In the Set Input Assumptions subtab, you start the simulation analysis by first setting simulation distributional inputs here (Figure 5.1 shows the DCF module’s default example’s Set Input Assumptions settings). Click on and choose one Project at a time to list the available input assumptions. Click on the probability distribution icon under the Settings header (see Figure 5.1 for the highlighted cell) for the relevant input assumption row, select the probability distribution to use, and enter the relevant input parameters. Continue setting as many simulation inputs as required (you can check/uncheck the inputs to simulate). Enter the simulation trials to run (start with 1,000 as initial test runs and use 10,000 for the final run as a rule of thumb for most models). You can also Save As the model (remember to provide it a Name). Then click on Run Simulation. Finally, in this tab, you can set simulation assumptions across multiple Projects and Simulate All Options at Once, apply a Seed Value to replicate the exact simulation results each time it is run, apply pairwise Correlations between simulation inputs, and Edit a previously saved simulation model. The following are some additional helpful tips:
- Refer to Dr. Johnathan Mun’s Modeling Risk, Third Edition (Thomson-Shore, 2016) for more technical details on selecting and understanding probability distributions.
- Although the software supports up to 50 probability distributions, in general, the most commonly used and applied distributions include Triangular, Normal, and Uniform.
- If you have historical data available, use the Forecast Prediction tab to perform a Distributional Fitting to determine the best-fitting distribution to use as well as to estimate the selected distribution’s input parameters.
- You can also Extract Simulation Data when the risk simulation run is complete, and the extracted data can be used for additional analysis as required.
- You can Save multiple simulation settings such that they can be retrieved, edited, and modified as required in the future.
- Remember to select either Simulate All Options at Once or Simulate Selected Option Only, depending on whether you wish to run a risk simulation on all the Projects that have predefined simulation assumptions or to run a simulation only on the current Project that is selected. Select and run all Projects at once if you will be using the results for setting up and running portfolio optimization later.
- The simulated results (e.g., distributional statistics, percentiles, confidence intervals, and probabilities) provide and create a risk profile of your Projects.
- Double-clicking on a saved simulation model will run the simulation (or simply select the saved model and click Run Simulation) or selecting a saved model and clicking the Edit button allows you to make changes to the saved model.
- You can also click on the Defaults… button to set assumptions on all inputs at once with some generic parameter inputs (e.g., set all as Triangular distributions with +/- 10% or the most likely values).
- The Set Simulation Assumptions for Multiple Years button allows you to quickly enter or paste multiple assumptions at once for variables with multiple years.
