Using Programming and Simulation as a Research Tool in a Graduate Capital Budgeting Course

Abstract

Effectively incorporating research elements into the classroom continues to be an important aspect of graduate engineering education. In this paper, we present an overview of a semester-long research project for a graduate course in Capital Budgeting. At the core of the project is a student-developed Capital Budgeting simulation model. This model is used both as a tool for examining the effectiveness of existing capital project ranking methods such as IRR, NPV, and Payback, and also as a research platform for testing new ranking and selection methods. The project consists of three phases, with the first phase being comprised of individual work where students design and program a basic Capital Budgeting simulation model using Microsoft Excel and Visual Basic for Applications (VBA). During the second phase, students transition into small self-selected teams to validate and then expand the simulation to include more financial elements. This work is performed over the first two-thirds of the semester. The third phase involves teams investigating various project ranking and selection techniques available in the peer-reviewed literature, and they use the simulation model to perform experiments comparing those techniques against each other. Students are also asked to develop and examine new capital project selection techniques that can be applied either to the general Capital Budgeting problem or to specific real-world situations. The project concludes with each team presenting the experimental results to the class.

Grounded in project-based learning principles, this project provides an additional way for students to apply Engineering Economy concepts throughout the course. We outline current instructional techniques, discuss assignments given within each phase, and review the evaluation criteria for each phase and assignment. We also discuss particular instructional challenges we have observed that stem from the varied programming skills, comfort levels with Engineering Economy concepts, industry experiences, academic concentrations, and nationalities we find in the classroom. Finally, we present a preliminary comparison of outcomes related to the quality of simulation models observed after specific instructional techniques related to programming with VBA were modified.