Monte Carlo Methods

• A Monte Carlo simulation creates samples from a

known distribution

• For example, if you know that a coin is weighted so

that heads will occur 90% of the time, then you
might assign the following values:

X 0 1
fX(x) 0.10 0.90
 Monte Carlo Methods
• If you tossed the coin, the expected value would be
0.9

• However, a sample simulation might yield the

results 1, 1, 1, 0, 1, 1, 0, 1, 0, 1

• The average of the sample is 0.7 (close, but not the

same as the expected average)
 Monte Carlo Methods
• Another type of simulation can be run using the
RAND function

• RAND chooses a random number between 0 and 1

• Entered as RAND( )

• Used for continuous random variable simulations

 Monte Carlo Methods
• The outputs will include as many decimal places as
Excel can keep

• This is used to model situations where you have a

continuous random variable

• There would be an infinite number of possible

outcomes
 Monte Carlo Methods
• The IF function in Excel determines a value based
upon a logical TRUE/FALSE scenario

• If math formula is true, then one outcome happens

If math formula is false, then another outcome
happens
 Monte Carlo Methods
• Ex. The situation where heads occurs 90% of the
time can be simulated by using RAND and IF
functions.

=IF(RAND()<=0.90,1,0)

• We can use COUNTIF to count the number of times

an outcome occurs
 Monte Carlo Methods
• If we have a variable with a known distribution, we
may construct the c.d.f. function

• Once we have this, a simulation can be run from the

inverse of the c.d.f.
 Monte Carlo Methods
• For example, if we have an exponential function with
a known  value
y  1  e x /
e x /  1  y
 x /   ln(1  y )
x    ln(1  y )
• The inverse function is F 1 x     ln(1  x)
• Here x would be replaced by RAND( )
 Monte Carlo Methods
• Focus on the Project:

• Enter mean time between arrivals for variable A in

cell B31 of the sheet 1 ATM for the Excel file Queue
Focus.xls.
 Monte Carlo Methods
• Focus on the Project:

• The formula in cell G35 of the sheet 1 ATM for the

Excel file Queue Focus.xls needs to be changed

• Original:
=IF(ISNUMBER(F35),VLOOKUP(RANDBETWEEN(1,7634),
Data!$G$45:Data!$H$7678,2),"")
 Monte Carlo Methods
• Focus on the Project:

• Change the numbers indicated to match your data

• Copy your new formula into cells G36:G194

 Monte Carlo Methods
• Focus on the Project:

• Note that my simulation (from my posted

SampleData.xls) must accommodate 170 customers

• Drag the information in cells B195:C195 down until

the last value in column B is one more than the
number of customers (for me, 171)
 Monte Carlo Methods
• Focus on the Project:

• Drag the information in cells E195:F195 down until

the last values are at the same row as the values in
columns B and C.

• Drag the information in cells G194:L195 down until

the last values are one row above the values in
columns E and F.
 Monte Carlo Methods
• Focus on the Project:
• The finished columns E through L should look like:

• Note: columns
E and F have one
extra cell
 Monte Carlo Methods
• Focus on the Project:
• The formula in column L should be written in the
following way:
• In cell L36 write:

=IF(ISNUMBER(F36),COUNTIF($I$35:I35,">"&F36
),"")
• This formula can then be filled down column L
without any additional editing.
 Monte Carlo Methods
• Focus on the Project:

• Finally, we need to modify the formulas in cells

N35:S35

• N35 contains (# of customers plus 1)

=IF(MAX(E35:E195)=161,"Overflow",MAX(E35:E195))

(new ending cell in column E)

 Monte Carlo Methods
• Focus on the Project:

• O35 contains
=SUM(J35:J194)
(new ending cell in column J)

• P35 contains
=MAX(J35:J194)
(new ending cell in column J)
 Monte Carlo Methods
• Focus on the Project:

• Q35 contains
=COUNTIF(K35:K194,”yes”)
(new ending cell in column K)

• R35 contains
=SUM(L35:L194)
(new ending cell in column L)
 Monte Carlo Methods
• Focus on the Project:

• S35 contains
=SUM(L35:L194)
(new ending cell in column L)
• Finally, run the Macro One_ATM

• Save the results in a folder (do not change the name

of the Excel file Queue Focus.xls)
 Monte Carlo Methods
• Focus on the Project:

• A summary of possible answers to five of the six

claims appears in cells:
• P39 (Max waiting time)
• S39 (Max number in queue)
• U39 (Mean waiting time)
• V39 (Percent delayed)
• W39 (Mean number in queue)
 Monte Carlo Methods
• Focus on the Project:

• The final claim (percent irritated) must be answered

and will be addressed later.

