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Key Business Analytics by Bernard Marr

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13

Monte Carlo simulation

What is it?

The Monte Carlo simulation is a mathematical problem-solving and risk assessment technique that approximates the probability of certain outcomes, and therefore the risk of certain outcomes, using computerised simulations of random variables.

The probability-based technique is used in fields such as finance, project management, manufacturing, engineering, research and development, insurance, oil and gas and transportation. It is useful for any industry or business that needs to assess risk of a future strategy or plan.

When you are seeking to forecast or predict the future to assess risk you need to make some assumptions around that scenario. For example, if you want to forecast the return on investment ...

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