MBA 2019-21 BATCH

SEMESTER III
GC 302 DECISION SCIENCE
UNIT 2.3.1:SIMULATION

Dr. Bhagyashree S Kunte

TECHNIQUES

1 By Dr. Bhagyashree S. Kunte

 302 DECISION SCIENCE:
UNIT 2.3.1: SIMULATION TECHNIQUES
Syllabus: Simulation Techniques: Monte Carlo
Simulation, scope, and limitations.
Introduction:

Dr. Bhagyashree S Kunte

 In real life situations there are complex problems for
which there are no optimal solutions. Such problems
challenge or defy analytic approaches as exact
relationship between variables cannot be quantified
easily.
 When problems are such where it is risky to attempt
straight optimal solution or where it is risky to
experiment with reality itself, simulation models are 2
useful.
 302 DECISION SCIENCE:
UNIT 2.3.1: SIMULATION TECHNIQUES
Introduction:
 Simulation is one of the most widely used OR
techniques

Dr. Bhagyashree S Kunte

 It is a versatile tool used for solution of a large
variety of OR problems.
 Simulation can be used to study problems those
involves uncertainty.
 One or more decision variables can be represented
by a probability distribution.

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 302 DECISION SCIENCE:
UNIT 2.3.1: SIMULATION TECHNIQUES
Definition:
“ Simulation is the process of designing a model of a
real life system and conducting experiments with this

Dr. Bhagyashree S Kunte

model for the purpose of understanding the behavior
(within the limits imposed by a criterion or set of
criteria) for the operation of the system”: Shannon
“ Simulation is a quantitative technique developed for
studying alternative courses of action by building a
model of that system and then conducting a series of
repeated trial and error experiments to predict the
behavior of the system over a period of time”.
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 302 DECISION SCIENCE:
UNIT 2.3.1: SIMULATION TECHNIQUES
Monte Carlo Simulation:
There are two techniques of simulation: 1) Monte–.
Carlo Simulation and 2) System simulation technique

Dr. Bhagyashree S Kunte

 The Monte Carlo simulation technique uses
random number and is generally used to solve
problems related to decisions under uncertainty
and where mathematic formulation is impossible.
 System simulation technique is applicable where
there is a reproduction of the operating
environment to alternative management actions.
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 302 DECISION SCIENCE:
UNIT 2.3.1: SIMULATION TECHNIQUES
Monte Carlo Simulation:
 System simulation technique is complicated,
practically more difficult and involve huge costs,

Dr. Bhagyashree S Kunte

hence Monte Carlo simulation is widely used as it
is comparatively easy to use.

 Von Neumann and S.M. Ulam developed the

Monte Carlo Simulation technique.

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 302 DECISION SCIENCE:
UNIT 2.3.1: SIMULATION TECHNIQUES
Simulation Process:
It involves following steps
Step 1: Define the problem:

Dr. Bhagyashree S Kunte

i) Identify objectives of the problem
ii) Identify main factors to be considered
Step 2: Construct/ formulate an appropriate model:
iii) Identify the variables and parameters influencing
the decision.
iv) Formulate the appropriate decision rule
v) Define relationship of variables and parameters. 7
 302 DECISION SCIENCE:
UNIT 2.3.1: SIMULATION TECHNIQUES
Simulation Process:
Step 3: Define the starting conditions for simulation
and also specify the number of simulation runs to

Dr. Bhagyashree S Kunte

be made
Step 4: Experiment with the model
i) Define coding system
ii) Select random number generator.
iii) Generate the random number to be used in the
simulation.
iv) Summarize and examine the results in an
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appropriate table.
 302 DECISION SCIENCE:
UNIT 2.3.1: SIMULATION TECHNIQUES
Monte Carlo Simulation Process:
Step 1: Identify the input variables, collect relevant
data, write down the probability distribution for

