Summary and Learning Objectives

A company has a small warehouse that holds and distributes inventory to downstream retailers. The warehouse manager is considering several investment options and you are hired to perform a capital budgeting analysis and determine the optimal investment portfolio.

After successful completion of this Immersive Simulation-Based Learning (I-SBL) module, the student will be able to:

1. Collect data from the real-world system under study and estimate the cash flows needed for the economic analysis.
2. Calculate the present worth of candidate investment options.
3. Design an optimization model that maximizes the present worth of the investment portfolio and accounts for budgetary, contingency, mutually exclusiveness, and other applicable constraints.
4. Present the optimization model in a mathematical/algebraic form.
5. Implement and solve the optimization model using an optimization package.
6. Describe the optimal investment portfolio and its present worth based on the optimization results.

Keywords   

Engineering economy, capital budgeting, present worth, optimization, investment portfolio, warehouse

Discipline(s):

Industrial Engineering; Engineering Management; Systems Engineering; Management Science; General Engineering and Business

Potential related courses/topics

Engineering Economy; Management Science; Optimization; Decision Making

Recommended educational level and audience

Undergraduate; Graduate; Introductory, nonmajors or majors

Prerequisites

Familiarity with optimization, capital budgeting, present worth calculation, and basic algebra.

Necessary student resources

Textbook/handout: Present worth formulae.

Software/hardware: A computer with Simio installed on it.  An optimization software (Excel Solver, CPLEX, GAMS, etc.)

Immersion level

The module supports both “low-immersion” (3D view on a typical display) and “high-immersion” (virtual reality using an Oculus Rift VR headset).

Can it be used as a traditional PBL module without the immersive simulation model?

Yes, but not directly. Students need to estimate certain parameters by collecting data from the simulation model.  The questions can be answered without having access to the immersive simulation model if these parameters are provided in the problem statement.  The simulation is intended to serve as the “context” to help students visualize and interact with the system under study.

Recommended time frame and activity format

Total time: 30 minutes (Part 1: 10 minutes; Part 2: 20 minutes)

Can be done as in-class activity or homework assignment.

Can be done in groups or individually.

Download module material (problem description and immersive simulation model)

Students:
Problem description
Simulation model (Simio file) – Desktop Version – Low Immersion
Simulation model (Simio file) – Virtual Reality Version – High Immersion

Instructors: Click here to request access to instructor copy.