• Save this document in one folder (do not change the

name from Queue Focus.xls)
 Monte Carlo Methods
• Focus on the Project:
• Summary (9 am)
Mean Max Wait Percent Mean # in Max # in Percent
Wait Time Time Delayed Queue Queue Irritated

1 ATM 43.73 135.60 93.4% 37.6 112 TBD

2 ATMs 7.95 47.94 60.7% 7.1 67 TBD

3 ATMs 0.91 15.05 1.6% 1.0 29 TBD

3 ATMs
0.80 12.15 1.0% 2.3 31 TBD
Serp

Claims 1.2 9.5 3.9% 8.5 30 3.0%

 Monte Carlo Methods
• Focus on the Project:

• Once you have saved the file in a folder, create a new

folder for your 9 pm data

• Save the Queue Focus.xls file in your new folder

 Monte Carlo Methods
• Focus on the Project:

• Modify the Queue Focus.xls file for your 9 pm data

• This only requires a change of the cell B31 (mean

arrival) in the worksheet 1 ATM.
 Monte Carlo Methods
• Focus on the Project:
• Summary (9 pm)
Mean Max Wait Percent Mean # in Max # in Percent
Wait Time Time Delayed Queue Queue Irritated

1 ATM 0.79 12.03 1.5% 0.9 10 TBD

2 ATMs 0.08 5.98 0.0% 0.5 6 TBD

3 ATMs 0.01 7.60 0.0% 0.0 6 TBD

3 ATMs
0.01 1.91 0.0% 0.0 6 TBD
Serp

Claims 1.2 9.5 3.9% 8.5 30 3.0%

 Monte Carlo Methods
• Focus on the Project:

• Now that there are two folders (9am and 9pm) that
contain a Queue Focus.xls file, we will create two
more folders

• One folder should contain the Queue Focus.xls file

using 9am data and one should have the Queue
Focus.xls file using the 9pm data (we can call these
folders “9am irritated” and “9pm irritated”
 Monte Carlo Methods
• Focus on the Project:

• For the 9am irritated claim, we will open the third

copy of Queue Focus.xls (in 9am irritated folder)

• We will find the percent irritated value for each of

the four ATM models
 Monte Carlo Methods
• Focus on the Project:

• In the sheet 1 ATM, column K contains Delayed

information

• This will be changed to find Irritated information

 Monte Carlo Methods
• Focus on the Project:

• Cell K35 contains the following formula:

=IF(ISNUMBER(F35),IF(J35>$D$31,"yes","no"),"")

• Change J35 to L35 and copy the formula to the end

of the table
 Monte Carlo Methods
• Focus on the Project:

• In addition, the value in cell D31 must be changed

from 5 to 3

• Recall, a customer is irritated if there are more than 3

customers waiting to use an ATM
 Monte Carlo Methods
• Focus on the Project:

• Run the macro One_ATM

• The solution will appear in cell V39 (Percent

Delayed label)
 Monte Carlo Methods
• Focus on the Project:

• A summary of the findings appears below:

Percent Irritated

1 ATM 95.1%
2 ATMs 75.4%
3 ATMs 2.7%
3 ATMs Serp 2.5%

Claim is that at most 3.0% will be irritated (3 ATMs)

 Monte Carlo Methods
• Focus on the Project:
• Summary (9 am)
Mean Max Wait Percent Mean # in Max # in Percent
Wait Time Time Delayed Queue Queue Irritated

1 ATM 43.73 135.60 93.4% 37.6 112 95.1%

2 ATMs 7.95 47.94 60.7% 7.1 67 75.4%

3 ATMs 0.91 15.05 1.6% 1.0 29 2.7%

3 ATMs
0.80 12.15 1.0% 2.3 31 2.5%
Serp

Claims 1.2 9.5 3.9% 8.5 30 3.0%

 Monte Carlo Methods
• Focus on the Project:

• Save the new Queue Focus.xls file in your 9am

irritated folder

• Do all of the same calculations for 9pm irritated

 Monte Carlo Methods
• Focus on the Project:
• Summary (9 pm)
Mean Max Wait Percent Mean # in Max # in Percent
Wait Time Time Delayed Queue Queue Irritated

1 ATM 0.79 12.03 1.5% 0.9 10 3.2%

2 ATMs 0.08 5.98 0.0% 0.5 6 0.0%

3 ATMs 0.01 7.60 0.0% 0.0 6 0.0%

3 ATMs
0.01 1.91 0.0% 0.0 6 0.0%
Serp

Claims 1.2 9.5 3.9% 8.5 30 3.0%

 Monte Carlo Methods
• Focus on the Project:

• Final steps are to determine the cost of the gift

certificate program as is and to determine the cost if
70% of customers who are eligible use the gift
certificates
 Monte Carlo Methods
• Focus on the Project:

• During the 9 am hour, the mean time between arrivals

was 0.48 (for my data)

• This gives 60
0.48  125
customers per hour
 Monte Carlo Methods
• Focus on the Project:

• It is estimated (from simulation) that 1.0% of

customers will be delayed using 3 ATMs Serpentine

• This gives us 125  0.01  1.25 delayed customers

per hour
 Monte Carlo Methods
• Focus on the Project:

• According to my sample data, the gift certificates are

worth $35

• Each hour would cost $35 1.25  $43.75 in gift

certificates

• The maintenance cost is $21 per hour

 Monte Carlo Methods
• Focus on the Project:

• The total cost would be $43.75 + $21 = $64.75

• This is the cost if all customers who are eligible for

gift certificates actually use them
 Monte Carlo Methods
• Focus on the Project:

• However, some customers will not use the gift

certificate program

• If 70% of those eligible to use the gift certificates

actually use them, then the hourly cost of gift
certificates changes from $43.75 to $43.75(0.70) =
$30.63
 Monte Carlo Methods
• Focus on the Project:

• The overall cost would be $30.63 + $21 = $51.63

• This is the cost if 70% of eligible customers used

their gift certificate