Dr. Bhagyashree S Kunte

them. This represent simulation model.
Step 2: Compute cumulative probability.
Step 3: Identify the random number interval
corresponding to these cumulative probabilities.
Step 4: Prepare a table for the random numbers and
the expected values of the input variables.
Step 5: Process the simulation information and
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summarize the data.
 302 DECISION SCIENCE:
UNIT 2.3.1: SIMULATION TECHNIQUES
Qu. 1: A dealer of colour TVs wants to use scientific
method for reducing his investment in stocks. The
daily demand is random and varies day to day

Dr. Bhagyashree S Kunte

basis. Based on past records the dealer has
established a probability distribution of the
demand as follows:
Daily Demand (units) 2 3 4 5 6

Probability 0.06 0.14 0.18 0.17 0.16

Daily Demand (units) 7 8 9 10

Probability 0.12 0.08 0.06 0.03

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 302 DECISION SCIENCE:
UNIT 2.3.1: SIMULATION TECHNIQUES
Qu.1 continued
Using following random numbers, simulate the daily
demand and find the average daily demand for 10

Dr. Bhagyashree S Kunte

days.
Random numbers: 3,38,17,32,69,24,61,30,03, 48, 88,
71,27 and so on.

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 302 DECISION SCIENCE:
UNIT 2.3.1: SIMULATION TECHNIQUES
Solution1:
Daily Probabilit Cumulative Random no.
Demand( units) y Probability Interval

Dr. Bhagyashree S Kunte

2 0.06 0.06 00-05
3 0.14 0.20 06-19
4 0.18 0.38 20- 37
5 0.17 0.55 38-54
6 0.16 0.71 55-70
7 0.12 0.83 71-82
8 0.08 0.91 83-90
9 0.06 0.97 91-96
12
10 0.03 1.00 97-99
 302 DECISION SCIENCE:
UNIT 2.3.1: SIMULATION TECHNIQUES
Solution1:
Day Random No Random No Interval Simulated demand
1 3 00-05 2

Dr. Bhagyashree S Kunte

2 38 38-54 5
3 17 06-19 3
4 32 20-37 4
5 69 55-70 6
6 24 20-37 4
7 61 55-70 6
8 30 20-37 4
9 3 00-05 2
10 48 38-54 5 13
 302 DECISION SCIENCE:
UNIT 2.3.1: SIMULATION TECHNIQUES
Solution1:
Total Demand for 10 days = 41
Average demand = 41/10 = 4.1 i.e. 4 units

Dr. Bhagyashree S Kunte

Qu2. A co. sells its product X. The past data of
demand per week in hundred kg with frequency is
given below. Generate demand for next 10 weeks
and find the average demand.
Demand/wk 0 5 10 15 20 25

Frequency 4 22 16 42 10 6
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 302 DECISION SCIENCE:
UNIT 2.3.1: SIMULATION TECHNIQUES
Qu2. Use the following random numbers:
87,05,35,43,77,61,09,05,58,85
Solution:

Dr. Bhagyashree S Kunte

Demand/wk Frequency cumulative Random No.
Frequency Interval
0 4 4 00-03
5 22 26 04-25
10 16 42 26-41
15 42 84 42-83
20 10 94 84-93
25 6 100 94-99 15
 302 DECISION SCIENCE:
UNIT 2.3.1: SIMULATION TECHNIQUES
Solution: The total demand and the avg. demand for 10 weeks
are 125 and 12.5 hundred kgs. respectively.
week Random No. Random No. Interval Simulated Demand

Dr. Bhagyashree S Kunte

1 87 84-93 20
2 05 04-25 5
3 35 26-41 10
4 43 42-83 15
5 77 42-83 15
6 61 42-83 15
7 09 04-25 5
8 05 04-25 5
9 58 42-83 15
10 85 84-93 20 16
 302 DECISION SCIENCE:
UNIT 2.3.1: SIMULATION
TECHNIQUES
Qu.3. SPPU Oct 18 : A bakery keeps stock of popular
brand of cake. Daily demand based on past experience is
given below: [10]

