Using NPV and IRR to Make Decisions in SimCity 4

[mattfish 1]

In finance, net present value (NPV) and internal rate of return (IRR) are two common methods to help determine whether/which projects should be taken on from a cost-benefit perspective. Specifically, these methods rank all investment alternatives in order of best "bang for the buck", or help you determine if a project you're considering makes any economic sense at all. I've always found it interesting to think about the best deal I can get for the simoleons I've saved up, whether for an addition to a city or an upgrade to services provided.

 

I've found multiple spreadsheets online that (attempt to) help players find a balance in RCI demand and employment, but has anyone seen any spreadsheets or algorithms out there attempting to calculate in-game NPVs or IRRs, or data collections of values for some of the inputs required for making building/upgrading decisions in this fashion (tile cost, revenue per tile, payout frequencies, etc.)? Aside from the obvious, such as the gameplay speed, RCI demand, and disasters, what hurdles do you think I'd encounter in attempting to create usable models for estimating the value of hypothetical simoleon investments?

 

Thank you for any help you can provide!

[mrsmartman 200]

I like your idea.

[A Nonny Moose 8,262]

Remembering that this is a game and many variables are omitted because the program would become unwieldy, this may or may not work.  All the information needed for either of these financial methods may not be present.

 

I've been playing this game since it came out.  I have developed some rules of thumb that work well:

 

First: Do not blow your budget laying out a preplanned road grid.

 

Second:  Start small, with low density lots.  R 2 x 1 (not 1 x 2), C 2 x 1.  You don't really need I, but use IA if anything.

 

Third: Get in the black and stay there.  The quickest way is with about a dozen C and build R until you get there.

 

Fourth:  You get better lots if they are watered.  I put a small water source in right away.

 

Fifth: Don't mess with utility funding.  This can cause all sorts of trouble.

 

Sixth: Add a fire station before you get your first fire.  You can plan it better that way.  Stay in the black

 

Seventh: Add a cop shop, but build enough to stay in the black.

 

Eighth: Keep your town close knit, then add a school, staying in the black.  Regulate the school.

 

Ninth: Keep the general ratio of Sims:Jobs::2:1.  The game is based on Silicon valley family units of mama stays home.

 

Tenth:  This is a game.  Don't read more into it than is there.

[cogeo 960]

First, as Moose said, THIS IS A GAME! I would also like to add that such an approach is pointless as much of the custom content (and to some degree Maxis too) is awfully modded as far as financial stats are concerned. Many (otherwise good) custom content creators pay too little, if any, attention to modding, they are almost exclusively interested in just making a nice-looking BAT (and lot). You will find buildings paying too many or very few taxes, consuming disproportionate amounts of power or water, utilities with ridiculously low running cost (from a cost-benefit perspective, these would be considered more "efficient" and therefore "competitive" and "desirable" ). Reviewing and bringing everything in line would require a huge modding effort. Even Maxis modding is often inconsistent. The ingame Recycling Centre, for example is a joke; it just wastes money, as it costs $350 per month, for eliminating 18 tons of garbage. Landfills are also incredibly expensive - you will discover this as soon as the landfill gets half or more full. And last but not least, the game completely lacks reviewing, reporting or budget tools. Not of a professional level, but not even rudimentary ones. For example, there is no yearly income statement, no balance sheet, you don't know the total investment, neither you can tell how much a house has paid in the last or current year.

 

As a sidenote, I have bad news for you if you adore hirise development . Hirise buildings pay less taxes per occupant (a lot less actually) compared to mid- and low-rise ones. Take a look at my post (and the table)

[Pobs 24]

Second:  Start small, with low density lots.  R 2 x 1 (not 1 x 2), C 2 x 1.  You don't really need I, but use IA if anything.

 

 

Sorry, off topic and likely covered elsewhere, but from which perspective are you defining 2 x 1 vs 1 x 2? Because I understand there is a difference, but not which is which.

