Monte Carlo Simulation Tutorial - Using Interactive Simulation

So far, we've modified an ordinary spreadsheet model by defining selected cells as uncertain variables, and one cell (Net Profit) as an uncertain function.  That's it! -- we have a risk analysis model in the form required by Risk Solver software.  We're now ready to run a Monte Carlo simulation, and see how uncertainty affects our spreadsheet model.

With an old-fashioned simulation software package, you'd press a button to start a simulation, then perhaps get a cup of coffee.  Because simulations ran slowly, software packages were designed for "batch" operation:  You'd spend time getting everything set up just right, run a simulation and wait (sometimes quite a while), then spend time analyzing the results.  But with Risk Solver, simulations run so fast that fully Interactive Simulation is practical.To turn on Interactive Simulation, we simply click the light bulb on the Ribbon. It will “light up,” as shown below.  In the blink of an eye, your first Monte Carlo simulation is complete!

From now on (until we click the light bulb again to turn it off), 1,000 Monte Carlo simulation trials (the default number) will be run each time you change the spreadsheet, and cell B12 will display the true average for Net Profit across these 1,000 trials:

The result of “shaking the ladder” is striking: Our true average Net Profit for these 1,000 trials is only $93,493 – quite a bit less than the Flawed Average Model figure of $142,000!  And we also see that we can lose money -- the last of the 1,000 trials, which appears on the worksheet, shows a loss of $21,153.Try pressing F9 (the Excel recalculate key) on this model:  Each time you do, another 1,000 Monte Carlo trials are run, and a slightly different true average Net Profit figure will be displayed -- but nearly always much less than $142,000.

Next: Viewing the Full Range of Profit Outcomes >

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