulation: More Advanced Decision Models & Applications” (See folder
Week-1 in BB.) Using your simulation model, answer the following questions:
a. What is the total cost incurred in your system after 500 days? Recalculate your
spreadsheet a few times and see how this value changes. Does this give you great
confidence in your estimated cost? If not, how would you address this concern?
b. Try changing the minimum and maximum capacity levels at each step and see what
happens to the system cost. Is total cost a linear function of your decisions? Is it a
monotonic function of your decisions – in other words, does it always go up or down
when your decision variable goes up or down?
c. After you have a working model in hand, use it to complete the following table showing
your best solution.
Min Max Av. Capacity Sub-Total
Inventory Related Costs
Question 2: Real options using decision trees.
No simulation model is required for this question.
Read the case SCOR-eSTORE.COM (available through HBSP
https://hbsp.harvard.edu/import/714455 ) and answer the following parts.
a. Briefly answer the following questions:
What is the idea behind the competitor from StoreStore.com?
What do they need to get the web business to be viable?
What is your opinion of this business?
What are the sources of optionality here?
b. Using a decision tree including investing and passing decisions, show why Bernard
planned to pass on the opportunity.
c. What is the additional value of Allen’s suggestion? Update the decision tree in part b.
d. How about the switch option suggested by Soares? Update the decision tree in part b.
e. Will Allen’s and Soares’ suggestions combined be able to change Bernad’s decision
about passing on the opportunity? Explain why.
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