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Computer Simulation: Henry C. Co Technology and Operations Management, California Polytechnic and State University

This document discusses computer simulation and simulation models. It explains that simulation models complex situations and allow experimenting with "what if" scenarios. The simulation process involves identifying the problem, developing a model, testing the model, running experiments, and repeating until results are satisfactory. Simulation uses random variables as inputs and examines their impact on performance measures. Common simulation techniques like Monte Carlo simulation and the inverse transformation method are described. Excel functions like RAND() and NORMINV() are useful for simulation. The document outlines advantages like evaluating systems without risk and limitations like not producing optimal solutions.

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Velmurugan Rajarathinam
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© © All Rights Reserved
Available Formats
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51 views

Computer Simulation: Henry C. Co Technology and Operations Management, California Polytechnic and State University

This document discusses computer simulation and simulation models. It explains that simulation models complex situations and allow experimenting with "what if" scenarios. The simulation process involves identifying the problem, developing a model, testing the model, running experiments, and repeating until results are satisfactory. Simulation uses random variables as inputs and examines their impact on performance measures. Common simulation techniques like Monte Carlo simulation and the inverse transformation method are described. Excel functions like RAND() and NORMINV() are useful for simulation. The document outlines advantages like evaluating systems without risk and limitations like not producing optimal solutions.

Uploaded by

Velmurugan Rajarathinam
Copyright
© © All Rights Reserved
Available Formats
Download as PPT, PDF, TXT or read online on Scribd
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Computer Simulation

Henry C. Co
Technology and Operations Management,
California Polytechnic and State University

Simulation Models (Henry C. Co)

Simulation Model

Simulation: a descriptive technique


that enables a decision maker to
evaluate the behavior of a model
under various conditions.
Simulation

models complex situations


Models are simple to use and understand
Models can play what if experiments
Extensive software packages available

Simulation Models (Henry C. Co)

Analytic models: values of decision


variables are the outputs.
Simulation models: values of decision
variables are the inputs. Investigate
the impacts on certain parameters
when these values change.

Simulation Models (Henry C. Co)

Why Simulation?

Analytic models
May

be difficult or impossible to obtain.


Typically predict only average or steadystate behavior.

Simulation models
Wide

availability of software and more


powerful PCs make implementation much
easier than before.
More realistic random factors can be
incorporated.
Easier to understand.
Simulation Models (Henry C. Co)

Simulation Process

1.
2.
3.
4.
5.

6.

Identify the problem


Develop the simulation model
Test the model
Develop the experiments
Run the simulation and evaluate
results
Repeat until results are satisfactory

Simulation Models (Henry C. Co)

Implementation
1.
2.
3.

4.
5.

6.

Identify the boundaries of the system of interest.


Identify the random variables, decision variables,
parameters, and the performance measure(s).
Develop an objective function for the performance
measure(s) in terms of random variables, decision
variables, and parameters.
Use computer to generate the simulated values of
these random variables.
Compute the values of the objective function using
these simulated values of random variables and
values of decision variables.
Statistical analysis.

Simulation Models (Henry C. Co)

Monte Carlo Simulation

Monte Carlo method: Probabilistic


simulation technique used when a
process has a random component
Identify a probability
distribution
Setup intervals of random
numbers to match probability
distribution
Obtain the random numbers
Interpret the results
Simulation Models (Henry C. Co)

11

Major Components of Models

Random input factors: sales, demand,


stock prices, interest rates, the length
of time required to perform a task.
Random performance measures:
Business

profit within a time interval.


Average waiting time of a customer in a
queuing system.

Random input factors random


performance measures.

Simulation Models (Henry C. Co)

13

An Analog Approach

Game Spinner for uniform random


variable on the interval 0 to 1.

Every point on the


circumference
corresponds to a
number between 0
and 1.
For example, when
the pointer is in the
3 Oclock position, it
is pointing to the
number 0.25.

Simulation Models (Henry C. Co)

15

Simulating a Discrete
Distribution

10% of the interval (0.0 to


0.09999) is mapped (assigned)
to a demand d= 8.
20% of the interval (0.1 to
0.29999) is mapped to d =9.
30% of the interval (0.3 to
0.59999) is mapped to d =10.
etc., etc.

Simulation Models (Henry C. Co)

17

Excel Functions Useful in Simulation

RAND(): a volatile Excel Function


Function

=RAND() generates a uniformlydistributed random number between 0 -1.

VLOOKUP

Simulation Models (Henry C. Co)

18

Use function =RAND() to generate a uniformlydistributed random number between 0 and 1.

Simulation Models (Henry C. Co)

19

Simulation Models (Henry C. Co)

20

F4=RAND() ; copy and paste F5:F13


G4=VLOOKUP(F4,$B$4:$C$10,2,1); copy and paste G5:G13

Simulation Models (Henry C. Co)

21

A Machine Breakdown
Example

F4=RAND() ; copy and paste F5:F13


G4=VLOOKUP(F4,$B$4:$C$10,2,1); copy and paste G5:G13

Simulation Models (Henry C. Co)

23

Simulating a Continuous
Distribution

The inverse transformation method

To transform this random number into a sample value


of the random variable.
F(w) is the CDF F(x)=Prob. {W x}.

Simulation Models (Henry C. Co)

25

Inverse Transformation Method

Define F(x)=Prob. {W x} = the


probability that random variable W is
less than or equal to a specific value
w.
Denote the 0-1 random number by u
and let u = F(x).
Use =RAND() to generate a value for
u, substitute it into x= F-1(u) which in
turn gives a value of x.

Simulation Models (Henry C. Co)

26

EXCEL Implementation

Exponential Distribution
u

1 ln 1 u

= RAND()
For example, if arrival rate = 0.05, and
RAND()=.75, the observation from the
exponential distribution is (1/0.05)ln(1-.75) = 23.73.

Normal Distn: Function NORMINV


For

example,
NORMINV(RAND(),1000,100) returns a
normally distributed random number with
mean 1000 and standard deviation 100.
Simulation Models (Henry C. Co)

27

Using an EXCEL Simulation Model

Information obtained from a


Simulation model:
Summary

statistics about the performance

measures
Downside Risk and Upside Risk
Distribution of outcomes

Based on the simulation results


(Output), several alternatives
(decisions) can be evaluated.

Simulation Models (Henry C. Co)

28

How Reliable is the


Simulation?

The more trials we run, the higher the


confidence we have in our results (just like
any statistical analysis with real data sample).
The confidence intervals about the parameters
(or any other estimated parameters) can be
computed.
Given sample size and significant level
confidence intervals can be computed, or
given the half width of the confidence interval
and significance level compute the minimum
number of replications we have to run.

Simulation Models (Henry C. Co)

30

Advantages

Solves problems that are difficult or


impossible to solve mathematically
Allows experimentation without risk to
actual system
Compresses time to show long-term
effects
Serves as training tool for decision
makers

Simulation Models (Henry C. Co)

32

Limitations

Does not produce optimum solution


Model development may be difficult
Computer run time may be substantial
Monte Carlo simulation only applicable
to random systems

Simulation Models (Henry C. Co)

34

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