Business Simulation Models

Exploring the technical issues associated with the business simulations models.

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The simulation model consists of the algorithmic (mathematical) and conditional logic that defines how decisions impact results. Here I explore the technical issues in terms on core models, model size, development time and modelling language

Core Simulation Models

I divide my simulation model into five groups of models - initialise the period, check the decisions, external economy, internal company operation and an analysis of the business.

Initialise Period
These models setup the situation at the start of the period by copying the prior period's decisions to the current period, zeroing total revenue & cost, etc..

Check Decisions
These models check to see if decisions are legal and unusual. If a decision is illegal (like zero price) the decision is rejected and either the previous decision used in its place or a new (legal) decision entered. If the decision is unusual (such as price less than variable cost), it is remarked on and can be changed of used. This model is used by the Decision Entry Engine.

For more about the Decision Entry Engine

Economic Models
These models the external environment (marketplace needs etc.). Where the business simulation is a Total Enterprise simulation where the teams compete directly with each other these models assess the competitive impact of price, promotion, product offering & availability, etc. Typically, these models result in demand figures.

Company Models
These models the internal operation of the business. In particular, operations (material flow, resource use etc.) accounting (costs, cash flow etc.) Even, where the business simulation involves several teams competing, these model the part of the business not impacted by the competition.

Business Analysis
These models analyse the results, providing reports (such as capacity use, profit centres) and, based on these, finding and commenting on strengths and weaknesses (qualitative feedback).

Learn more about Qualitative Feedback

Simulation Model Size

For short (2 hour) business simulations there will be some 350 logic steps. For intermediately complex business simulations (1 day) there will be some 800 logic steps and more complex simulations have proportionally greater sizes. However, these statistics are for normal business simulations. Where the simulation is novel or the situationally complex, the logic size can be significantly greater [1]. For example, the novelty and situational complexity of my Training Challenge simulation meant that the logic was nearly four times greater than a normal business simulation (1900 logic steps rather than 500 logic steps)

The example above shows that the model size for most simulations is linearly correlated with duration. The two exceptions were business simulations that were very novel and this added to model complexity [1].

Model Size vs Development Time

The design time for five of the sample simulations was plotted against model size and these seem to be highly correlated. My paper Computer Business Simulation Design: Novelty and Complexity Issues [1] discusses the reasons for this. Overall, the time to develop a new business simulation depends on it's duration and novelty.

Modelling Language

Another aspect of the model is the language used for the calculations, provide a range of functions, allow logical structures and allow calculations to be repeated. One of the best modelling languages is BASIC as this has all the language elements to do the calculations. There are several reasons why I use a high-level language (Visual Basic). The example below shows nested, multi-step conditional statements. It was used in my Training Challenge simulation to calculate how time needed to be adjusted if there was insufficient time for selling, prospecting, course updating, course development, business improvement or professional development.

Code Example

1. Easy to model complex logic. The example above shows a nested conditional statement and where calculations are repeated for each market - consider how you might do this using a spreadsheet.

2. Clarity - each stage in the calculation is shown and commented on. This clarity helps when designing the model and if you have to revisit it a later stage (to update/change).

3. During testing you can step through the model logic statement by logic statement to see how variables change.

Modeling Language and Model Size

Function Points analysis measures the relative size of the code necessary to perform a particular task (function). Visual Basic models (the language I use) are one fifth the size of EXCEL models [2]

References

1. Hall Jeremy. J. S. B. (2007) Computer Business Simulation Design: Novelty and Complexity Issues ABSEL Conference Presentation
2. http://www.qsm.com/resources/function-point-languages-table (retrieved 25/07/14)

2012 Jeremy J. S. B. Hall

Most recent update: 16/07/15
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Phone +44 (0)20 7537 2982 E-mail
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