Computer simulations allows detailed analysis of a managerial problems involving complex cost and revenue relations.
- Investment analyst identifies probability values for significant factors.
- Using computer simulation software, analyst randomly selects sets of investment characteristics based on their chances of turning up in the future.
- Return on Investment (ROI) is estimated for specific scenario.
- ROI is reestimated hundreds or thousands, of times under alternative scenarios to give clear picture of return distribution (investment risk).