Managers accustomed to thinking in terms of averages are often surprised by the range of possible outcomes the simulation reveals: just how bad – and how good – the results can be. Often, you'll get immediate insights from simply running a Monte Carlo simulation and viewing the results. If you have a tool like Risk Solver, you can easily run Monte Carlo simulations in your Microsoft Excel spreadsheets, and visualize results quickly with charts and graphs. Since you'll probably need thousands of trials to get a complete picture of possible outcomes, it certainly helps to have a computer do this for you. Software analytical tools can take the gamble out of investments. Then, you run a series of "Monte Carlo trials" (think of spreadsheet what-if scenarios) where you plug in randomly chosen values for each uncertain variable (within its own range). For each one, you replace a fixed number with an "uncertain variable" that can take on a range of possible values. Next, you ask "which factors are uncertain?" – such as call-handling time, and call volume per hour in this example. This can be done easily in a spreadsheet such as Excel. You start with a basic mathematical model that calculates costs based on your average handling time and expected call volume. You have estimates of fixed costs, variable costs per rep, call-handling times, and some past data on call volume. Let's say you want to plan for staffing a new customer service call center. To use this form of risk analysis you'll need numerical values related to the process, and basic analytical tools. Its core idea is to use random samples of parameters or inputs to explore the behavior of a complex process. The Monte Carlo method was invented by scientists working on the atomic bomb in the 1940s, who named it for the city in Monaco famed for its casinos and games of chance. While you can study your past data and business practices to learn from your successes and mistakes, a Monte Carlo simulation gives you a possible look into the future, and helps test your understanding of the situation today. Before making a decision involving uncertainty, managers and executives can – and should – insist that risks are quantified and explored. With today's tools, there's no reason to gamble on business decisions.
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