Introduction to

Simulation
Lecture 1
MS 5225 Business Process Modeling &
Simulation

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Business Analytics

• What is Business Analytics?

• Evolution of Business Analytics
• Scope of Business Analytics
• Data for Business Analytics
• Decision Models
• Problem Solving and Decision Making

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What is Business Analytics?

Analytics is the use of:

data,
information technology,
statistical analysis,
quantitative methods, and
mathematical or computer-based models
to help managers gain improved insight about their business
operations and make better, fact-based decisions.

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What is Business Analytics?

Business Analytics Applications

 Management of customer relationships
 Financial and marketing activities
 Supply chain management
 Human resource planning
 Pricing decisions
 Financial engineering
 Sport team game strategies

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What is Business Analytics?

Importance of Business Analytics

 There is a strong relationship of BA with:
- profitability of businesses
- revenue of businesses
- shareholder return
 BA enhances understanding of data
 BA is vital for businesses to remain competitive
 BA enables creation of informative reports

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Evolution of Business Analytics

• Operations research
• Management science
• Business intelligence
• Decision support systems
• Personal computer software
• Artificial Intelligence (e.g. deep learning)

Copyright © 2013 Pearson

Education, Inc. publishing as 1-6
Prentice Hall
Scope of Business Analytics

 Descriptive analytics
- uses data to understand past and present (simulation)
 Predictive analytics
- analyzes past performance
 Prescriptive analytics
- uses optimization techniques (simulation)
- evaluating suggested strategies & policies (simulation)

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 Overview

• What is a business process?

– Three definitions
– Process types and hierarchies
– Components of process architectures
• The essence of Business Process Design (BPD)
• Why is BPD important?
– BPD and overall business performance
– BPD and strategy
• Why do inefficient processes exist?
• Activity classification and BPD

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 Why Simulation?
• It is too costly to do physical studies on the system
itself (e.g., trying alternative layout of a factory,
building new facility)
• The corresponding analytic models are too
complicated to study (e.g. a transportation network/
supply chain)
• There is no other way around
• Fun tools to work with

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 What is simulation?
• Methods and applications to imitate the operations of
real systems or processes over time, usually via
computer
• Simulation involves
– Building a model for the business process
– the generation of the artificial history of the system
– observation of the artificial history to draw inferences
concerning the operating characteristics of the real system
that is presented
– We need the correct bookkeeping and logic to draw
inferences

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 What is simulation?
How are the pilots of fighter planes trained?

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What is simulation?

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Deep Learning (Stochastic Gradient Descent)

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What is simulation?

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 Industry 4.0
Data and analytics are the core capabilities driven by:
• Digitization and integration of vertical and horizontal value chains —
Industry 4.0 integrates processes vertically, across the entire organization,
including processes in product development, manufacturing, structuring and
service; horizontally, Industry 4.0 includes internal operations from suppliers
to customers as well as all key value chain partners
• Digitization of product and services — integrating new methods of data
collection and analysis–such as through the expansion of existing products
or creation of new digitised products–helps companies to generate data on
product use in order to refine products
• Digital business models and customer access — customer satisfaction is a
perpetual, multi-stage process that requires modification in real-time to
adapt to the changing needs of consumers

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 Applications
 Deep Learning is a simulation based learning process
 Designing and analyzing manufacturing systems
 Evaluating a new military weapons system or tactics
 Determining ordering policies for an inventory
system
 Designing communications systems

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 Applications:(continued)
 Designing and operating transportation facilities such
as freeways, airports, subways, or ports
 Evaluating designs for service organizations such as
hospitals, post offices, or fast-food restaurants

Analyzing financial or economic systems

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 The Spirit of Stochastic Simulation

• Practice makes perfection!

• In simulation, eventually we want to estimate
the our objective
• In order to do so, we need many replications,
in fact, the more the better.
• In probability, this is due to the law of large
number!
– Basically, we use sample average to approximate
the expected value, more samples are better!

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Simulation v.s. Symbolic & Analytical Tools
 Strengths
+ Provides a quantitative measure
+ Flexible – can handle any kind of complex system or statistical
interdependencies
+ Capable of finding inefficiencies otherwise not detected until the
system is in operation
 Weaknesses
– Can take a long time to build
 Usually requires a substantial amount of data gathering
– Easy to misrepresent reality and draw faulty conclusions
– Generally not suitable for optimizing system parameters

 A simulation model is primarily descriptive while an

optimization model is by nature prescriptive
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Modern Simulation Software Packages are
Breaking Compromises

• Graphical interfaces
Þ Achieves the descriptive benefits of
symbolic tools like flow charts

• Optimization Engines
Þ Enables efficient automated search
for best parameter values

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 Building a Simulation Model
• General Principles
– The system is broken down into suitable components or entities
– The entities are modeled separately and are then connected to a
model describing the overall system
Þ A bottom-up approach!
• The basic principles apply to all types of simulation models
– Static or Dynamic
– Deterministic or Stochastic
– Discrete or continuous

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 Steps in a BPD Simulation Project
1. Problem formulation Phase 1
Problem Definition
2. Set objectives and overall project plan

4. Data Collection
Phase 2
3. Model conceptualization
Model Building
5. Model Translation

No Phase 3
6. Verified
Yes Experimentation
No No
7. Validated
Yes
8. Experimental Design
Phase 4
Implementation
9. Model runs and analysis

Yes No 11. Documentation, reporting and

10. More runs 25
implementation
 Model Verification and Validation

• Verification (efficiency)
– Is the model correctly built/programmed?
– Is it doing what it is intended to do?
• Validation (effectiveness)
– Is the right model built?
– Does the model adequately describe the reality you
want to model?
– Does the involved decision makers trust the model?

