Quantitative Analysis for Management, 13/e

13.2 Monte Carlo Simulation

When a system contains elements that exhibit chance in their behavior, the Monte Carlo method of simulation can be applied.

Variables we may want to simulate abound in business problems because very little in life is certain.

The basic idea in Monte Carlo simulation is to generate values for the variables making up the model being studied. There are a lot of variables in real-world systems that are probabilistic in nature and that we might want to simulate. A few examples of these variables follow:

1. Inventory demand on a daily or weekly basis

2. Lead time for inventory orders to arrive

3. Times between machine breakdowns

4. Times between arrivals at a service facility

5. Service times

6. Times to complete project activities

7. Number ...