Reference no: EM132238305

Production Analysis

The Monte Carlo technique is a method for simulating events based upon their probability of occurrence. The technique requires that an event have a limited number of possible outcomes and that the probability of any particular outcome be known. Those probabilities are then aligned with ranges of random numbers that are proportional to the probabilities. Then by using a table of random numbers, random outcomes can be simulated that will predict the event. In theory, the number of simulation run is large and the “expected” event is the average of the individual events. In practice, the number of simulations is limited by the time available to perform the Monte Carlo calculations.

Monte Carlo simulations have become particularly popular with the advent of computers that permit the running of a large number of simulations without user intervention. Most computers and computer programs that are intended for analysis have random number generators built in and the user need only activate that generator. Most random number generators require a seed number to initiate the series of random numbers and one of the requirements of computer programming is that random number generators generate the same series of numbers for a given seed number. But it remains the responsibility of the user to associate the random numbers with the individual outcomes and to set up the simulation to perform the intended operations.

Monte Carlo analysis was invented to study the outcomes associated with gambling; it likely confirmed that the advantage is always with the house. It is used today in a wide variety of situations where operations are performed that have variable time. This is particularly true for any operation that involves people. This would include assembly line balancing, route scheduling, level of inventory, etc. It permits you to look into the future with a reasonable expectation that you will be able to predict what will happen, at least within the parameters of the event.

For this exercise, we will go back to gaming. We could simulate Monopoly or Parcheesi or any of the games that children play. But those actually require a more complicated simulation than that of playing craps