Dr. Bhagyashree S Kunte

Daily Demand 0 10 20 30 40 50
Probability 0.01 0.15 0.20 0.50 0.12 0.02
i) Find stock situation (unsold cake) if the owner of the
bakery decides to make 30 cakes every day.
ii) Also find average demand for the cakes on basis of
simulated data.
Using the following random numbers simulate the demand
for next 10 days: Random Number : 45, 72, 56, 51, 79, 17
09, 61, 43, 31, and 81.
 302 DECISION SCIENCE:
UNIT 2.3.1: SIMULATION TECHNIQUES
Solution 3:
Demand/ Probability Random No.
day cumulative Interval
Probability

Dr. Bhagyashree S Kunte

0 0.01 00
0.01
10 0.15 01-15
0.16
20 0.20 0.36 16-35
30 0.50 36-85
0.86
40 0.12 86-97
0.98
50 0.02 98-99
1.00
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 302 DECISION SCIENCE:
UNIT 2.3.1: SIMULATION TECHNIQUES
Solution:
Day Random Random No. Simulated Daily
No. Interval Daily Demand Balance
1 45 36-85 30 0

Dr. Bhagyashree S Kunte

2 72 36-85 30 0
3 56 36-85 30 0
4 51 36-85 30 0
5 79 36-85 30 0
6 9 01--15 10 20
7 61 36-85 30 0
8 43 36-85 30 0
9 31 16-35 20 10
10 81 36-85 30 0
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 302 DECISION SCIENCE:
UNIT 2.3.1: SIMULATION
TECHNIQUES
The total balance stock for 10 days = 30
The average daily balance stock =30/10= 3 cakes

Dr. Bhagyashree S Kunte

Total demand of cakes for 10 days= 270
Average daily demand for the period= 270/10 =27
………………………………………….
Qu.4: At a bus terminal every bus should leave with driver.
At the terminal they keep 2 drivers as reserved if any one
on scheduled duty is sick and could not come. Following
is the probability distribution that the driver becomes sick
No. of sick drivers 0 1 2 3 4 5
Probability 0.30 0.20 0.15 0.10 0.13 0.12 20
 302 DECISION SCIENCE:
UNIT 2.3.1: SIMULATION
TECHNIQUES
Qu.4: Simulate for 10 days and find utilization of reserved
drivers. Also find how many days and how many buses
cannot run because of non availability of drivers. Use

Dr. Bhagyashree S Kunte

following random numbers.
30, 54, 34, 72, 20, 02, 76, 74, 48, 22
Solution:
No. of sick drivers 0 1 2 3 4 5
Probability 0.30 0.20 0.15 0.10 0.13 0.12
Cumulative 0.30 0.50 0.65 0.75 0.88 1.00
Probability
Random No. 00-29 30-49 50-64 65-74 75-87 88-99
Interval 21
 302 DECISION SCIENCE:
UNIT 2.3.1: SIMULATION TECHNIQUES
Solution:
Day Random Random No. of sick No of reserved Shortage of
No. No. Interval Drivers drivers used out of 2 Drivers
1 30 30-49 1 1 0

Dr. Bhagyashree S Kunte

2 54 50-64 2 2 0
3 34 30-49 1 1 0
4 72 65-74 3 2 1
5 20 00-29 0 0 0
6 2 00-29 0 0 0
7 76 75-87 4 2 2
8 74 65-74 3 2 1
9 48 30-49 1 1 0
22
10 22 00-29 0 0 0
 302 DECISION SCIENCE:
UNIT 2.3.1: SIMULATION
TECHNIQUES
Solution:
1) Three days four buses cannot run as follows:

Dr. Bhagyashree S Kunte

On day 4, 7 and 8 since the number of sick drivers are more
than the available reserved drivers hence on these days
there is shortage of drivers and buses cannot run on these
days are : Day 4: 1, Day 7: 2 and Day 8:1
…………………………………………….

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Dr. Bhagyashree S Kunte
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End of Lecture 2.3.1