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.
Simulation to Solve 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 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:
- Design: This is where we determine the work conditions being simulated.
- Evaluation. These are the steps that will take the company from the current to the future state.
- Comparison: Here we compare the current process and alternative versions of future state.
- Optimization: This is where we evaluate the changes and tweaks that could make the future state better.
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:
- Discrete event simulators: These types of simulators rely on a transaction flows and repetitive activities that can be broken down into parts, such as factories and call centers.
- Agent-based simulators: These simulators include discrete events but have a decision making component, such as analyzing how two groups of employees interact with each other.
- Continuous simulators: This kind of simulator requires a flow that cannot be broken down into individual parts, such as a sewer system that occurs as one connected process.
- Hybrid simulators: These are 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 supposed 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.
Advantages Versus Disadvantages
The simulation process can define a method to walk through a real-world situation without the negative consequences of making a bad decision. A simulation allows you to understand upfront how the choices being made will affect the bottom line.
There are some disadvantages or issues with simulation tools that should be taken into consideration. It's important to have historical data that you can compare the simulated data to. A simulation should also avoid modeled data, which is when data being collected is behaving based on prepared programming.
In addition, you need to consider the cost and time involved in the simulation. Solving a complex problem can require a great deal of time to build a simulation model. Finally, while using a simulation can give you a lot of information, interpreting results based on something that has not happened yet can be challenging.
A simulation tool can range from being simple to more complex and is used to determine the impact of a business decision in the distant future. A good use of a simulation occurs when there is a significant time delay in actual results, multiple factors contributing to the overall plan, numerous moving parts, or a simple mathematical calculation is not enough.
A simulation should include design, evaluation, comparison, and optimization phases to be useful. There are two major categories of simulation: special purpose, which is designed for very specific industries, and general purpose, which can range from basic spreadsheets to more complex graphs and flowcharts. General purpose simulators contain four subcategories: discrete event, agent-based, continuous, and hybrid. These simulators vary in use by situation. The overall goal of a simulator is to understand the impact of a potential decision on your company's future bottom line.