*Simulation:

A simulation is an approximate imitation of the operation of a process or system

that represents its operation over time. It is a way to model random events, such
that simulated outcomes closely match real world outcomes, researchers gain
insight on the real world. It is a powerful tool if understood and used properly.

Definition of Simulation:

Simulation, according to Shannon (1975), is “the process of designing a model of

real system and conducting experiments with this model for the purpose either of
understanding the behavior of the system or of evaluating various strategies (within
the limits imposed by a criterion or set of criteria) for the operation of the system.”

Sample size is super important in statistics. It is hard to make a generalization

about behavior from one person. For example, I like Martial Art, but that doesn’t
mean everyone does. And sometimes it is just too impractical to run experiments to
collect data, like rolling a die 500 times. To get around this problem, Statisticians
and students created Simulation Statistics.

Simulation is experimentation with a model. The behavior of the model imitates

some salient aspect of the behavior of the system under study and the user
experiments with the model to infer this behavior. This general framework has
proven a powerful adjunct to learning, problem solving and design.

The simulation model is usually composed of equations that duplicate the

functional relationships within the real system. When the computer program run,
the resulting mathematical dynamics form an analog of the behavior of the real
system, with the results presented in the form of data lists or images representing
predicted outcomes

Simulation methods are ways to imitate of the operation of real-world systems.

It first requires that a model be developed representing characteristics, behaviors
and functions of the selected system or process. The model represents the system
itself, whereas the simulation represents the operation of the system over time.

The methods are widely used in Economy, Engineering and almost all sciences. It
is usually done using computers making changes to variables and performing
predictions about the behaviors of the system. A good example of the usefulness of
computer simulation can be found in automobile traffic simulation, grocery stores
check-out lines, inventory management, and stock pricing predictions
environmental consequences of policies and so on.

Application of Simulation in Business:

There can be various applications of simulation in business. Simulation can be

used in business to train employees, try out different scenarios and predict what
effects particular actions will have. Simulated environments allow you to test out
new ideas before you make a complex business decision. This analysis technique
lets to manipulate different parameters, such as revenue and costs so as to discover
opportunities for improvement in your current operations. Simulation models can
give you a graphical display of information that can be edited and animated,
showing you what might happen if you take certain actions. Applying these results
to business helps you manage risk and make better choices.

Some of the areas where simulation can be used in business are:

1. Training: Training is one of the areas where simulation can be used. An
effective training simulation presents a realistic environment for users to
experience complex situations and try out new techniques. To teach users to
complete tasks using software used at business, one can use free tools to capture
screens, provide instruction and allow employees to practice taking the right steps
to take to get work done. Other types of simulations present participants with a
case study and require them to answer questions and make decisions. One can use
simulations to teach corporate responsibility and ethics, competitive, multi-player
environment.

2. Improving Forecasting: Simulation can help you refine your predictions. By

entering historical data into computer simulation program, and ask it to project
future values based on past values. You can explore what the forecast are if the
variables remain same and then change specific parameters to see what happens in
particular cases. Using spreadsheets, one can simulate what might happen if certain
conditions exist. It helps one to generate more accurate forecast. For example, use
prior sales data to predict future sales and then use Google Docs to create a scatter
plot with a trend line that shows the overall direction of the data.

3. Exploring Possible Scenarios: In addition to helping with forecasting and

decisions, simulations can evaluate scenarios to give managers information about
likely events. When contemplating competitors or marketplace dynamics,
managers are often faced with questions about what would happen if certain events
took place. For example, a new competitor might cut prices or introduce products
with new features. Newly elected governments might implement new regulations.
Managers can decide on strategies to counteract undesirable effects and reduce the
exposure and risk for their companies.
4. Process Improvement: Simulation models of business processes help analyst
examine better practices in order to improve them. A typical simulation model
focuses on a specific aspect of your business, such as manufacturing or finance.
For example, you can use free online tools to diagram processes. By laying out the
interdependencies of resources and animating their interaction, one often can see
problems that go unnoticed when experienced in real time.

5. Managing Risk: Another application of simulation in business in in the field of

managing risks. Manipulating data enables one to examine how much one can
invest or afford to lose under certain simulated circumstances. For example, use a
technique known as Monte Carlo simulation. The name refers chance events that
occur in casinos. Using spreadsheet tools, for example, one can use cash flow,
estimate return rates and risk of new product introduction, determine the risk of
exchange rate fluctuations or determine investment strategies.