Business Analytics Principles, Concepts, and Applications: What, Why, and How

F. Simulation

F.1. Introduction

Mathematical models that are used to model probabilistic functions can become extremely difficult to solve. To avoid the complications and limiting assumptions of models like linear programming, simulation can be used to obtain a solution. Once a simulation model is developed and validated, it can be used to answer what-if questions. In the role of business analytics (BA), simulation can predict future events and payoffs. Simulations can also permit changes to systems without risk to an actual system. For example, one can assume a 5, 10, or 15 percent increase in costs in a pro forma income statement to simulate and predict the impact on profits without any risk to the organization.

F.2. Types of Simulation ...