Monte Carlo Simulation in Business Plans

"Make or make not": deciding to realize projects using Monte Carlo

excel document with erlang formula When creating business plans people often present only 3 cases to predict the development of their project, idea or company: one "worst" and one "best" case and the hopefully realistic scenario.
Sometimes only the assumed (and wishfully expected) case is presented. This one was created by acting on instinct. Of course the input parameters can be changed, but the different numbers that are typed in the Excel cells are again a matter of feeling.
For the decision-makers it becomes a difficult situation: In Excel everything looks fine but the reality often looks different.
The Monte Carlo Simulation derived from (statistical) physics is a quick and cost-effective method to quantify your risk in a new project or investment. It can be used to verify or estimate the progress of existing projects, to simulate probable ways to show how new ideas could develop and to model and analyse every kind of risky venture that can be put into numbers.

Please feel free to ask me for explanation:

The topic is still very new. While it is being teached in MBA courses in the U.S. it is still a new subject for e.g. German students.

Useful References:

- A new book on the topic
- The German book I used