QUANTITATIVE ANALYSIS IN MANAGEMENT

DECISIONS

Lecture 13
SIMULATION MONTE - CARLO METHOD
Course leader : Dr. B Dayal
Mobile No.: 00251941962113
Email ID: i_dayal77@yahoo.com
 INTRODUCTION
 THE TECHNIQUE OF MONTE – CARLO INVOLVES THE
SELECTION OF RANDOM OBSERVATIONS WITHIN THE
SIMULATION MODEL.
 THE TECHNIQUE IS RESTRICTED FOR APPLICATION
INVOLVING RANDOM NUMBERS TO SOLVE DETERMINISTIC
AND STOCHASTIC PROBLEMS.
THE PRINCIPLE
REPLACEMENT OF ACTUAL STATISTICAL UNIVERSE
DESCRIBED BY SOME ASSUMED PROBABILITY
DISTRIBUTION AND THEN SAMPLING FROM THIS
THEORETICAL POPULATION BY MEANS OF RANDOM
NUMBERS.
 THE APPROACH HAS THE ABILITY TO DEVELOP MANY
MONTHS OR YEARS OF DATA IN A MATTER OF FEW
MINUTES ON A COMPUTER.
 THE METHOD IS GENERALLY USED TO SOLVE THE
PROBLEMS WHICH CANNOT BE ADEQUATELY
REPRESENTED BY MATHEMATICAL MODEL, OR WHERE
SOLUTION OF THE MODEL IS NOT POSSIBLE BY
ANALYTICAL METHOD.
 SIMULATION PROCEDURE
STEP 1. DEFINE THE PROBLEM
STEP 2. CONSTRUCT AN APPROPRIATE MODEL.
STEP 3. PREPARE THE MODEL FOR
EXPERIMENTATION.
STEP 4. USING STEP 1 AND 3, EXPERIMENT WITH
THE MODEL
STEP 5. SUMMERISE AND EXAMINE THE
RESULTS OBTAINED IN STEP 4.
STEP 6. EVALUATE THE RESULTS OF THE
SIMULATION
STEP 7. FORMULATE PROPOSALS FOR ADVICE
TO MANAGEMENT.
 SIMULATION PROCEDURE
 STEP 1. DEFINE THE PROBLEM
 IDENTIFY THE OBJECTIVES OF THE PROBLEM.
 IDENTIFY THE MAIN FACTORS WHICH HAVE THE GREATEST
EFFECT ON THE OBJECTIVES OF THE PROBLEM.
 STEP 2. CONSTRUCT AN APPROPRIATE MODEL.
 SPECIFY THE VARIABLES AND PARAMETERS OF THE MODEL.
 FORMULATE THE APPROPRIATE DECISION RULES, i.e., STATE
THE CONDITIONS UNDER WHICH THE EXPERIMENT IS TO BE
PERFORMED.
 IDENTIFY THE TYPE OF DISTRIBUTION THAT WILL BE USED –
MODELS USE EITHER THEORETICAL DISTRIBUTIONS OR
IMPIRICAL DISTRIBUTIONS TO STATE THE PATTERNS THE
OCCURRENCE ASSOCIATED WITH THE VARIABLES.
 SPECIFY THE MANNER IN WHICH THE TIME WILL CHANGE.
 DEFINE THE RELATIONSHIP BETWEEN THE VARIABLES AND
PARAMETERS.
 STEP 3. PREPARE THE MODEL FOR EXPERIMENTATION.
 DEFINE THE STARTING CONDITIONS FOR THE SIMULATION.
 SIMULATION PROCEDURE
 STEP 4. USING STEP 1 AND 3, EXPERIMENT WITH THE
MODEL
 DEFINE A CODING SYSTEM THAT WILL CORRELATE THE
FACTORS DEFINED IN STEP 1 WITH THE RANDOM NUMBERS TO
BE GENERATED FOR THE SIMULATION.
 SELECT A RANDOM NUMBER GENERATOR AND CREATE THE
RANDOM NUMBERS TO BE USED IN THE SIMULATION.
 ASSOCIATE THE GENERATED RANDOM NUMBERS WITH THE
FACTORS IDENTIFIED IN STEP 1 AND CODED IN EARLIER (FIRST
STEP OF STEP 4)
 STEP 5. SUMMERISE AND EXAMINE THE RESULTS
OBTAINED IN STEP 4.
 STEP 6. EVALUATE THE RESULTS OF THE SIMULATION
 STEP 7. FORMULATE PROPOSALS FOR ADVICE TO
MANAGEMENT ON THE COURSE OF ACTION TO BE
ADOPTED AND MODIFY THE MODEL IF NECESSARY.
 SOLVED PROBLEM 1
THE OCCURRENCE OF RAIN IN A CITY ON A
DAY IS DEPENDENT UPON WHETHER OR
NOT IT RAINED ON PREVIOUS DAY. IF IT
RAINED ON PREVIOUS DAY, THE RAIN
DISTRIBUTION IS:
EVENT NO 1 CM 2 CM 3 CM 4 CM 5 CM
RAIN RAIN RAIN RAIN RAIN RAIN
PROBABILITY 0.50 0.25 0.15 0.05 0.03 0.02

