Monte-Carlo Simulation

Using one of the examples/cases described in the text, demonstrate the What-How-Why of Monte-Carlo Simulation. Address the following using the example you selected to illustrate various ideas.

1. What is Monte-Carlo Simulation? (Describe the purpose of MCS. Relate it to Sensitivity and Scenario Analysis. Using an example outline the objectives of the situation and the desired outcome of your analyses. What are the limitations of Scenario Analyses and how does Monte-Carlo Simulation overcome these limitations.
2. How is Monte-Carlo Simulation performed? (Describe the process of modeling various uncertain inputs using their probability distributions. How are the values of these inputs generated? How are the results summarized? Add comments to the spreadsheet that contains the model – identify inputs and their distributions and the outcome variables. In this section you will be describing the procedure used by @Risk).
3. Why is Monte-Carlo Simulation appropriate for managing uncertainty in complex situations? (Interpret the results of your analyses. Why is the distribution of the outcome important for decision making?)

Example Application Models (Crystal Ball)

Note: You can use another DSS to demonstrate your ability to apply simulation techniques. You can also use @Risk to complete this project.