 

Thanks

[BlakeMW 84]

Economically all you really need to know is where the 'cream' is in the economy, the money which is left over from taxes after expenses are paid. You could do the numbers if you really want to! But here are the important principles.

 

Dirty Industry is very low in cream, because by the time you've paid for the power and water you'd be lucky to make a cent in net profit.

The higher wealth industry types are creamier but for all industries, the main point is creating jobs - you don't so much make money from the industry, the profit is in the residential demand created.

 

Low density residential is much creamier than high density, population requires food, water, education, healthcare and roads.

Sims appear to pay some kind of 'property tax', meaning they pay more tax depending on the size in tiles of their home. A sim living in low density pays a lot more tax than a sim living in high density, but both cost exactly the same in healthcare and education. In fact with high density residential, by the time you've paid for utilities, health and education you make practically no net profit off the taxes. The profit from high density residential is found in the enormous commercial demand created (but this demand requires education to be fully realized).

 

Commercial is the creamiest, because it doesn't cost much - only utilities (and much less than for industry), and no need for health and education. All they really need is police and fire (and the relative cost of police and fire goes down with increasing density). What this means is the taxes from commercial are basically free money. Commercial is the ultimate cream of the city.

 

The final principle is that higher wealth leads to higher taxes, and education leads to higher wealth, so even though education reduces profit margins, having a well educated population will greatly improve profitability in the long run.

 

Therefore the key to being deeply in the black is to focus on the cream:

First, make sure you 'use up' all your commercial demand, because commercial is free money, and creates jobs more cheaply than industry does.

Anytime you're having trouble balancing the books, just zone more low density residential. It's basically printing money. Low density residential can subsidize an unprofitable high density inner city.

Investment in education will improve profitability in the long run.

 

A useful trick to make cities much more profitable and prosperous is to set bus and ambulance funding to zero. Sims can walk to school/hospital and it saves a lot of money. The higher density and smaller coverage circles of schools and hospitals helps prevent overcapacity problems later in the city's life (even with zero ambulance funding you'll still get overcapacity hospitals), and creates a lot of civic jobs (a high school or hospital creates ~80-100 jobs, including R$$ and R$$$, they are actually really good employers and are available from day one). This approach is so good it's practically cheating, or it can be argued the underlying coverage/capacity mechanics are not designed very well.

 

Edit: As a practical example, a cream-less city would be Dirty Industry and High Density Residential, such a city would be terribly unprofitable.

The creamiest city would be highly educated low density residential with high tech industry and high wealth commercial, such a city would make gobs of profit.

[A Nonny Moose 8,262]

Almost all of my cities make 'gobs of profit'.  Maybe it is because I've been at this a long time, but generally I find it impossible for a city to not be highly profitable once you start it off correctly: small, in the black, and slowly develop towards any goal you might have.  Trying to force development of, say, a particular road grid is usually very costly and takes a lot of work to get back into the black.  I have one city now that I dropped from 8% general tax to 7% and I am considering dropping to 6% because the profit is obscene, over 50K per month.

[.anonyman 28]

 

Second:  Start small, with low density lots.  R 2 x 1 (not 1 x 2), C 2 x 1.  You don't really need I, but use IA if anything.

 

 

Sorry, off topic and likely covered elsewhere, but from which perspective are you defining 2 x 1 vs 1 x 2? Because I understand there is a difference, but not which is which.

 

Thanks

 

 

A 2x1 lot refers to one with 2 tiles along the street (or where the arrows point) and is 1 tile deep. The default zoning is 1x2 or 1x3, back-to-back in 4-tile-wide blocks.

[A Nonny Moose 8,262]

 

 

Second:  Start small, with low density lots.  R 2 x 1 (not 1 x 2), C 2 x 1.  You don't really need I, but use IA if anything.

 

 

Sorry, off topic and likely covered elsewhere, but from which perspective are you defining 2 x 1 vs 1 x 2? Because I understand there is a difference, but not which is which.

