Simulation modeling is an emerging management tool to support big decisions involving complex operations. The technology has been around for decades and in the last while it’s become increasingly easy to apply to almost any operation, such as patient flow in an Emergency Department, bits of data through a telecommunications network, or a global supply chain.
Just to be clear, the kinds of simulations we’re talking about here are of operations and/or system flows, not flight simulations or video games.
Simulation is not for every organization, but it can be a valuable tool to have in your arsenal. Unfortunately, though, most executives aren’t even aware that it exists. The following tips meant to introduce the topic of simulation are based on 20 years collective experience using simulation in both consulting and academic settings.
Tip 1: Simulation can be a powerful tool to look before you leap
Having a simulation of your operations can be a valuable asset for providing insight into the potential impact of crucial decisions. They can provide powerful supporting information to aid decision-making and investigating the associated costs and benefits of multiple decision options.
Simulation models can be very useful for big decisions: Situations involving the buying, selling, or reconfiguring or key system resources are ideal for simulation analysis. They can allow organizations to analyze multiple potential scenarios and provide insight into nearly any situation involving uncertainty.
Big risk/reward industries such as finance, oil and gas, aerospace have used it for years, but now simulation has become very accessible. Think of a simulation model as the next step up from your most complex spreadsheet.
Tip 2: Don’t use simulation if you’re not ready
Simulation can be expensive between the costs of staff time and software licensing so it is important assess whether or not your organization has the pieces in place to successfully develop a compelling model. It may be premature to jump into a building a simulation if you don’t have a good profile of your activity, work flows, and financials.
Typically, organizations that use simulation effectively have already answered as many questions as they can with spreadsheet analysis. It’s better to use simulation to address business questions that can’t be addressed effectively with spreadsheets (i.e. situations involving complex logic, multiple flows of activity, uncertainty), rather than attempting to use simulation on a problem that doesn’t need it.
Tip 3: It’s not what software you use that’s important
Many tools are available on the market ranging from simple spreadsheet model to complex custom software, but more important than the tool you are using, is the team running the tool.
You need good talent to make a good simulation: There is a big difference between a good programmer and an effective simulation analyst. An effective simulation analyst understands:
- How to keep the model manageable, flexible and scalable
- The importance of validating the model so you know the results can be trusted
- How to come up with good ideas for different scenarios
It is an important first step to decide if your organization is interested in getting into simulation or not. If you’re unsure, you could try working with a university or a consulting firm to try it out. If you are committed to getting into simulation, a critical first step should be to focus on recruiting and developing appropriate talent. It takes time to get really good so don’t train someone if they won’t have an opportunity to use it intensely at least a few times a year.
Tip 4: Think of it as a “sand box” rather than an optimizer
It is important to set expectations right from the start. Simulation is not a crystal ball that shows you the solution to all your future problems. It will not tell you what to do in a given situation.
It is, however, a tool for creatively testing different potential ways of running you system. It will tell you that if you run your system in a particular way, then this is what you may expect as a result.
The ability to generate and interpret meaningful operational scenarios is why having an effective simulation analyst can be the make or break of a successful simulation modeling project.
Tip 5: You should consider using simulation if …
So how can you tell if simulation is the right tool for you? The following are some guidelines to let you know if your situation could benefit from using simulation modeling:
- You have a big decision to make with high potential for risk or reward.
- You cannot afford to make mistakes and it’s worth investing the time and effort to make sure new processes work as good as they can before being implemented.
- You have a good understanding of your operations and system data.
- You are able to do your first project with an analyst or team that has a track record of successfully using simulation
- You are innovative and ready to utilize a new management tool.
- You are committed to use the findings and recommendations, even if they tell you what you don’t want to hear. After all, there is no point in wasting your investment.