Simulation And Risk Analysis Analytical Techniques For Understanding And Controlling Risk

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Remaining competitive in today's global economy means delivering higher quality services and products at better prices

. Your customers (and your bottom line) demand continuous improvement, lower costs and shorter delivery times. To ignore these realities will almost certainly result in reduced profitability, or worse.

Simulation Almost a Crystal Ball?

The problem with change is that it is risky; without the proverbial crystal ball, we cannot be certain what to change, or what to change to. There is, however, a way to evaluate the risks before implementing change, so reducing them to well understood levels. Simulation can show you all possible outcomes in your situation - and tell you how likely they are to occur! What this means for you -- the decision maker -- is that you finally have, if not perfect information, the most complete picture possible. You will see what could happen, how likely it is to happen, and so be able to judge which risks to take and which ones to avoid. While simulation cant predict the future, it can help you to choose the best strategy based on the available information before committing significant funds to the process. That's not a bad start!

Why not use simulation to improve performance measurement for better manufacturing management? Identify bottlenecks, improve productivity, implement lean manufacturing or perform theory of constraints. Using the latest simulation techniques will help you tighten up your processes to meet stringent market demand and out-perform your competition by using simulation to plan, model, validate, and communicate better ways of getting the job done.

What Can You Simulate?

You can simulate just about anything, but as a general rule, if you can draw a flowchart of your system then you can simulate it. What simulation does is to recreate all of the important and relevant logical rules that tell a system how to work, and how long to take at each stage. It's easy to think of a simulation of a manufacturing process, but you can apply the same logic to health care, call centres, project planning, and any other system where a job or unit of work flows through a number of stages.

The processes you'll gain most benefit from simulating are those that involve change over time and randomness; for example a call centre. Nobody can guess at exactly what time the next call will arrive, for how many rings the caller is prepared to wait for an answer, or how long they will wait in a queue listening to music or messages before hanging up. Modelling complex dynamic systems like this effectively in any other way simply isnt practical.

Why Simulate?

Simulation provides a vehicle for a discussion about all aspects of a process. Defining the rules and collecting data force you to consider why elements work in a certain way, and how they could work better. It also brings to the surface inconsistencies and inefficiencies especially between different sections of a process that work independently.

There are many process improvements you can make using simulation: higher quality and efficiency from capital assets, better management of inventory, higher return on assets; the list is endless. But some of these improvements could be made without simulation, so the real question is 'Why use simulation instead of another method?'

Simulation vs Real Life Experimentation

Cost

Experimenting in real life is costly. Its not only the capital expenditure of hiring new staff or purchasing new equipment, its the cost of the ramifications of these decisions. What if you fire three staff and then find you can't cope with the workload and you loose customers? The only cost with simulation is the software and the man hours to build the simulation.

Repeatability

In real life its really difficult to repeat the exact circumstances again so you only get one chance to collect the results and you can't test different ideas under exactly the same circumstances. So how do you know which idea is really the best? With simulation you can test the same system again and again with different inputs.

Time

If you want to know whether hiring another three doctors will reduce patient waiting lists over the next two years you'll actually have to wait two years. With simulation you can run two, ten or even one hundred years into the future in seconds. So you get the answer now instead of when its too late to do anything about it.

Managing change

Aside from the machine operations, companies also have to deal with product changeovers, variability and unpredictable events such as workforce absenteeism, material shortages or accidents. All of these affect the productivity of a production line.

Test driving new scenarios

Because of the high cost of both inefficiencies and new equipment, optimizing systems design and operation is critical to improving overall productivity, customer service and the bottom line. Simulation lets you build up your system and then test it; you can combine process simulation and optimization to help demonstrate, predict and measure system performance; you can find out where and why problems occur, (e.g. why a bottleneck builds up), allowing you to identify areas for improvement, test out new ideas and, most importantly understand how a system works without taking any significant risks and before introducing changes to live operations.

Communication

With graphical and animated packages you can communicate your understanding and improvement ideas to others. You can visualise how work flows through your system and see its dynamics in fast forward time. You can actually watch bottlenecks building up and see what is causing the problems.

Simulation is helping companies take the guesswork out of designing operating systems, and showing them how they might optimize existing operations.

by: A Turner

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