By: Felimon D.

Flavier, MD
Lotis Venus Love M. Casiple, MD
 Most widely used quantitative
approaches to decision making
 Method for learning about the real
system by experimenting with a model
that represents the system
 Mathematical expression and logical
relationships
 Two points
 Controllable Inputs: analyst selects the value
 Probabilistics Inputs: randomly generated
 Diagram of a Simulation Model

Probabilistics Inputs

Controllable
Inputs
MODEL Output
 Following examples applied by Simulation
 New Product Development
 Airline Overbooking
 Inventory Policy
 Traffic Flow
 Waiting Lines
 New Product Development
 To determine the probability that a new product
will be profitable.
 A model is developed that relates profit (the
output measure)
 Probabilistic inputs: demand, parts cost, and labor
cost.
 Controllable input is whether to introduce the
product.
 Airline Overbooking
 To determine the number of reservations an
airline should accept for a particular flight.
 Probabilistic input: the number of passengers
with a reservation who show up and use their
reservation
 Controllable input: the number of reservations
accepted for the flight.
 Inventory Policy
 To choose an inventory policy that will provide
good customer service at a reasonable cost.
 A model is developed that relates two output
measures, total inventory cost and the service
level,
 Probabilistic inputs: product demand and delivery
lead time from vendors,
 Controllable inputs: the order quantity and the
reorder point.
 Traffic Flow
 To determine how installing a left turn signal will
affect the flow of traffic through a busy
intersection.
 A model is developed that relates waiting time for
vehicles to get through the intersection.
 Probabilistic inputs : number of vehicle arrivals
and the fraction that want to make a left turn
 Controllable inputs: the length of time the left
turn signal is on.
 Waiting Lines
 To determine the waiting times for customers
requesting service from a facility, such as
customers phoning a call center.
 A model is developed that relates customer
waiting times
 Probabilistic inputs: customer arrivals and service
times
 Controllable input: the number of servers
 Risk Analysis
 the process of predicting the outcome of a
decision in the face of uncertainty (development
of new product)
 What- If Analysis
 Probabilistic inputs : direct labor cost, parts cost,
and first-year demand
 computing the resulting value for the output:
profit
PORTACOM PROJECT
 Selling price: $249 per unit
 Administrative cost: $400,000
 Advertising cost: $600,000
 PortaCom Profit Model

 Profit= (249- C1-C2) X – 1,000,000

 C1 Direct labor/unit ($45)
 C2 Parts Cost/unit ($90)
 X First Year Demand (15,000)

 Profit= (249-45-90) 15,000-1000000= 710000

 Worst- Case Scenario
 Highest value range of Labor and Part Cost
 Lowest value range of first year demand
Profit= (249-47-100) 1500-1000000= 847,000

 Best- Case Scenario

 Lowest value range of Labor and Part Cost
 Highest value range of first year demand
Profit= ( 249- 43- 80) 28,500- 1000000= 2,591,000
Thank you!