 Two of the most important and most challenging

issues in performing a simulation study

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 Model Verification Methods

• Find alternative ways of describing/evaluating the system

and compare the results
– Simplification enables testing of special cases with predictable
outcomes
 Removing variability to make the model deterministic
 Removing multiple job types, running the model with one job type at
a time
 Reducing labor pool sizes to one worker
• Build the model in stages/modules and incrementally test
each module
– Uncouple interacting sub-processes and run them separately
– Test the model after each new feature that is added
– Simple animation is often a good first step to see if things are
working as intended
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Validation - an Iterative Calibration Process

The Real System

Conceptual
validation

Conceptual Model
Calibration and 1. Assumptions on system components
Validation 2. Structural assumptions which define the
interactions between system components
3. Input parameters and data assumptions

Model
verification
Operational Model
(Computerized representation)
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 What Is A System
• Group of objects joined together in some regular
interaction or interdependence toward the
accomplishment of some purpose
• It has input and output
• Affected by changes occurring outside the system
(changes in system environment)
• Necessary to decide on the boundary between system
and its environment. Why is it important?

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 Models
Model: A Representation of an object, a system, or an idea in some form other
than that of the entity itself.

•Why do we study a system?

–To measure, improve system performance
–To design new systems
–To solve the problems affecting the system performance
–Training Purposes

•Why do we need a model?

–The system does not exist (i.e., conceptual stage)
– Impractical or too costly to experiment with the actual system
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 Terminology

 System
– A group of objects that are joined together in
some regular interaction or interdependence
toward the accomplishment of some purpose.
– Entity
– An object of interest in the system.
– E.g., customers at a bank (securities or stocks)

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 Terminology (continued)

 Attribute
– a property of an entity
– E.g., checking account balance (the returns functions of
securities)
 Activity
– Represents a time period of specified length.
– Collection of operations that transform the state of an
entity
– E.g., making bank deposits
– (purchasing and selling stocks)

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 Terminology (continued)

 Event:
– Change in the system state.
– E.g., arrival; beginning of a new execution; departure
– (Economic crisis)
 State Variables
– Define the state of the system
– Can restart simulation from state variables
– E.g., length of the job queue
– (the number of shares of stocks, economic conditions,
asset prices)

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 Terminology (continued)

 Process
– Sequence of events ordered on time

 Note:
– the three concepts(event, process,and activity) give
rise to three alternative ways of building discrete
simulation models

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 Continuous Time v.s. Discrete Time
Simulation

A1 A2
P1
E1 E2 /E3 E4
A1 A2
P2
E1’ E2’ E3’ E4’

Simulation Time
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 A Banking System

Note: State Variables may change continuously (continuous sys.)

over time or they may change only at a discrete set of points
(discrete sys.) in time.
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 Examples Of Both Type Models

 Continuous Time and Discrete Time

Models:
Hospital scheduling model vs. number of
students attending the class.

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 Examples (continued)

 Continuous State and Discrete State

Models:
Example: Time spent by students in a
weekly class vs. Number of jobs in Q.

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 Other Type Models

 Deterministic and Probabilistic Models:

Output
Output

Input Input
 Static and Dynamic Models:
Bus scheduling model vs. E = mc2
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 Evolution of Simulation Software
• General-purpose languages (FORTRAN)
– Tedious, low-level, error-prone
– But, almost complete flexibility
• Support packages
– Subroutines for list processing, bookkeeping, time advance
– Widely distributed, widely modified
• Spreadsheets
– Usually static models
– Financial scenarios, distribution sampling

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 Evolution of Simulation Software
• Simulation languages
– GPSS, SIMSCRIPT, SLAM, SIMAN
– Popular, still in use
– Learning curve for features, effective use, syntax
• High-level simulators
– Very easy, graphical interface
– Domain-restricted (manufacturing, communications)
– Limited flexibility — model validity?

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 Arena

• Hierarchical structure
– Multiple levels of modeling
– Can mix different modeling
levels together in the same
model
– Often, start high then go
lower as needed
• Get ease-of-use advantage of
simulators without sacrificing
modeling flexibility

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 Simulation Tools for this Course
• Spread Sheet
– Monte Carlo Simulation
– Spreadsheet is very useful in practice
• Arena
– Discrete Event Simulation
– Very powerful, graphical interface
– Very popular in Industry and Consulting

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