Using Simulation to Analyze and Solve Business Problems

Instructor: Jagina McIntyre

Jagina has conducted professional training in communications and analytics for 12 plus years, with a a degree from Kent State University in Journalism and Communications.

This lesson covers using simulation to analyze and solve business problems. We'll learn about how simulation tools can help you to understand how a decision today can impact your company's success tomorrow.

Using Simulation to Analyze & Solve Business Problems

Have you ever wondered what would happen if a great idea does not pan out? Is it better to just keep doing business the way you do today? Perhaps you've thought that the expense of implementing a new idea might have consequences that could damage your existing business? Then the use of a simulation tool to analyze and solve your business problems may be right for you.

A simulation tool is designed to help people make business decisions that may not have an immediate impact. The results of the decisions being made today have a large rippling effect into the future. Simulation tools often help manage the overall direction of a project, allowing the company to focus on the long term objective.

A simulation tool should be used when:

  • There is a large time delay from implementation to final results
  • Strategic plans have multiple factors
  • A project is quite complex
  • A simple mathematical calculation is not enough

Simulations are used in nearly all industries and are often best used when they are answering a 'What If…' question.

The simulation tool should include the following four phases:

  1. Design - the work conditions being simulated
  2. Evaluation - the steps that will take the company from current to future state
  3. Comparison - current process and alternative versions of future state
  4. Optimization- changes and tweaks that could make the future state better

Types of Tools

There are two major categories of simulation tools: special and general. Special purpose simulators typically require strong subject matter experts and are built for a specific industry. They are very detailed and complex. General purpose simulators can be very simple, like a spreadsheet, or very complex with graphical representations, such as in a flowchart.

General purpose simulators are then categorized further into four subtypes:

  1. Discrete event simulators - rely on a transaction flows and repetitive activities that can be broken down into parts, such as factories and call centers
  2. Agent based simulators - include discrete events but have a decision making component, such as analyzing how two groups of employees interact with each other
  3. Continuous simulators - require a flow that cannot be broken down into individual parts, such as a sewer system that occurs as one connected process
  4. Hybrid simulators - a combination of the discrete and continuous simulators

To get an idea of how simulation is used, let's look at an example. Your company produces house paint and has come up with a new formula that is suppose to be less toxic than anything on the market. However, the way this new formula is produced will not work with your current system due to the way the chemicals need to be mixed. This project has a number of moving parts and the current process could possibly get derailed if employees do not remained focused.

Your company determines that the new paint process should start with building a flowchart diagram that illustrates how the paint will be prepared. Instead of replacing all the old equipment, the simulation provides a visual of how the company can save money by retooling how some of the current equipment functions. This is a general purpose discrete simulator because it is based on transaction flows and repetitive activities.

Simulation Advantages Versus Disadvantages

The simulation process can define a path to walk through a real world situation without paying the consequences of making a bad decision. A simulation allows you to understand upfront how the choices being made will effect the bottom line.

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