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1. Binary Semantics | Readings
Crystal Ball Simulation for Project Selection
Budget-Constrained Project Selection by Oracle Crystal Ball
(Application - Project Management)
Budget-Constrained Project Selection
Expected Success Expected Initial Expected
Project Revenue Rate Return Investment Profit Decisions
1 $750,000 90% $675,000 $250,000 $425,000 1
2 $1,500,000 70% $1,050,000 $650,000 $400,000 1
3 $600,000 60% $360,000 $250,000 $110,000 1
4 $1,800,000 40% $720,000 $500,000 $220,000 1
5 $1,250,000 80% $1,000,000 $700,000 $300,000 1
6 $150,000 60% $90,000 $30,000 $60,000 1
7 $900,000 70% $630,000 $350,000 $280,000 1
8 $250,000 90% $225,000 $70,000 $155,000 1
Budget $2,000,000
Invested $2,800,000
Surplus ($800,000)
Maximize total expected profit subject
to budget constraint
Total profit $1,950,000
Summary:
The R&D group of a major public utility company has identified eight possible projects. A net present
value analysis has computed: (1) the expected revenue for each project if it is successful, (2) the
estimated probability of success for each project, and (3) the initial investment required for each
project. Using these figures, the finance manager has computed the expected return and the expected
profit for each project as shown in the Model worksheet. Unfortunately, the available budget is only
$2.0 million, and selecting all projects would require a total initial investment of $2.8 million. Thus, the
problem is to determine which projects to select to maximize the total expected profit while staying
within the budget limitation. Complicating this decision is the fact that both the expected revenue and
success rates are highly uncertain.

2. Binary Semantics | Case Study
Crystal Ball Simulation for Project Selection
Using Crystal Ball:
Crystal Ball enhances your Excel model by letting you create probability distributions that describe the
uncertainty surrounding specific input variables. This model includes sixteen probability distributions,
referred to in Crystal Ball as "assumptions." Eight assumptions in Column C describe the uncertainty in
the expected revenue for each project. These distributions differ with the different conditions of each
project. Each assumption cell is colored green.
This model also includes one Crystal Ball forecast, shown in light blue heading. Forecasts are equations,
or outputs, that you want to analyze after a simulation. During a simulation, Crystal Ball saves the values
in the forecast cells and displays them in a Forecast Chart, which is a histogram of the simulated values.
In this example, you want to analyze the Total profit.
When you run a simulation, Crystal Ball generates a random number for each assumption (based on how
the assumption has been defined) and places that new value in the cell. Excel then recalculates the
model.
After you run a simulation, you will see the forecast chart, which you can use to analyze the Total profit
outcomes. What is the mean Total profit? What is your certainty of making a profit of $1.95 million
(your original prediction)? What is the certainty that you may lose money? Do the forecast values form a
smooth curve? If not, why? What happens to the forecast if you decide against certain projects and re-
run the simulation?

3. Binary Semantics | Case Study
Crystal Ball Simulation for Project Selection
Using OptQuest:
As OptQuest runs, it uses multiple metaheuristic methods and techniques to analyze past results and
improve the quality and speed of its process. You can watch OptQuest's progress through the
performance graph, which shows a flattened line as it converges to an optimal result.
What is the best combination of projects that results in the highest mean total profit? Once OptQuest is
finished, you can copy the optimal results back to your spreadsheet through the Copy Best Solution to
Spreadsheet option in the Edit menu. Your spreadsheet now displays the optimal solution, and Crystal
Ball displays the forecast chart for the simulation from the best optimization. You can use OptQuest's
Solution Analysis view to review the other quantities of products that resulted in high total profit values.
Oracle Crystal Ball Features
About Binary Semantics
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