As we are constantly faced with uncertainty and variability, risk and forecast analysis is part of every decision you make. And even though we have unprecedented access to information, we can’t accurately forecast the future. But with Monte Carlo simulation, we have the next best thing to a superpower.
Monte Carlo simulation (also known as the Monte Carlo method) lets you see all possible outcomes of your decisions, including the actual probabilities each will occur, by running simulations with random variables thousands of times. These variables are described by their probability distribution which can be estimated with historical data or defined using expert opinion. Then, with risk analysis software like @RISK, you can run sensitivity analysis to identify which variables have the largest impact on the outcome. This method lets you quantitatively assess the impact of risk, allowing for more accurate forecasting and, ultimately, better decision-making under uncertainty.