BUILDREAL : A Case Study on Risk Analysis Using Simulation in a Rent or Buy Decision

Anchoring affects our investment decisions. Anchoring involves comparing only one piece of information heavily over others. Raj is in transport business. Raj wants to buy a truck which otherwise he rents for transporting building material. He initially compares only fuel costs with truck rentals and feels that it is definitely cheaper and more convenient to purchase truck than to go for a rental truck. Through counselling, author made him reflect on his decision by gathering more information about the expenses and benefits involved in the purchase decision. Also the impact of variables like number of working days, fuel costs and miscellaneous expenses on the decision were studied. When we use static and optimistic values of variables the decision looks good. But business environment is not static. Using spread sheet simulation we can clearly identify the risks associated with such decisions. This case study can also be used to create risk awareness in students by presenting the impact of variables on the final rent or buy decision using Excel and simulation add ins