IF IT DID NOT RAIN THE PREVIOUS DAY, THE RAIN

DISTRIBUTION IS:
0.75 0.15 0.06 0.04 - -
 SOLVED PROBLEM 1 (CONTD)
SIMULATE THE CITY’S WEATHER FOR 10
DAYS AND DETERMINE BY SIMULATION
THE TOTAL DAYS WITHOUT RAIN AS WELL
AS THE TOTAL RAIN FALL DURING THE
PERIOD. USE THE FOLLOWING RANDOM
NUMBERS.
67, 63, 39, 55, 29, 78, 70, 06, 78, 76.
FOR SIMULATION, ASSUME THAT FOR THE
FIRST DAY OF THE SIMULATION IT HAD
NOT RAINED THE DAY BEFORE.
 SOLVED PROBLEM 2
THE NUMBER OF CUSTOMERS AT A RESTAURENT EACH
EVENING IS DISTRIBUTED AS SHOWN BELOW:
NUMBER OF LOTS AVERAGE VERY FEW
CUSTOMERS
PROBABILITY 0.2 0.4 0.4

THE CHEF REFUSES TO WORK ON AN EVENING WHEN

THERE ARE VERY FEW CUSTOMERS AND WALKS OUT. HE
WILL NOT RETURN TO WORK UNTIL AN EVENING WHEN
THERE ARE LOTS OF CUSTOMERS ALTHOUGH HE ALWAYS
COMES IN ON FRI DAY BECAUSE HE GETS PAID THEN. WE
ARE INTERESTED IN FRACTION OF EVENINGS THAT THE
CHEF IS AT THE RESTAURENT.
 APPLICATION OF SIMULATION
 SIMULATION CAN BE EASILY UNDERSTOOD BY THE
USERS AND THEREBY FACILITATES THEIR ACTIVE
INVOLVEMENT.
 MAKES THE RESULTS MORE RELIABLE AND ALSO
ENSURES EASY ACCEPTANCE FOR IMPLEMENTATION.
 CAN BE EMPLOYED FOR WIDE VARIETY OF PEOBLEMS,
VIZ:
 THE POLICY FOR OPTIMAL MAINTENANCE
 NUMBER OF MAINTENANCE CREWS
 NUMBER OF EQUIPMENTS FOR HANDLING
MATERIALS
 JOB SHOP SCHEDULING
 ROUTING PROBLEM
 STOCK CONTROL
OTHER AREAS OF APPLICATION INCLUDE:
 DOCK FACILITIES
 FACILITIES AT AIRPORT TO MINIMISE CONGESTION.
APPLICATION OF SIMULATION
(CONTD)
HOSPITAL APPOINTMENT SYSTEM.
MANAGEMENT GAMES
WITH THE HELP OF SIMULATION, THE
MANAGER TRIES TO STRIKE A
BALANCE BETWEEN OPPOSING
COSTS OF PROVIDING FACILITIES
AND THE OPPORTUNITY AND OTHER
COSTS OF NOT PROVIDING THEM.
 SIMULATION OF NETWORK
A NUMBER OF NETWORK SIMULATION
MOELS HAVE ALSO BEEN DEVELOPED,
e.g., SIMULATION OF PROBABLISTIC
ACTIVITY TIMES IN PERT NET WORK. THE
CRITICAL PATH AND THE PROJECT
DURATION CAN BE FOUND OUT WITH A
RANDOMLY SELECTED ACTIVITY TIMES
FOR EACH ACTIVITY. THE PROBABILITY
DISTRIBUTION OF PROJECT COMPLETION
TIME AND THE PROBABILITY THAT EACH
OF GIVEN ACTIVITY IS ON THE CRITICAL
PATH CAN BE OBTAINED BY REPEATING
THE PROCESS A NUMBER OF TIMES.
 SOLVED PROBLEM 3
A PROJECT SCHEDULE CONSISTS OF FIVE ACTIVITIES AND
THE DURATION OF THESE ACTIVITIES IS NON –
DETERMINISTIC WITH THE FOLLOWING PROBABILITY
DISTRIBUTION: ACTIVITY DAYS PROBABILITY
SIMULATE THE
1–2
1 0.2
DURATION OF 4 0.5
8 0.3
THE PROJECT 10
TIMES AND 1–3 2
4
0.3
0.5
ESTIMATE THE 7 0.2
CHANCES OF
2–4
2 0.3
VARIOUS PATHS 4 0.3
6 0.4
TO BE CRITICAL.
WHAT IS THE 3–4 3 0.3
6 0.4
AVERAGE 8 0.3
DURATION OF
THE PROJECT? 4-5 2
3
0.2
0.2
4 0.6
 SOLVED PROBLEM 4
A PROJECT CONSISTS OF 7 ACTIVITIES. THE TIME FOR
PERFORMANCE OF EACH OF THE ACTIVITIES IS A
RANDOM VARIABLE WITH THE RESPECTIVE
PROBABILITY DISTRIBUTION AS GIVEN BELOW:
ACTIVITY IMMEDIATE TIME IN DAYS AND ITS PROBABILITY
PREDECESSOR
A - 3 4 5 - -
0.20 0.60 0.20

