Practical Spreadsheet Risk Modeling for Management

236 Practical Spreadsheet Risk Modeling for Management

Monte Carlo simulation can be useful for examining complex future

scenarios where uncertainty is inherently important. An analysis should

convey that multiple scenarios are possible; each trial of the simulation rep-

resents a different possible future.

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The average (or median, or most likely)

of these scenarios is almost always of interest, but so is the variability of

possible scenarios. Modeling averages without uncertainty does not require

Monte Carlo simulation, but modeling variability and uncertainty is greatly

enhanced through simulation.

Consider a simple concept ...