Taylor Introms11 PPT 14

Simulation
Chapter 14
Copyright 2013 Pearson Education, Inc. Publishing as

Prentice Hall
14-1
Chapter Topics
The Monte Carlo Process
Computer Simulation with Excel
Spreadsheets
Simulation of a Queuing System
Continuous Probability Distributions
Statistical Analysis of Simulation Results
Crystal Ball
Verification of the Simulation Model
Areas of Simulation Application
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14-2
Overview
Analogue simulation replaces a physical system
with an analogous physical system that is easier to
manipulate.
In computer mathematical simulation a system
is replaced with a mathematical model that is
analyzed with the computer.
Simulation offers a means of analyzing very
complex systems that cannot be analyzed using
the other management science techniques in the
text.
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14-3
Monte Carlo Process

A large proportion of the applications of
simulations are for probabilistic models.
The Monte Carlo technique is defined as a
technique for selecting numbers randomly from a
probability distribution for use in a trial (computer
run) of a simulation model.
The basic principle behind the process is the same
as in the operation of gambling devices in casinos
(such as those in Monte Carlo, Monaco).

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14-4
Monte Carlo Process

Use of Random Numbers (1 of 10)
In the Monte Carlo process, values for a random

variable are generated by sampling from a
probability distribution.
Example: ComputerWorld demand data for laptops

selling for $4,300 over a period of 100 weeks.
Table 14.1 Probability distribution of demand

for laptop PCs

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14-5
Monte Carlo Process

The purpose of the Monte Carlo process is

to generate the random variable,
demand, by sampling from the probability
distribution P(x).
The partitioned roulette wheel replicates

the probability distribution for demand if
the values of demand occur in a random
manner.
The segment at which the wheel stops

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14-6
Monte Carlo Process

Figure 14.1
demand
A roulette wheel for

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14-7
Monte Carlo Process

When the
wheel is
spun, the
actual
demand for
PCs is
determined
by a
number at
rim of the
Figure 14.2
wheel.
Numbered roulette wheel
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14-8
Monte Carlo Process

Table 14.2 Generating demand from

random numbers

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14-9
Monte Carlo Process

Select a number from a random number table:
14.3
Copyright 2013 Pearson Education, Inc.Table
Publishing
as
Prentice Hall
numbers
A table of delightfully random

14-
Monte Carlo Process

Repeating the selection of random numbers

simulates demand for a period of time. The
next slide shows demand for 15 consecutive
weeks as drawn from the random number
table.
Estimated average demand = 31/15 = 2.07

laptop PCs per week.
Estimated average revenue = $133,300/15

= $8,886.67.
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14
Monte Carlo Process


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Table 14.4
14-
Monte Carlo Process

Average demand could have been calculated
analytically:
n
E( x) P( x ) x
i1
i
where:
x demand value i
P( x ) probability of demand
n the number of different demand values
i
therefore:
E( x) (.20)(0) (.40)(1) (.20)(2) (.10)(3) (.10)(4)
1.5 PCs per week
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14-
Monte Carlo Process

The more periods simulated, the more accurate

the results.
Simulation results will not equal analytical results

unless enough trials have been conducted to reach
steady state.
It is often difficult to validate results of simulation

- that true steady state has been reached and that
simulation model truly replicates reality.
When analytical analysis is not possible, there is no

analytical standard of comparison, thus making
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14

Spreadsheets
Generating Random Numbers (1 of
As simulation models get more complex they
2)
become impossible to perform manually.
In simulation modeling, random numbers are

generated by a mathematical process instead of
a physical process (such as wheel spinning).
Random numbers are typically generated on the

computer using a numerical technique and thus are
not true random numbers but pseudorandom
numbers.

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14-

Spreadsheets
Generating Random Numbers (2 of
2)
Artificially created random numbers must
have the following characteristics:
1.
The random numbers must be

uniformly distributed.
2.
The numerical technique for generating

the numbers must be efficient.
3.
The sequence of random numbers should

reflect no pattern.

