Talent Development and Excellence: Management Report

Need help with assignments?

Our qualified writers can create original, plagiarism-free papers in any format you choose (APA, MLA, Harvard, Chicago, etc.)

Order from us for quality, customized work in due time of your choice.

Click Here To Order Now

The purpose of this report was to determine what is the optimal amount of money that should be deposited in the flexible savings account (FSA). The benefit of the FSA is that the money deposited in the account are tax free and can be used to pay for medical expenses. However, if the deposited amount is not used up by the end of a year, the money is lost. Therefore, it is crucial to test what amount is best to be deposited using different risk models.

Two types of Monte Carlo simulations were conducted to determine the optimal deposit amount. A Monte Carlo simulation is used to predict the probability of a variety of outcomes (Arend & Schäfer, 2019). Monte Carlo Simulation is an effective tool that can be used in business decision-making (al-Bourini et al.,2020). In business, it is primarily used for forecasting purposes (Fabianova et al., 2019). First, normal distribution simulation using @Risk in Microsoft Excel was conducted. The inputs were the annual salary of $80,000, a 30% tax rate, and a mean annual medical expense of $2,000 with a standard deviation of $500. The tested values included $1000, $1200, $1400, $1600, $1800, and $2000. The results of the analysis are provided in Table 1 below.

Table 1. Standard deviation risk analysis results

Value Mean 5% 95%
1000 55295.74925 55300 55300
1200 55148.37847 55133.45136 55160
1400 54991.94025 54793.45136 55020
1600 54819.88621 54453.45136 54880
1800 54624.7762 54113.45136 54740
2000 54400.52398 53773.45136 54600

Thus, the results demonstrate that the best option would be to deposit $1,000, as it maximizes the retained salary.

Second, gamma distribution analysis was conducted with the same input. The results of the analysis are provided in Table 2 below.

Table 2. Gamma distribution risk analysis results

Analysis Value Mean 5% 95%
Value: 1000.00 1000 55299.19307 55300 55300
Value: 1200.00 1200 55159.19307 55160 55160
Value: 1400.00 1400 55019.19307 55020 55020
Value: 1600.00 1600 54879.19307 54880 54880
Value: 1800.00 1800 54739.19307 54740 54740
Value: 2000.00 2000 54599.19307 54600 54600

The analysis revealed that $1,000 remained the best option for the FSA deposit, as it maximizes the retained salary.

Thus, it is recommended to contribute $1,000 to the FSA if the annual medical expenses are at the level of $2,000 with a standard deviation of $500.

References

al-Bourini, F. A., Aljawarneh, N. M., Bourini, I., Almaaitah, M. F., & kaderAlomari, K. A. (2020). Directing Strategic Decision and Perceived Faculty Performance Using PLS Analysis and Monte Carlo Simulation in Jordanian Private Universities. Journal of Talent Development and Excellence, 12, 2235-2252.

Arend, M. G., & Schäfer, T. (2019). Statistical power in two-level models: A tutorial based on Monte Carlo simulation. Psychological methods, 24(1), 1.

Fabianova, J., Kacmary, P., & Janekova, J. (2019). Operative production planning utilising quantitative forecasting and Monte Carlo simulations. Open Engineering, 9(1), 613-622.

Need help with assignments?

Our qualified writers can create original, plagiarism-free papers in any format you choose (APA, MLA, Harvard, Chicago, etc.)

Order from us for quality, customized work in due time of your choice.

Click Here To Order Now