Defining the problem

 Problems are not easily identified

 Conflicting viewpoints
 Impact on other departments
 Beginning assumptions
 Solution outdated
Developing a model
 Fitting the textbook models
 Understanding the model
Acquiring input data
 Using accounting data
 Validity of data
Developing a solution
 Hard-to-understand mathematics
 Only one answer is limiting
Testing the solution
Analysing the results

1. Recognize the Need for a Decision

2. Generate Alternatives:
3. Assess Alternatives:
4. Choose among Alternatives:
5. Implement the Chosen Alternative
6. Learn from Feedback
Advantages of Simulation Model Techniques

 It is useful for sensitivity analysis of complex systems.

 It is suitable to analyse large and complex real life problems that cannot be solved by
the usual quantitative methods.
 It is the remaining tool when all other techniques become intractable or fail.
 It can be used as a pre-service test to try out new policies and decision rules for
operating a system.

Dis-Advantages of Simulation Model Techniques

 Sometimes simulation models are expensive and take a long time to develop.
 Each application of simulation is ad hoc to a great extent.
 The simulation model does not produce answers by itself.
 It is the trial and error approach that produces different solutions in repeated runs .It
does not generate optimal solutions to the problems.

Expected Monetary Value

– Select the alternative with the highest expected return
– Use a weighted average of the possible returns for each alternative, with
probabilities used as weights
– Also referred to as Expected Value (EV) or Expected Monetary Value (EMV)

Expected Value with Perfect Information

EVPI measures how much better you could do on this decision if you could always know
when each state of nature would occur, where:
- EVUPI = Expected Value Under Perfect Information
- EVUII = Expected Value of the best action with imperfect information
EVPI tells you how much you are willing to pay for perfect information (or is the upper limit
for what you would pay for additional “imperfect” information!)

Objective of Time Series Analysis

  Understanding the dynamic or time dependent structure of the observations of a single
series (univariate analysis)
 Forecasting of future observations
 Ascertaining the leading lagging and feedback relationships among several series

The following are the common types of data pattern that can be identified when examining a time
series

1. Horizontal:it exist when the data fluctuate around a constant mean.

2. Trend: it exist when there is gradual shift or movements to relatively higher or lower
values over a longer period of time.

3. seasonal: it is recognized by seeing the same repeating pattern of highs and lows over
successive period of time.

4. trend and seasonal:- it include combination of trend and seasonal pattern.

5. cyclical: it exist if time series plot shows an alternating sequences of points below and
above the trend line lasting more than one year.

A simulation is the imitation of the operation of real- world process or system over time. it is
a process of simulating something or the result of simulating it.

Advantages

 A simulation study can help in understanding how the system operates.

 what if question can be answered.
 help to find un-expected phenomenon, behaviour system.
 study the behaviour of the system without building it.
 Result are accurate in general, compared to analytical model.

Disadvantages
 Sometimes simulation models are expensive and take a long time to develop.
 Each application of simulation is ad hoc to a great extent.
 The simulation model does not produce answers by itself.
 It is the trial and error approach that produces different solutions in repeated runs .It
does not generate optimal solutions to the problems.