Monte Carlo simulation in an elementary school building

Abstract

Education is the future. Education is the only way for a country to start developing and reducing poverty. In countries with medium incomes like Peru, the resources to spend on education is not unlimited. Therefore, it is necessary to have quality in investment. However, risks and uncertainty can make a project surpass its initial budget. Therefore, statistic based methods like Monte Carlo simulation is a powerful tool to forecast possible events that might endanger the profitability and sustainability of a project. Although there is not plenty of academic literature about Monte Carlo empirical usage, many projects employ this method to manage the possible risks the project could have. In consequence, the current research analyzed both risk and sensitivity of an elementary school building project. Both analyses showed that this project had huge probabilities to surpass the current profit and return estimations. However, the sensitivity analysis portrayed that the project could be endangered because of infrastructure overspending. Moreover, it indicated that students’ attendance is also a critical factor to ensure the sustainability of the project.