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Monte Carlo and Crystal Ball

1. Explain the difference between descriptive and prescriptive (optimization) models.
2. Describe how to use Excel data tables, scenario manager, and goal seek tools to analyze decision models.
3. Explain the purpose of Solver and what type of decision model it is used for.
4. What approaches can you use to incorporate uncertainty into decision models?
5. Explain the concept of risk analysis and how Monte Carlo simulation can provide useful information for making decisions.
6. Outline the process for using Crystal Ball to run a Monte Carlo simulation.
7. Explain the terms assumption, forecast, and decision as used in Crystal Ball.

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Descriptive v/s Prescriptive Model
Simulation method is based on either descriptive or prescriptive model. With descriptive model, the performance of a system is evaluated by concluding and analyzing its processes. If the problem of an industrial manufacturing process system is required to analyze then this descriptive model tests and inspects the steps that cause the problem. This model separates such steps from the system that causes problem and due to this process become faultless (Geist, 2006). In contrast, prescriptive model is used to generate decisions rather than analyzing the system design.

For solving the problem of any system design, the prescriptive model does not separate the problem cause step, but it analyzes the changes that could improve the system performance. It designs system from the start to make easy solutions of any problem. The detailed understanding of the dynamics and interaction among system's components is required for descriptive model. Due to this, it does is effective to analyze and optimize the complex and large systems (Suzuki, 2000). Prescriptive model works on the basis of system goals that guide to determine the number and type of resources for effective system.

Analysis of Decision Model
Data option in an excel sheet presents what-if analysis that includes all three options such as scenario manager, goal seek tools and data tables. All tools are helpful to analyze decision model differently. Excel Scenario manager is a tool that is used to determine different projected outcomes of data by changing different cells as per the scenario. Goal seek tool is effective to determine how one data item in a formula impacts another. It helps to develop "cause and effect" scenarios (Dixon, 2007).

If an organization is required to estimate production capacity in different scenarios then goal seek tool can be used. It allows organization to change the value of various factors such as working hour, labor capacity, and staff number etc to see how the production estimation could change due to change in such factors. Excel data table is helpful to compute single output variable from variation of two variables or many outputs from a series of input of one variable. An Excel data table is used by the sensitivity analysis decision model that helps to evaluate the decisions in different conditions (Johns, 2002). Following figure presents the option of scenario manager, goal seek and excel data table in excel sheet:
Figure: 1

Purpose and Use of Excel Solver
An excel solver uses a computer's fast processing that enables to analyze data and solution of complicated formulas for solving mathematical scenario and for providing decision basis accordingly. The main purpose of excel solver is to facilitate optimal utilization of resources. A wide range of mathematical relationships is expressed by the language of excel's formula. For this, excel has ...

Solution Summary

The expert explains the difference between descriptive and prescriptive optimization models. The approaches which can be used to incorporate uncertainty into decision models are determined.