MONTE CARLO SIMULATION: IMPORTANT MANAGEMENT TOOL IN EVALUATING DECISIONS UNDER RISK. CASE STUDY: LAUNCH A NEW PRODUCT OF SHOES

Veres Vincentiu () and Mortan Maria ()
Additional contact information
Veres Vincentiu: Universitatea Babes-Bolyai, Facultatea de Stiinte Economice si Gestiunea Afacerilor, Cluj-Napoca,
Mortan Maria: Universitatea Babes-Bolyai, Facultatea de Stiinte Economice si Gestiunea Afacerilor, Cluj-Napoca,

Annals of Faculty of Economics, 2013, vol. 1, issue 1, 1698-1709

Abstract: Decisions are a result of choices made between several alternatives and will affect all participants in the decision-making process. In this paper we analyze the Monte Carlo simulation as an important management tool in evaluating decisions under risk. The method is particularly useful in simulating decision problems. For example, the profit that could be achieved if a company launches a new product may depend on a number of factors (market share, advertising, production costs, launch costs, the lifetime of the product, etc. The company manager should identify all factors that could affect profit and then to consider the large number of ways in which these factors may interrelate. In such situations it is recommended company manager to divide the problem into smaller parts, asking him to estimate the probability distribution for market share, for advertising, for the cost of launch. Once they were obtained it can be determined their combined effect in order to obtain the probability distribution of profit. Through computer can generate a large number of possible combinations of situations where you choose a particular course of action. Upon completion of the simulation possible combination will be generated mostly while the least possible combination will be generated less frequently. For exemplification we selected a company producing shoes in Cluj market who wants to launch a new model for autumn-winter 2013-2014. In the current period the company has limited production capacity, has a number of additional contracts honored and general economic crisis situation makes money availability to be extremely limited. Accordingly, the company will have to choose a single product to be launched next season. The company will have to decide which of the two new products to be launched on the market: a model of boots for men in business class or a new model of women\'s boots of the same class business. The company is not sure either production costs or sales level. Profit estimate involves going through several phases, and the first of these relates to the identification of factors that may or may influence the profit for both products.

Keywords: decision-making; simulation; Monte Carlo method; launch a new product (search for similar items in EconPapers)
JEL-codes: D81 (search for similar items in EconPapers)
Date: 2013
References: Add references at CitEc
Citations:

Downloads: (external link)
http://anale.steconomiceuoradea.ro/volume/2013/n1/181.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ora:journl:v:1:y:2013:i:1:p:1698-1709

Access Statistics for this article

More articles in Annals of Faculty of Economics from University of Oradea, Faculty of Economics Contact information at EDIRC.
Bibliographic data for series maintained by Catalin ZMOLE ( this e-mail address is bad, please contact ).