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14-
Simulation with Excel Spreadsheets

(1 of 3)

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Exhibit 14.1
14-

(2 of 3)
Enter
=VLOOKUP(F6,Lookup,2)
in G6 and copy it to
G7:G20
Enter
=4300*G6 in
H6 and copy
it to H7:H20
=
AVERAGE(G6:G20
)
Generate random numbers

for cells F6:F20 with the
formula =RAND( ) in F6
and copy
it to F7:F20
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as
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Exhibit 14.2
14-

(3 of 3)
Click on the View tab, then on
Freeze Panes
Spreadsheet is frozen at row 16 to show first 10

weeks and last 6
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Exhibit 14.3
14-

Spreadsheets
Decision
Making example;
with Simulation
(1laptop
Revised
ComputerWorld
order size of one
=1+MAX(G6-H6,0)
is
=VLOOKUP(F6,Lookup,2) is
each
week.
of
2)
entered in G7 and
entered in H6 and copied to
copied to G8:G105
Shortages are computed by

entering =MIN(G6-H6,0) in I6 and
copying
to I7:I105
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2013 Pearson
Education, Inc. Publishing as
Prentice Hall
H7:H105
=G6*50 is entered
in cell L6 and
copied to L7:l105
Exhibit 14.414-

Spreadsheets
Decision
with Simulation
Order sizeMaking
of two laptops
each week. (2
New formula for two
of 2)
laptops ordered per
week

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Exhibit 14.5
14-

Burlingham Mills Example (1 of 3)
Table 14.5 Distribution of

arrival intervals
Table 14.6 Distribution of

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14-

Average waiting time = 12.5days/10 batches

= 1.25 days per batch
Average time in the system = 24.5 days/10
batches
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2013 Pearson Education, Inc. Publishing as
Prentice Hall
14-

Caveats:
Results
may be viewed with skepticism.
trials do not ensure steady-state

results.
Ten
Starting
conditions can affect

simulation results.
If
no batches are in the system at the

start, the simulation must run until it
replicates normal operating system.
If
the system starts with items already in

system,
the
simulation
must begin
Copyright the
2013 Pearson
Education, Inc.
Publishing
as
Prentice Hall
14-

Burlingham Mills Example
This formula is entered
in D15 and copied to
D16:D23
Clock time is
generated by
entering
=MAX(E15,J14) in
F15 and copying to
F16:F23
Arrival times are

generated by entering
=AVERAGE(G14:G
=E14+D15 in E15
23)
and
copying
to
Prentice
Hall
E16:E23
Copy
=VLOOKUP(H14,Looku
p2,2) to I14:I23
Exhibit 14.6
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Continuous Probability Distributions

A continuous function must be used for continuous distributions.
Example:
f(x) x , 0 x 4 where x time (minutes)
8
Cumulative probability of x:
x
xx
x
1 2
1
1
F(x) dx x dx x
80
8 2 0
08
2
x
F(x)
16
Let F(x) the random number r
2
x
r
16
x4 r
By generating a random number,r, a value x for "time" is determined.
Example: if r .25, x 4 .25 2 minutes
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14-
Machine Breakdown and

Maintenance System
Simulation (1 of 6)
Bigelow Manufacturing Company must decide if it

should implement a machine maintenance program
at a cost of $20,000 per year that would reduce the
frequency of breakdowns and thus time for repair
which is $2,000 per day in lost production.
A continuous probability distribution of the time
between machine breakdowns:
f(x) = x/8, 0 x 4 weeks, where x = weeks
between
machine breakdowns
x = 4*sqrt(ri), value of x for a given value of ri.

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Maintenance System
Simulation (2 of 6)
Table 14.8 Probability distribution of

machine repair time
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14-

Maintenance System
Simulation
(3 of
6) between machine
Revised probability
of time
breakdowns:
f(x) = x/18, 0 x6 weeks where x = weeks
6 r1
between x
machine
breakdowns
Table 14.9 Revised probability distribution of

machine
repair
time
with
Copyright
2013 Pearson
Education,
Inc. Publishing
as the maintenance
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14-

Maintenance System
Simulation
of 6)
Simulation of(4
system
without maintenance
program (total annual repair cost of $84,000):
Table 14.10 Simulation of machine breakdowns and

repair times

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Maintenance System
Simulation of(5
system
with maintenance program
Simulation
of 6)
(total annual repair cost of $42,000):
Table 14.11 Simulation of machine breakdowns

Copyright
2013 Pearson
Education,
Inc. Publishing
as
and repair
with
the
maintenance
program
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14-

Maintenance System
Simulation (6 of 6)
Results and caveats:

Implement the maintenance program since the
cost savings appear to be $42,000 per year and
the maintenance program will cost $20,000 per
year.
However, there are potential problems caused
by simulating both systems only once.
Simulation results could exhibit significant
variation since time between breakdowns and
repair times are probabilistic.
To be sure of accuracy of results, simulations of
each system must be run many times and the
average results computed.
Copyright
2013 Pearson Education, Inc. Publishing as
Prentice HallEfficient computer simulation is required to do 14-

Maintenance System
Simulation
withbreakdown
Excel (1 example:
of 2)
Original machine
From Table
14.8
Spreadsheet
frozen at row 24
Copy =
to show first 10
E14+D15 to
breakdowns and
E15:E113
lastHall
6
Prentice
Exhibit 14.7
Copy
=VLOOKUP(F14,Look
up,2) to G14:G113
14-

Maintenance System
Simulation
with
Excel (2program.
of 2)
Simulation
with
maintenance
Probability
distribution or repair
time from Table 14.9

Prentice Hall
Revised formula
for time between
breakdowns
Exhibit 14.8
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Statistical Analysis of Simulation

Results (1 of 2)
Outcomes of simulation modeling are

statistical measures such as averages.
Statistical results are typically subjected to

additional statistical analysis to
determine their degree of accuracy.
Confidence limits are developed for the

analysis of the statistical validity of
simulation results.

