Queuing theory simulation model for calculating net present value corrective factor in investment project appraisal

Abstract

In contemporary project management, project life cycle is defined by project development phases. Most important phase for project lifecycle is Opportunity phase in which project profitability is evaluated. On the end of this phase is determined if project will be developed in full life cycle, or rejected as non-profitable. Criteria that is used, for project evaluation, is Net Present Value criteria (NPV). In order to propose methodology for getting more accurate results for NPV, system which is subject of investment is modeled as queuing theory model with balking and reneging. Input parameters of the system are collected from case study. Based on mentioned combined model, probability of service is calculated. In order to make conclusions more versatile, simulation model is build and validated against results from queuing theory model and case study results. Probability of service, calculated from validated simulation model, is used as corrective factor for calculation of NPV, based on realistic assumption of serviced units, which are participating in income.