Simulation Modeling

PRESENTED BY Chen X/Wang G/Zhang Q

 What is Simulation?
1
A simulation is an attempt to model a real-life or hypothetical situation
on a computer so that it can be studied to see how the system works. By
changing variables in the simulation, predictions may be made about
the behaviour of the system. It is a tool to virtually investigate the
behaviour of the system under study.
 Processes of Simulation Modeling

Problem Definition: Clearly define the problem or objective of the

simulation. Determine what aspect of the system or process you
want to study, analyze, or improve through simulation.

Conceptualize the Model: Develop a conceptual model that

represents the key components, entities, and relationships within
the system or process. Identify the variables, parameters, and
factors that affect the behavior of the system.

Formulate Assumptions: Identify and document any assumptions

that need to be made to simplify the model or fill in gaps in data
or knowledge.

Data Collection: Gather relevant data needed to populate the

model. This can involve collecting historical data, conducting
surveys or experiments, or extracting data from existing databases
or systems.
 Processes of Simulation Modeling

Model Design: Select an appropriate modeling approach and

software tool to build the simulation model. Determine the level
of detail and complexity needed in the model to achieve the
desired objectives.

Model Implementation: Develop the simulation model based on

the model design. This involves translating the conceptual model
into a computer-based representation using the chosen modeling
software.

Verification and Validation: Validate the simulation model by

comparing its outputs to real-world observations or other reliable
sources of data
Applications in Business Operations
Classification of
Similation
Modeling
Deterministic models: Applied when dealing with processes whose
behavior can be fully predicted from start to end. With a given set of
inputs, deterministic models always produce the same outputs. There
is no randomness in deterministic models since we know the precise
values of all input variables.

Stochastic models: Applied whenever we cannot accurately

estimate input variables – either because we don’t have
enough information about the variables or because they
fluctuate within a specific range.
Static models: Applied to simulate processes at a specific instant in
time. The outputs of these models only depend on the inputs and
internal model variables. Static models produce a snapshot of the
process in a specified timeframe.

Dynamic models: Take into account not only inputs at the

current time, but also outputs at previous points in time.
Additionally, the output of dynamic models depends on time
itself (i.e., variables in dynamic models are denoted as functions
of time).
Discrete models: Applied when the specific instant at which an event
occurs, with no changes occurring between events, can be
pinpointed. Examples of discrete processes are app downloads,
product purchases, or customer arrivals at a bank.

Continuous models: Applied to processes whose state changes

continuously. Examples of continuous processes and
phenomena are temperature, speed, or revenue.
 The Monte Carlo

PART method

2
The Monte Carlo method is a subtype of
stochastic modeling. It relies on the repeated
sampling of random inputs from probability
distributions. Sampling is carried on until we
have enough output data for our needs. The
outputs of stochastic models allow us to
determine how likely a particular outcome (or a
set of outcomes) should occur.
Softwares that carry out Monte Carlo
Simulations and Examples
Python

Microsoft Excel
As a simple example of a Monte Carlo simulation, consider calculating
the probability of a particular sum of the throw of two dice (with each
die having values one through six). In this particular case, there are 36
combinations of dice rolls. See opposite. Based on this, you can
manually compute the probability of a particular outcome. For example,
there are six different ways that the dice could sum to seven. Hence, the
probability of rolling seven is equal to 6 divided by 36 = 0.167. Instead of
computing the probability in this way, however, we could instead throw
the dice a hundred times and record how many times each outcome
occurs. If the dice totalled seven 18 times (out of 100 rolls), we would
conclude that the probability of rolling seven is approximately 0.18
(18%).
Obviously, the more times we rolled the dice, the less approximate our
result would be. Better than rolling dice a hundred times, we can easily
use a computer to simulate rolling the dice 10,000 times (or more).
Because we know the probability of a particular outcome for one die (1
in 6 for all six numbers), this is simple. The output of 10,000 realizations
could look like this:
Benefits of • Assessing risk and uncertainty
Monte Carlo • Quantifying the likelihood of different outcomes
• Supporting informed decision-making
• Evaluating the impact of variables on outcomes
• Enhancing understanding of complex systems

• Simplified Assumptions Downsides

• High Data Requirements
• Uncertainty in Results
of Monte
• Sensitivity to Input Variables Carlo
• Limitations of Probability Distributions
PART Class Activity
Monte Carlo Simulation

3
 Question

What is the probability of flipping at least

three consecutive heads in five coin flips?
 Answer
1. Heads (H) and tails (T) are the possible
outcomes of each coin flip.

2. Generate a large number of random

sequences of five coin flips.
Count the number of sequences that satisfy
the condition of having at least three
consecutive heads.
 Answer
3. Run a large number of iterations (e.g.,
1,000 or more) of the following steps:
Simulate a sequence of five coin flips.
Check if the sequence contains at least three
consecutive heads. If it does, count it as a
successful outcome.
 Answer
4. Calculate the probability:

Divide the number of successful outcomes

(sequences with at least three consecutive
heads) by the total number of iterations to
obtain an estimate of the probability.
THANK
YOU!