Importance of Simulation and Modelling in a Business Management Curriculum

Abstract

Decision Making is certainly the most important task of a manager and it is often a very difficult one. The domain of decision analysis models falls between two extreme cases: deterministic and probabilistic. This depends upon the degree of knowledge we have about the outcome of our actions. Between these two extremes are problems under risk. In deterministic models, a good decision is judged by the outcome alone. However, in probabilistic models, the decision maker is concerned not only with the outcome value but also with the amount of risk each decision carries. Business decisions are made mostly in uncertain dynamic environment where input variables keep changing. Consider following situations:  Instead of displaying safety stock levels over time as a straight line it would be more appropriate if it is displayed as “dancing” in sync with the incoming demand.  In order to optimize the cash flow and avoid the embarrassing situation of not being able to settle vendors’ bills it is necessary that every day cash flow to be monitored instead of finding out end of the period liquidity position.  If a scheduling problem is considered. A good model of a real life scheduling problem should address uncertainty. For example, if processing times of jobs are random variables, then completion times of jobs in a permutation schedules are also random variables and the value of an objective function becomes also random.