Business Simulation Modeling

Historical Perspective

Simulation models were originally developed as training devices for complex operational equipment such as aircraft, space-craft, nuclear plants and processing facilities. They also found an application in the military, where 'War Games' allowed various strategies to be played out and they were used for strategy development, training and tactical planning. Kendall Carey, the President of Carey Fawcett, was a pioneer in the application and development of simulation modeling for business use.

Business Simulation
Business simulation models can be either specific to a particular situation, such as a company or industry, or generic and therefore theoretical. In the former category would be models to simulate a particular business at a point in time, which would replicate as closely as possible the real life situation, using real life data or estimates. The latter type are typical of those that are used in business schools and management training, and seek to teach general business understanding. They use theoretical data and relationships. Normally, specific or real life models are very expensive and require very elaborate data collection and manipulation. For example they use regression analysis to determine the relevance of different variables, which requires an enormous data bank of directly comparable information. However, Carey Fawcett has developed a very effective company specific simulation methodology, that can be customized for a particular business at very low cost, while accurately reflecting the real world situation. Our models work from the market back to the bottom line.

Uses for Simulation Models
Business simulation models can be used for a wide variety of purposes depending upon a company's situation. Typical uses include the following :

  • Strategy Development
  • New Investment Decisions
  • Profitability Optimization
  • Management War Games
  • Staff Training
  • Market Share Estimation
  • Business Integration
  • Tactical Planning
  • Business Rationalization
A simulation model generates profitable, practical and actionable solutions because it simulates their impact before you expend the real time effort and risk the real dollars.

Carey Fawcett's Simulation Models
Our models are designed to be easily customized for a particular business using, for the most part, information already available within an organization rather than requiring extensive research. As a result, our simulations can be developed both quickly and inexpensively. To develop a simulation of the most important two or three segments of a business can take as little as two weeks and can be used immediately. The input data to the model can be refined over time and the model can be expanded to cover an entire business, no matter what its size or complexity.

How our Simulation Models work
Our models integrate market data, customer needs, company performance and competitive performance with the bottom line. The models derive market share estimates which are then compared to real life share data; this provides a check on the reliability of the input data. The model can then calculate the impact of different courses of action on the bottom line. The calculations involved are based on market or market segment sizes and shares, prices, variable costs and fixed costs. The financial results of the simulations can be aggregated to whatever corporate level is appropriate e.g. plant, business unit, country, division or corporation.

The models allow different strategies to be evaluated as well as determining the consequences of various kinds of competitive behaviour. Optimum action plans can be developed which comprise marketing and sales actions, geographic coverage, distribution, inventory, production and new investment, with the appropriate costs and benefits calculated.

Information Requirements
One of the most attractive aspects of our models is that they can be used very effectively with only approximate data. In fact, they make clear what data is most important, so that the available information gathering resources can be concentrated where they will do the most good.

Applicability
Our models have been used successfully in a wide variety of businesses including petroleum products, packaging, paper, consumer products, manufacturing, electronics and services. They require no special computer expertise on the part of the user.

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