By Doug Hudgeon The Cost Reduction Tip After posting yesterday’s tip, I’ve received a few requests to explain how the Cost Analysis Monte Carlo spreadsheet works. I hope you find this post useful. Note: For those who are fire walled from Google Docs, please click this link for an Excel version of the Cost Analysis Monte Carlo Spreadsheet Background The Cost Analysis Monte Carlo spreadsheet calculates the range of monthly resource costs for a seven-step activity – in this case the monthly cost of processing purchase orders – with 90% probability. This means that 9 out of 10 times, your monthly PO costs will fall within the range. Image 1 In the above screenshot, the total monthly costs for processing POs will be between \$172K and \$255K in 9 out of 10 months. Setting the inputs The spreadsheet calculates this by taking the inputs below for the seven activities: Image 2   Three types of inputs are required for each activity:

1. Activity time in minutes
2. Annual resource cost
3. Number of units per month