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14-
Statistical Analysis of Simulation

Results (2 of 2)
Formulas for 95% confidence limits:
x (1.96)(s / n )
upper confidence limit
lower confidence limit

x (1.96)(s / n )
wherex is the mean and s the standard
deviation from a sample of size n from any
population.
We can be 95% confident that the true population
mean will be between the upper confidence limit
and lower confidence limit.

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14-
Simulation Results
Statistical Analysis with Excel (1 of
2)
Simulation with maintenance program.
Confiden
ce limits

Prentice Hall
Exhibit 14.914-
Simulation Results
Statistical Analysis with Excel (2 of
2)
Click on Data
Analysis
Statistical summary
report

Prentice Hall
Input Range
are the cost
($) values in
Output
column H
Range
specifies the
location of the
statistical
summary
report on the
spreadsheet
Exhibit 14.10
14-
Crystal Ball
Overview
Many realistic simulation problems contain

more complex probability distributions than
those used in the examples.
However there are several simulation add-ins

for Excel that provide a capability to perform
simulation analysis with a variety of
probability distributions in a spreadsheet
format.
Crystal Ball, published by Decisioneering, is

one of these.

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14-
Crystal Ball
Simulation of Profit Analysis Model
(1 of 15)
Recap of the Western Clothing Company
break-even and profit analysis:
Price (p) for jeans is $23
variable cost (cv) is $8
Fixed cost (cf ) is $10,000
Profit Z = vp - cf vc
break-even volume v = cf/(p - cv)
= 10,000/(23-8)
= 666.7 pairs.
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14-
Crystal Ball
(2 of 15)
Modifications to demonstrate Crystal Ball
Assume volume is now volume demanded and

is defined by a normal probability distribution
with mean of 1,050 and standard deviation of
410 pairs of jeans.
The price is uncertain and defined by a uniform

probability distribution from $20 to $26.
The variable cost is not constant but defined by a

triangular
probability distribution.
We can determine the average profit and

profitability with the given probabilistic
variables.

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14-
Crystal Ball
(3 of 15)

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14-
Crystal Ball
(4 of 15)
2. Click on Define
Assumption
1. Click on cell C4 to
define normal
distribution parameters
=C4*C5-C6(C4*C7)

Prentice Hall
Exhibit
14.11
14-
Crystal Ball
(5 of 15)

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14-
Crystal Ball
(6 of 15)
Name pulled
from original
spreadsheet
1. Enter mean
and standard
deviation
3. Click on OK to
return to the
spreadsheet

Prentice Hall
2. Click Enter to
configure distribution
in window
Exhibit 14.12
14-
Crystal Ball
(7 of 15)
Enter
minimum and
maximum
values for the
distribution

Prentice Hall
Exhibit 14.13
14-
Crystal Ball
(8 of 15)
Enter
three
estimate
s
Prentice Hall
Exhibit 14.14
14-
Crystal Ball
(9 of 15)
1. Click on Define
Forecast
2. Type in
units

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Exhibit 14.15
14-
Crystal Ball
(10 of 15)
1. Click on Run
2. Click on
Start to begin
the simulation

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Preferences to indicate
the number of trials and
seed number
Exhibit 14.16
14-
Crystal Ball
(11 of 15)
2. Go to the
Sampling
screen to enter
the seed number
1. Enter the
number of trials
Exhibit 14.17
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14-
Crystal Ball
(12 of 15)
Click here to
repeat the
same
simulation

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Exhibit 14.18
14-
Crystal Ball
1. Click here to establish the
2. Click here to
(13 of 15)
number of trials and the seed
start the
simulation
Click on View,
then Statistics
to go to the
statistical
summary screen
(Exhibit 14.20)
Prentice Hall
number
Set new
run
preferen
ces
Click here to
reset the
simulation and
run it again
Exhibit 14.19
14-
Crystal Ball
(14 of 15)
Click on View
to return to the
Frequency
window
Mean profit
value

Prentice Hall
Exhibit 14.20
14-
Crystal Ball
(15 of 15)
Exhibit 14.21
Move arrow to
0.00 or set
lower limit
equal to 0.00

