The Use of Simulation and Modeling Techniques - Term Paper Example

?Introduction Given the overall complexity of the business as well as the increasing nature of the competition, it has become more important for the businesses to develop and apply techniques which can provide them an opportunity to anticipate and predict different scenarios in order to better prepare themselves. Businesses are now virtually being forced to follow the technological and other changes which are taking place in order to become more competitive in nature. Business modeling and business process simulation are two of the major techniques used by the firms in order to understand and model different scenarios and risks so that better strategic response can be developed. Modeling and simulation emerged as a result of their use in the manufacturing systems however, over the period of time, their use has been extended into different areas thus allowing a larger base of business problems to be analyzed and explored with the help of these techniques. Business modeling is now widely used in the financial services sector where it is not only being used to develop some strategic level alternatives but also to perform the credit analysis of the counterparties as well as assessing the risks of different decisions. Business modeling and simulation techniques therefore can greatly increase the overall process of decision making and provide management a range of alternatives and their impact on the firm value in the short as well as in long run. This paper will attempt to discuss what business modeling and simulation is how it is being used by the businesses nowadays and how it can really help improve the business. Modeling and Simulation Simulation can be used to represent some or all of the key characteristics or behaviors of some real of physical object or event. In order to understand the overall process of simulation and modeling, it is important to explore the system methodology which is used to explore what the system is and how simulation and modeling can actually describe a system. System is considered as something which exists in time and space whereas model is a simplified version of a system which attempt to promote the overall understanding of a real system. Simulation however, is the manipulation of the model in order to compress it so that one can be enabled to perceive the interactions of the system with the different situations. A system is therefore considered as an entity which maintains its overall existence when different parts of the system interact with each other. Model however, is just the representation of the whole system or different parts of it. (Bellinger, 2004) The above definition and explanation therefore suggests that the modeling and simulation is an attempt to develop a level of understanding of either the whole system or parts of it. Simulation is also often considered as the computer version of the model to define the range of outcomes which may be achieved through the different assumed interactions. It is important to note that modeling and simulation are considered as an art as well as a science also because the overall improvement in the use and development of different models under different scenarios can only be achieved through the practice. This is therefore considered as an art because the ability to develop the understanding of how to build realistic models and simulate them can only improve when one practices it under different realistic scenarios. (Greasley, 2004) Organizations use both the simulation as well as the modeling in different manners in order to achieve different objectives. Following section will discuss some of the ways as to how the businesses actually use both the modeling and simulation. How businesses use simulation and modeling? There is a widespread use of both the simulation as well as the modeling techniques in the businesses across different industries. The initial use of these techniques were only limited to the manufacturing activities however, over the period of time, the overall range of use of such techniques have increased. Some of the ways as to how businesses use these techniques are: Manufacturing Probably the most important use of the simulation and modeling is made in the manufacturing related activities where organizations attempt to perfect their manufacturing systems and processes. The overall objectives can be different however, most organizations either want to reduce the waste or further optimize the production flow. The simulation and modeling techniques therefore are used with the help of computer software to imitate the production flows for better optimization of the processes as well as finding out ideal mix of materials for different production flows. (Barber, Dewhurst, Burns, & Rogers, 2003). It is also important to note that the simulation technologies are widely used in the manufacturing of the planes and cars. Different simulations are created in order to assess the response of the new product to different changes such as change in temperature, pressure etc. Based on the results, the changes are made in order to make the planes and cars more capable of dealing with such type of situations. Business Process Re-engineering Another very important use of the simulation and modeling is based on business process re-engineering. Businesses widely use it in order to perform the business process re-engineering in order to re-design different processes so that higher efficiency levels can be achieved. Modeling and simulation is used to break the existing system into different parts and than gradual changes are introduced in order to assess as to how the existing processes and parts of the system can better perform as compared to the previous scheme of affairs. (Guerrero, 2010) Risk Analysis Probably one of the most critical and widespread uses of simulation and modeling techniques such as Monte Carlo Simulation is in the financial services industry. Banks and other financial institutions use the simulation and modeling techniques in order to create different scenarios and how they may affect their profitability. Further, simulation and modeling techniques are also used in order to assess the risks involved in lending besides measuring the credit risk and its impact on the overall profit and loss position of the institution. Sales Processing Organizations are increasingly using the simulation and modeling techniques in understanding the flow of the customers in order to make their orders and sales processing mechanisms more robust and efficient. By using simulation and modeling techniques, organizations can actually understand and explore as to what are the existing capabilities of the system and under what conditions the overall sales processing and order taking system can collapse. In order to manage this, the different simulation and modeling techniques are used so that flow of customers can be efficiently managed through the system. How it can help to improve business? The use of simulation and modeling techniques can effectively allow the businesses to become more efficient. Over the period of time, these techniques are mostly used in order to improve the efficiency in the manufacturing processes however; businesses now use it to achieve the higher level of efficiency in different situations. The proper use of the simulation and the modeling techniques can also allow the firms to understand the risks in better manner. Proper understanding and spotting of risks beforehand therefore can allow businesses to identify the resources which may than can subsequently be used to manage and negotiate with such risks. It is also important to note that the use of both these techniques can also allow the businesses to prepare better strategies. Since simulation and modeling results provide the information and insight about different strategic situations therefore the higher management of the firm can always decide upon what strategies can be developed in order to cope with the different strategic situations. Conclusion Businesses have become more complicated and the degree of competition has further intensified. It is because of this reason that the businesses are using information technology to a great extent in order to understand and explore the new possibilities to further maximize their revenues and the value of their business. The use of simulation and modeling techniques is one of the ways as to how the firms are using the power of information technology to better manage their businesses and improve their efficiency. Simulation and modeling techniques are better understood when a system approach is adapted because both the techniques, in reality, attempt to imitate a real system and provide different alternatives under different conditions which can be considered to make more informed and better decisions. Over the period of time, businesses have used simulation and modeling in manufacturing for the optimization of their production flow and other processes. They have also been used by the financial institutions and central banks in order to measure the risks to the institutions and the system as a whole and under what conditions system can collapse. Further, businesses have also used them in order to manage their customer and order flow for efficient sales and order processing. The use of simulation and modeling can improve the efficiency of the businesses besides helping them in strategy formulation. Their use in the business process re-engineering can really provide effective means to further improve the existing processes. Bibliography 1. Barber, K., Dewhurst, F., Burns, R., & Rogers, J. (2003). Business-process modelling and simulation for manufacturing management. Business Process Management Journal , 9 (4), 527-542. 2. Bellinger, G. (2004). Modeling & Simulation. Retrieved Feb 17th, 2011, from http://www.systems-thinking.org: http://www.systems-thinking.org/modsim/modsim.htm 3. Greasley, A. (2004). Simulation modelling for business. New York: Ashgate Publishing, Ltd. 4. Guerrero, H. (2010). Excel Data Analysis: Modeling and Simulation. London: Springer. Read More