 

Thanks

 

 

A 2x1 lot refers to one with 2 tiles along the street (or where the arrows point) and is 1 tile deep. The default zoning is 1x2 or 1x3, back-to-back in 4-tile-wide blocks.

 

And is a trap for the unwary since it allows the game to consolidate lots to create mansions far too early in the game.

[araider08 0]

 

In finance, net present value (NPV) and internal rate of return (IRR) are two common methods to help determine whether/which projects should be taken on from a cost-benefit perspective. Specifically, these methods rank all investment alternatives in order of best "bang for the buck", or help you determine if a project you're considering makes any economic sense at all. I've always found it interesting to think about the best deal I can get for the simoleons I've saved up, whether for an addition to a city or an upgrade to services provided.

 

I've found multiple spreadsheets online that (attempt to) help players find a balance in RCI demand and employment, but has anyone seen any spreadsheets or algorithms out there attempting to calculate in-game NPVs or IRRs, or data collections of values for some of the inputs required for making building/upgrading decisions in this fashion (tile cost, revenue per tile, payout frequencies, etc.)? Aside from the obvious, such as the gameplay speed, RCI demand, and disasters, what hurdles do you think I'd encounter in attempting to create usable models for estimating the value of hypothetical simoleon investments?

 

Thank you for any help you can provide!

 

I actually studied for a degree in finance, haha. I never thought about applying that education to the game though.

I also recently finished an econ degree... And also haven't applied it to this game but it sure would be interesting to do some predictive modeling and machine learning to predict best placement for new infrastructure and what not...

I'll hop to it!

[A Nonny Moose 8,262]

 

<snip>

I actually studied for a degree in finance, haha. I never thought about applying that education to the game though.

I also recently finished an econ degree... And also haven't applied it to this game but it sure would be interesting to do some predictive modeling and machine learning to predict best placement for new infrastructure and what not...

I'll hop to it!

 

I hope you don't waste too much time on this.  I am not convinced that there is enough data for you to reach any conclusion.

[BlakeMW 84]

And is a trap for the unwary since it allows the game to consolidate lots to create mansions far too early in the game.

 

 

 

I'm curious, what problem do you have with early mansions? They pay more taxes than the equivalent area in 1x2 R$ sims and you can always just zone more low density residential if you want more R$ to move in.

 

One of my major strategies early in the game is to get R$$ and R$$$ to move in (that is, without resorting to lowering taxes), because higher wealth sims create a better class of demand. I normally try to get IHT demand as quickly as possible (my record is mid way through year 3) and I think educated mansion dwellers are the key to that. It is important to use a fair few parks to keep the land values high, but since a mansion pays something like 15-20 simoleons in taxes the parks are quite affordable.

[A Nonny Moose 8,262]

 

And is a trap for the unwary since it allows the game to consolidate lots to create mansions far too early in the game.

 

 

 

I'm curious, what problem do you have with early mansions? They pay more taxes than the equivalent area in 1x2 R$ sims and you can always just zone more low density residential if you want more R$ to move in.

 

One of my major strategies early in the game is to get R$$ and R$$$ to move in (that is, without resorting to lowering taxes), because higher wealth sims create a better class of demand. I normally try to get IHT demand as quickly as possible (my record is mid way through year 3) and I think educated mansion dwellers are the key to that. It is important to use a fair few parks to keep the land values high, but since a mansion pays something like 15-20 simoleons in taxes the parks are quite affordable.

 

These mansions are generally R$$$ at a time in the game development when there are no jobs for them and they quickly abandon and become eye-sores.  I consider my actions in this regard to be working around a major bug in the design.

[BlakeMW 84]

You know I used to have that problem - that is, R$$$ houses with no jobs. My solution was to set R$$$ taxes to 10.5%, and that was the advice I gave others. It would keep the R$$$ population maybe 25% lower and ensure those which did move in, were employed.

 

However that no longer happens. I think something in the NAM or possibly a patch has fixed it. I think the problem wasn't that R$$$ sims would move in when there were no jobs, but that there were jobs for them, but they just couldn't commute to them due to some bug.