PAGE 01
Simulation Technique
START
PAGE 03
Simulation is a quantitative technique developed
for studying alternative courses of actions by
building a model of that system and then
conducting a series of experiments to predict the
behavior of the system over a period of time.
Simulation PAGE 04
T. H. Taylor defined Simulation as
― A numerical technique for conducting
experiments on a digital computer, which involves
certain types of mathematical & logical
relationships necessary to describe the behavior and
structure of a complex real world system over
extended period of time.
Simulation PAGE 06
A simulation imitates the operation of real world
01 processes or systems with the use of models.
02 It involves representation of certain key characteristics
or behaviours of a selected physical or abstract system.
Simulation PAGE 04
Simulations are usually computer-based, using a
software-generated model to provide support for the
decisions of managers and engineers as well as for
training, testing and education purposes.
Simulation techniques understanding and
experimentation, as the models are both visual and
interactive.
Simulation PAGE 04
Simulation can be used to show the eventual real
effects of alternative conditions and courses of action.
Simulation is also used when the real system cannot be
engaged, because it may not be accessible, or it may be
dangerous or unacceptable to engage, or it is being
designed but not yet built, or it may simply not exist.
Simulation Model PAGE 09
A simulation model is a mathematical model that
calculates the impact of uncertain inputs and
decisions we make on outcomes that we care about,
such as profit and loss, investment returns, etc.
Simulation Model PAGE 09
A simulation model will include:
Model inputs that are uncertain numbers/uncertain
variables
Intermediate calculations as required
Model outputs that depend on the inputs -- These
are uncertain functions
Reasons for using
PAGE 10
Simulation
01 02 03
Many practical problems There is no sufficient time Simulation model can be
where mathematical to allow the system to used to conduct
simplification is not operate extensively. experiments without
feasible. disrupting real system.
Reasons for using
PAGE 10
Simulation
04 05 06
Enable a manager to The non technical Actual operation and
provide insights into manager can comprehend observation of a system is
certain problem where simulation more easily too disruptive.
the actual environment is than a complex
difficult to observe. mathematical model.
PAGE 01
Applications of Simulation
Manufacturing
PAGE 08
Applications
Construction Engineering
PAGE 08
and Project Management
Military Applications
PAGE 08
Transportation Modes and
PAGE 08
Traffic
Health Care
PAGE 08
Network Simulation
PAGE 08
Advantages of
PAGE 06
Simulation
Simulation is flexible and straightforward technique.
01
02 Simulations can help in cases where mathematical
models are not applicable.
Advantages of
PAGE 06
Simulation
Simulation is especially useful if changes in an existing
03 system are to be made, and the effects of the changes
should be tested prior to implementation.
04 It can be use to analyze large and complex real world
system that cannot be solved by conventional
quantitative techniques models.
Advantages of
PAGE 06
Simulation
Simulation is used to foresee these unknown difficulties.
05
06 The simulation approach is useful to study a problem
that involves uncertainty.
Disadvantages of
PAGE 06
Simulation
Simulation cannot naturally be used to find an optimal
01 solution.
02 It can be quite expensive to build a simulation model.
Disadvantages of
PAGE 06
Simulation
Each simulation model is unique and its solution and
03 inference are not usually transferable to other operation.
PAGE 01
Monte Carlo Technique
START
Monte Carlo PAGE 09
This technique is based upon probability
distribution and the use of random numbers. Also
called computer simulation, it can be described as a
numerical technique that involves modeling a
stochastic system with the objective of predicting
the system‘s behavior.
Monte Carlo PAGE 09
Monte Carlo Simulation builds a model of possible
results by leveraging a probability distribution, such
as a uniform or normal distribution, for any
variable that has inherent uncertainty.
Monte Carlo PAGE 09
It, then, recalculates the results over and over, each
time using a different set of random numbers
between the minimum and maximum values.
In a typical Monte Carlo experiment, this exercise
can be repeated thousands of times to produce a
large number of likely outcomes.
Monte Carlo PAGE 09
Monte Carlo Simulations are also utilized for long-
term predictions due to their accuracy. As the
number of inputs increase, the number of forecasts
also grows, allowing you to project outcomes
farther out in time with more accuracy.
PAGE 01
How does it work?
Monte Carlo PAGE 06
It works by modeling the probability of different outcomes
in a process or system that cannot easily be predicted due to
the intervention of random variables.
It uses something called random sampling.
Steps PAGE 10
01 02 03
Set up the predictive Specify probability Run simulations
model, identifying both distributions of the repeatedly, generating
the dependent variable to independent variables. random values of the
be predicted and the independent variables.
independent variables
Monte Carlo PAGE 09
You can run as many Monte Carlo Simulations as
you wish by modifying the underlying parameters
you use to simulate the data. However, you’ll also
want to compute the range of variation within a
sample by calculating the variance and standard
deviation, which are commonly used measures of
spread.
Monte Carlo PAGE 05
We must have a model that A mechanism to simulate
represents an image of the the model to capture the
reality of the situation. random nature of the
Here the model refers to given system.
the probability distribution
of the variable in the given
question.
PAGE 01
Sensitivity Analysis
START
Sensitivity Analysis
PAGE 03
A sensitivity analysis, also referred to as a what-if
analysis, is a mathematical tool used in scientific
and financial modeling to study how uncertainties
in a model affect that model's overall uncertainty.
Sensitivity Analysis
PAGE 03
It's a way to determine what different values for an
independent variable can do to affect a specific
dependent variable, given a particular set of
assumptions.
PAGE 01
How does it work?
Sensitivity Analysis
PAGE 03
Example:
You want to know if a change in interest rates would
affect bond prices if the interest rate increased by 2%.
You can turn this into a "what if" statement, such as
the following:
"What if the interest rate of the cost of a bond goes up
by 2%?"
Benefits of Using
Sensitivity Analysis PAGE 02
Better decision-making
More reliable predictions
Highlights areas for improvement
Provides a higher level of credibility
Usefulness of
Sensitivity Analysis PAGE 04
Financial models that incorporate sensitivity
analysis can provide management a range of
feedback that is useful in many different scenarios.
The breadth of the usefulness of sensitivity analysis
includes but is not limited to the following:
Benefits of Using
Sensitivity Analysis PAGE 02
Understanding influencing factors.
Reducing uncertainty.
Catching errors.
Simplifying the model.
Benefits of Using
Sensitivity Analysis PAGE 02
Communicating results.
Achieving goals.
Advantages PAGE 03
Provides management different output situations
based on risk or changing variables.
May help management target specific inputs to
achieve more specific results
May easily communicate areas to focus on or greatest
risks to control
Advantages PAGE 03
Provides management different output situations
based on risk or changing variables.
May help management target specific inputs to
achieve more specific results
May easily communicate areas to focus on or greatest
risks to control
Advantages PAGE 03
May identify mistakes in the original benchmark
Generally reduces the uncertainty and unpredictability
of a given undertaking
Disadvantages PAGE 03
Heavily relies on assumptions that may not become
true in the future
May burden computer systems with complex,
intensive models
May become overly complicated which distorts an
analysts ability to decide
Disadvantages PAGE 03
May not accurately integrate independent variables (as
one variable may not accurately the impact of another
variable)
THANK YOU
SO MUCH