B - 4 5 6 7 8
0.10 0.30 0.30 0.20 0.10

C A 1 3 5 - -
0.15 0.75 0.10

D B, C 4 5 - - -
0.80 0.20

E D 3 4 5 6 -
0.10 0.30 0.30 0.30

F D 5 7 - - -
0.20 0.80

G E, F 2 3 - - -
 SOLVED PROBLEM 4 (CONTD)
DRAW THE NETWORK DIAGRAM AND
IDENTIFY THE CRITICAL PATH USING THE
EXPECTED ACTIVITY TIMES.
SIMULATE THE PROJECT USING THE
RANDOM NUMBERS TO DETERMINE THE
ACTIVITY TIMES. FIND THE CRITICAL PATH
AND THE PROJECT DURATION.
REPEAT THE SIMULATION FOUR MORE
TIMES. IS THE SAME PATH CRITICAL IN
ALL THE SIMULATIONS.
 SIMULATION OF JOB SEQUENCING
EXAMPLE:
 A JOB HAS TO BE PROCESSED OVER TWO MACHINES, M1 AND
M2 IN THAT ORDER. THE DISTRIBUTION OF INTER – ARRIVAL
TIME OF THE JOBS AT THE FIRST MACHINE IS AS FOLLOWS:

TIME 1 2 3 4
(MINUTES)
PROBABILITY 0.2 0.2 0.2 0.4

THE PROCESSING TIME AT THE TWO MACHINS ARE AS

FOLLOWS:
 SIMULATION OF JOB SEQUENCING
MACHINE M1 MACHINE M2
TIME PROBABILITY TIME PROBABILITY
(MINUTES) (MINUTES)
1 0.1 4 0.2
2 0.2 5 0.3
3 0.3 6 0.4
4 0.3 7 0.1
5 0.1 - -

ON THE BASIS OF 10 SIMULATION RUNS, FIND OUT THE

AVERAGE QUEUE LENGTH BEFORE MACHINE M1 AND THE
AVERAGE QUEUE LENGTH BEFORE MACHINE M2.
ADVANTAGES OF SIMULATION
 THE STUDY OF VERY COMPLICATED SYSTEM OR SUB –
SYSTEM CAN BE DONE WITH THE HELP OF SIMULATION.
SIMULATION HAS BEEN DESCRIBED AS ‘ WHAT TO DO
WHEN ALL ELSE FAILS’.
 BY USING SIMULATION, WE CAN INVESTIGATE THE
CONSEQUENCES FOR A SYSTEM OF POSSIBLE CHANGES
IN PARAMETERS IN TERMS OF THE MODEL.
 THE KNOWLEDGE OF A SYSTEM OBTAINED IN
DESIGNING AND CONDUCTING THE SIMULATION IS
VERY VALUABLE.
 IT ENABLES US TO ASSESS THE POSSIBLE RISKS
INVOLVED IN A NEW POLICY BEFORE ACTUALLY
IMPLEMENTING IT.
 THE SIMULATION OF COMPLICATED SYSTEMS HELPS US
TO LOCATE WHICH VARIABLES HAVE THE IMPORTANT
INFLUENCES ON THE SYSTEM PERFORMANCE.
 SIMULATION METHODS ARE EASIER TO APPLY THAN
PURE ANALYTICAL METHODS.
LIMITATIONS OF SIMULATION
Simulation generates a way of evaluating the solutions
but it does not generates the solution techniques.
Some times simulation models are expensive and take a
long time to develop it. For example a corporate
planning model may take a long time to develop and
prove expensive also.
The simulation model does not produce the answers by
itself. The user has to provide all the constraints for the
solution which he wants to examine.
Not all situations can be evaluated using simulation.
Only situations involving uncertainty are considered.
It is the trial and error approach that produces different
solutions in repeated runs. This means it does not
generate optimal solutions to problems.
A time consuming exercise.
 TERMINAL QUESTION
TWO COMPONENTS TO BE PRODUCED IN M/C ‘A’ M/C ‘B’ AND THEN
FINALLY ASSEMBLED. THE TIME TAKEN TO ASSEMBLE ON TWO
MACHINES VARIES WITH THE FOLLOWING PROBABILITY
DISTRIBUTION. USING SIMULATION TECHNIQUE AND THE
ORDERED PAIRS OF THE RANDOM NUMBERS, FIRST FOR M/C ‘A’
AND SECOND FOR M/C ‘B’, FIND THE AVRAGE TIME TAKEN TO
PRODUCE.
M/C ‘A’ M/C ‘B’
PRODUCTION PROBABILITY PRODUCTION PROBABILITY
TIME IN MTS TIME IN MTS
22 0.15 30 0.05
23 0.20 31 0.15
24 0.30 32 0.25
25 0.20 34 0.25
26 0.15 35 0.20
36 0.10
RANDOM NUMBER (10,92), 25,83), (36,76), (44,15), (57,25), (62,67),
(04,99), (72,53), (81,35), (94,07)