17

Simulation
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Simulation is a process involved with developing a model of some real phenomenon and
then performing experiments on the model evolved with a view to predict the behaviour
of the system over time. Thus, in simulation, a given system is copied and the variables
and constants associated with it are manipulated in that artificial environment to examine
how it behaves. An example is provided by building of scaled down models of aeroplanes
and placing them in wind tunnels with a view to study their aerodynamic properties.
Alterations and improvements are then made in them on the basis of experimentation
done.
Mathematical models like linear programming, queuing etc. are also used to describe
and analyse the characteristics of a given system. Such models can be solved analytically
to determine optimal solutions or to describe the system. Despite the wide application
range and standardised techniques to obtain optimal solutions/system characteristics, they
are characterised by a serious limitation that they are based on certain assumptions that
may not be satisfied. To illustrate, in a given queuing situation, if the assumptions
underlying the model are not satisfied, then the system characteristics cannot be found
using the queuing formulae. Similarly, if the conditions required for application of EOQ
are not met with, then the system cannot be modelled as such for reaching optimal
inventory decisions. Simulations provide a very useful tool in analysing such situations.
Of course, simulation can be used in those cases as well where the assumptions of
mathematical models are met with. However, it may be understood clearly that
simulation is only descriptive in nature so that it describes the expected output for a given
set of inputs. By itself, it does not provide optimal solutions.

Process of Simulation
There are four phases of simulation process. They are:
(a) Definition of the problem and statement of objectives The first step calls for
identification and clear statement of the problem and the objectives that solution is
intended to achieve. More clear the analyst about what he is looking for, greater the
chances that the simulation model will be designed to accomplish that.
(b) Development of an appropriate model
In the course of simulation, the model
mimics the important elements of what is being simulated. A simulation model may
be a physical or mathematical model, a mental conception or a combination.
Mathematical models use symbols and equations etc. to represent system
relationships.

An important aspect of model development is the quantum and type of data needed.
The data are needed both for model development and evaluation. Obviously, the
model needs to be designed that it would enable evaluation of key decision
alternatives.
(c) Experimentation with model Once the model is developed, the next step is to run
it. For a deterministic model with known parameters, only one run may suffice. If,
however, the simulation model is stochastic in nature with the parameters subject to
random variation, then multiple runs would be needed to get a clear picture of the
model performance. The probabilistic simulation is akin to random sampling where
each run represents one observation.
(d) Evaluation of results of Simulation The last step is the process of simulation is the
analysis and interpretation of the results of the simulation runs. The interpretation of
results, in a large measure, is dependent on the extent to which simulation model
portrays the reality. Closer the approximation of the real system by simulation, lesser
the need for adjusting the results and lesser the risk in applying the simulation results.
Monte Carlo Simulation
Also known as computer simulation, Monte Carlo simulation may be described as a
numerical technique that involves modelling a stochastic system with the objective of
predicting its behaviour. The chance element is a prominent feature of this type of
simulation and this approach is used when the given process has a random or chance
component.
In using Monte Carlo simulation, a given problem is solved by simulating the original
data with random number generators. Thus, it uses random numbers to solve the
problems. The method requires two things: a model and a mechanism to simulate the
model.
A model, which represents an image of reality, is the first requirement. Here, the model
refers to the probability distribution of the variable involved. The distribution may be one
of the standard distributions like normal, Poisson etc. or the one obtained from the past
records.
To illustrate, a vendor observes the demand for a weekly magazine, India This Week,
during the past 50 weeks to be as follows:
Demand (No. of copies): 12
No. of weeks
: 3

13
7

14
15

15
11

16
9

17
3

18
2

On the basis of this, the demand distribution can be obtained as follows:

Demand (No. of copies) :
Probability
:

12
13
14
15
16
17
18
0.06 0.14 0.30 0.22 0.18 0.06 0.04

This distribution would serve as the model for the problem where demand is to be
simulated.
A second requirement for simulation is a mechanism to simulate. This is in the form of
a procedure that would help us to select at random, values for the variable(s) which can

be used to approximate the system. For this, a random number generator is needed.
Random numbers are obtained with this mechanism and they are in turn used for
generating data.
The random number may be generated by mid-square method, where any four-digit
number is fed in a program, its square is obtained, the middle four digits are retained and
again square is taken and the process is continued. This gives a set of four digit numbers.
Another common source of random numbers is statistical tables. By whatever mechanism
the random numbers are generated, they are then used to generate data. To illustrate, the
various categories of demand, in the demand distribution given earlier, may be assigned
100 two-digit random numbers from 00-99 in the ratio of their respective probabilities.
These work out to be 00-05, 06-19, 20-49, 50-71, 72-89, 90-95, and 96-99 respectively.
Now two-digit random numbers are selected and demand data obtained. For example, if
the random number selected is 82, it would fall in the category 72-89 and demand will be
deemed to be 16 units. Once the demand data are obtained, further analysis may be done
as required.
To sum up, Monte Carlo Simulation requires the following steps:
(a) Obtain a probability distribution for each variable involved and find random
number intervals.
(b) Using random number generator, select the random numbers for each of the
variables, and
(c) Taking these as the basis of calculation, obtain the required data and proceed with
desired analysis to get the results.