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Probability (.8136)
that the company
will break even
14-

(1 of 2)
The analyst wants to be certain that the model
is internally correct and that all operations are
logical and mathematically correct.
Testing procedures for validity:
Run a small number of trials of the model

and compare
with manually derived
solutions.
Divide the model into parts and run parts

separately to
reduce the complexity of
checking.
Simplify mathematical relationships (if

possible) for easier testing.
Compare results with actual real-world

Prentice Halldata.
14-

(2 of 2)
The analyst must determine if the models starting
conditions are correct (system empty, etc).
Must determine how long model should run to
insure steady-state conditions.
A standard, fool-proof procedure for validation is
not available.
Validity of the model rests ultimately on the
expertise and experience of the model developer.
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14-
Some Areas of Simulation

Application
Queuing
Inventory Control
Production and Manufacturing
Finance
Marketing
Public Service Operations
Environmental and Resource Analysis

Prentice Hall
14-
Example Problem Solution (1 of 6)

Willow Creek Emergency Rescue Squad
Minor emergency requires two-person crew
Regular emergency requires a three-person
crew
Major emergency requires a five-person
crew

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14-
C
a
l0
s
P
r
o
b
a
b
i
l
t
y
.
0
5
1
1
2
2
.
5
3
2
4
.
5
1
5
61.060

Distribution of the number of calls per night and
emergency type:
1. Manually simulate 10
nights of calls
2. Determine the average
number of calls each night
3. Determine the maximum
number of crew members
that might be needed on
any
given night.
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as
Prentice Hall
14-

Step 1: Develop random number ranges for the
probability distributions.

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14-

Step 2: Set up a tabular simulation (use the second
column of random numbers in Table 14.3).

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14-

Step 2 continued:

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14-

Step 3: Compute Results:
average number of minor emergency calls per night
= 10/10 =1.0
average number of regular emergency calls per night
=14/10 = 1.4
average number of major emergency calls per night =
3/10 = 0.30
If calls of all types occurred on same night, the
maximum number of squad members required
would be 14.
Prentice Hall
14-
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system, or transmitted, in any form or by any means, electronic, mechanical, photocopying,
recording, or otherwise, without the prior written permission of the publisher.
Printed in the United States of America.

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14-

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Simulation

Copyright 2013 Pearson Education, Inc. Publishing as

Monte Carlo Process

Copyright 2013 Pearson Education, Inc. Publishing as

Monte Carlo Process

In the Monte Carlo process, values for a random

Example: ComputerWorld demand data for laptops

Table 14.1 Probability distribution of demand

Copyright 2013 Pearson Education, Inc. Publishing as

Monte Carlo Process

The purpose of the Monte Carlo process is

The partitioned roulette wheel replicates

The segment at which the wheel stops

Copyright 2013 Pearson Education, Inc. Publishing as

Monte Carlo Process

A roulette wheel for

Copyright 2013 Pearson Education, Inc. Publishing as

Monte Carlo Process

Monte Carlo Process

Table 14.2 Generating demand from

Copyright 2013 Pearson Education, Inc. Publishing as

Monte Carlo Process

A table of delightfully random

Monte Carlo Process

Repeating the selection of random numbers

Estimated average demand = 31/15 = 2.07

Estimated average revenue = $133,300/15

Monte Carlo Process

Copyright 2013 Pearson Education, Inc. Publishing as

Monte Carlo Process

Monte Carlo Process

The more periods simulated, the more accurate

Simulation results will not equal analytical results

It is often difficult to validate results of simulation

When analytical analysis is not possible, there is no

Computer Simulation with Excel

In simulation modeling, random numbers are

Random numbers are typically generated on the

Copyright 2013 Pearson Education, Inc. Publishing as

Computer Simulation with Excel

The random numbers must be

The numerical technique for generating

The sequence of random numbers should

Copyright 2013 Pearson Education, Inc. Publishing as

Simulation with Excel Spreadsheets

Copyright 2013 Pearson Education, Inc. Publishing as

Simulation with Excel Spreadsheets

Generate random numbers

Simulation with Excel Spreadsheets

Spreadsheet is frozen at row 16 to show first 10

Computer Simulation with Excel

Shortages are computed by

Computer Simulation with Excel

Copyright 2013 Pearson Education, Inc. Publishing as

Simulation of a Queuing System

Table 14.5 Distribution of

Table 14.6 Distribution of

Copyright 2013 Pearson Education, Inc. Publishing as

Simulation of a Queuing System

Average waiting time = 12.5days/10 batches

Simulation of a Queuing System

may be viewed with skepticism.

trials do not ensure steady-state