Business forecasts only do so much. They cannot tell you the exact times of day you’ll likely serve the most customers. They merely let you know the average number of customers per day you’ll serve and an average of how frequently. A simulation, however, can replicate the real-world event in a computer model or, in some cases, a live-action role-play.
In a business simulation, you construct a rule set that governs activity based upon your actual business processes and using a model schedule. If you have yet to open your location, you might base your model schedule on a competitor’s. Running the simulation lets you see how the layout, location, deliveries, customers, vendors and staff all interact together. You run the ideal scenario, but also the alternates – the scenarios that include a variable that throws things off like late deliveries or an unexpected rush from a football game that went into overtime.
The Benefits of Simulation Models
Business simulations provide many benefits the greatest being that you can easily test any situation before it occurs. The three typical situations for business simulation models include:
- You lack data.
- You need to analyze complex business processes.
- You need a low-cost, low-risk environment for testing potential changes.
It provides so much more than a simple testbed, though. Using simulations contains many competitive advantages. It gives you the flexibility to run multiple scenarios to glean insights for every aspect of the business. You can test complex systems with complicated rule sets and multiple variables. You’re only limited by your computing power. Business simulations let you variable test outside the real world, so you do not have to close a location or wait for construction to complete for testing to begin. Inherently, simulations let you test What-ifs. Just as in statistical analysis, you can analyze and study the impact of interrelated variables. Computer modeling provides you with time compression, allowing you to model a year within a day or so of model runs. Finally, these simulations let you test for complications that integrating new equipment, updating business processes or hiring/firing staff could cause.
Addressing and Reducing Variation
Variation occurs in every business. No two sets of 24 hours happen the same. Those day-to-day shifts impact business. Running business simulations helps address these differences. Simulating a six month to one year time period, or even quarter by quarter, can help you address effective resource allocation, manage costs and address increased or decreased product or service demands.
Start addressing business variation by admitting its existence and understanding how it impacts your business. Simulations can help your business process management initiatives by helping to identify where variation impacts company business processes and how it does so. This lets your firm better manage and improve its processes and, finally, standardize those processes and implement best practices.
Building variations into your business simulations helps optimize your model. The saying less is more does not apply in simulations. The greater the increase to model complexity, the further you decrease bias and increase variance. The strength in that is you create a model flexible enough to handle multiple scenarios, datasets and situations. You create a model that minimizes bias and provides a high confidence of statistically significant data response. The first thing to try when noticing significant variance errors is to add to the data set. A larger data set lets you increase model complexity without creating variance errors.
You don’t have to go it alone when developing complex models and simulations. Let Starr & Associates help you develop the business simulations that can move your company to the next level. You can test business process changes before making them to ensure a good fit and improve your productivity and profits.