XL Edge Guide · Monte Carlo
Monte Carlo simulation: should we build Plant 2?
The single-number spreadsheet says a second plant is worth 45 million dollars. Simulating the same assumptions 10,000 times gives an expected value of 17 million, with a 29% chance of losing money. It also finds a better plan: wait a year, and build only if demand shows up.
What the guide covers
In this guide
- 1The decision
- 2Why one spreadsheet gets it wrong
- 3Using the ribbon
- 4From history to assumptions
- 5The assumptions
- 6The calculation engine
- 7Results: build now or wait
- 8Choosing the wait rule
- 9What drives the answer
- 10Checking the model
- 11Practical advice
- 12Function reference
What it uses
- Functions
fx.RiskGBMλfx.RiskOUλfx.RiskFitGBMλfx.RiskFitOUλfx.RiskPertλfx.RiskBernoulliλfx.RiskSPTMetalogλfx.RiskCopulaGaussλfx.RiskVariablesTableλfx.RiskMeasuresλthe chart data functions- In the ribbon
- XL Edge tab › Productivity Tools › Stat Tools › the Monte Carlo and Time Series menus
- Example workbook
- The same manufacturer as the Copula guide, with simulated demand and material-cost history; every assumption is illustrative. Every number in the guide is read from it.
- Needs
- Excel for Microsoft 365. The workbook carries its own functions in Name Manager, so it calculates with or without XL Edge installed.
Inside
The first four pages
More XL Edge Guides
- BootstrapHow sure are your numbers?
- Confidence EllipseAn interval for two variables at once
- CopulaWhen your inputs move together
- CorrelogramReading a series' memory
- Multivariate Time SeriesSeries that move together: VAR and VECM
- Outliers and LeverageFinding the observations that don't fit
- PortfolioThe efficient frontier in four formulas
- SARIMAForecasting a series with a yearly rhythm