How to Conduct a Simulation Analysis

Simulation analysis is an effective way of projecting risk and probabilistic behavior in nearly any stochastic system. A good simulation analysis process can help you understand the behavior of elements and systems in business, politics and even large-scale social systems. Follow a few basic steps to conduct a simulation analysis properly.

Instructions

Difficulty: Moderately Challenging

1. Define your problem. Each simulation attempts to clarify opacities or solve a problem within the system. To properly conduct a simulation analysis, you and your team need to know what part of the system you are trying to understand and the factors which go into the system. Be explicit, detailed and simple in your statement of the problem.
2. Identify appropriate inputs and outputs in the system. While you should have a clear idea of all the total inputs and outputs in the system you're analyzing, you should also be able to definitively identify which inputs and outputs are relevant to your simulation analysis.
3. Narrow the variables and inputs and outputs of the study. You must know which are the essential decision variables—the variables for which your study can control. There will likely be a number of decision variables and input/outputs, but only a few are truly relevant to your study. Identify the relevant factors and make them explicit to the study.
4. Gather data from the system you are studying. Once you have identified relevant variables and input/output factors you can collect the real-life data that pertain to the parameters of your study. Collect data thoroughly and be careful not to omit periods of data.
5. Develop a model of your system using specifications and expected outputs on the basis of given inputs. Run the model a number of times using simulation software or a professional process engineer and then compare the results with the real-life data you gathered. Identify any discrepancies.
6. Study discrepancies and develop methods to solve problems you discovered. A simulation analysis is only as valuable as the amount of positive change you implement on account of the study. So, carefully develop and implement changes to the system that will make it more effective.