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A 5-minute guide to Monte Carlo simulation using @Risk

To start @Risk: in Windows, StartProgramsPalisade Decision Tools- @Risk

3.5 for Excel (32 bit) clickEnable acros (clickEnable acrosagain with the

hourglass, otherwise ou!ll wait "ore#er$%

&otice the new tool 'ars in )cel these are *ro#ided ' @Risk, which is an )cel

+add-in

.te* /: 0e"ine the model (in*uts and out*uts%

1ere we in*ut the distri'ution t*e o" each R2, and the relationshi* 'etween them

)am*les: in a cell, ou can t*e in (case-insensiti#e% an o" the "ollowing:

=RiskNormal(,)"or a normal R2 with mean and standard de#iation 3=RiskLogNorm(,)"or a log-normal R2 with mean and standard de#iation 3=RiskDiscrete({x1,x2,},{w1,w2,})"or a discrete R2 whose outcomes are x1,x2,,

with relati#e likelihood w1 : w2 : (note: no need to normali4e the weights%3

=RiskExpo(!"2)"or an e)*onential R2 with mean 63 etc

(7se @Risk!s!el"Distrib#tionto see all distri'ution t*es Remem'er the +R8.9

*re"i) in "ront o" all these distri'utions%

&ote:

the *arameters o" a distri'ution (eg the mean o" an R2% can 'e re"erences to

other cells

what a**ears in the cell ma 'e ust the mean #alue, don!t worr as the simulation

hasn!t started et

it!s a good ha'it to gi#e our num'ers some descri*tion headings, which will 'e

used automaticall in the re*orts generated ' @Risk

A"ter de"ining all the +in*ut random #aria'les, de"ine the out*ut(s% as a "unction o"

the in*ut #aria'les Then click the out*ut cell(s% and the +Add;as @Risk out*uts

'utton (red down arrow%

A"ter all this is done, ou can click the dou'le red-'lue arrow to see a listing o" all the

in*uts and out*ut(s% ou ha#e de"ined, and the detailed contents in each cell The@Risk window a**ears, and dis*las the +8n*uts '

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.te* 6: >er"orm the simulation:

8n @Risk #iew, click the .im(ulation% .ett(ings% 'utton =ou can adust the "ollowing:

? o" iterations (ie how man times to recalculate the whole s*readsheet using a

di""erent set o" random num'ers% (t*ical #alue: sa 5%, ? o" simulations (usuall one%

.am*ling: atin 1*ercude ("aster con#ergence than Monte Carlo% or Monte

Carlo3

Random &um'er Benerator .eed ( to ha#e trul random seed using the clock3 or

others i" ou need to ha#e the same set o" out*uts e#er time%3

.tandard Recalc (ChoosingEx"ected $al#ewill alwas show means o"

distri'utions in the cells3onte %arloallows ou to see the u*dated simulation

results in the )cel s*readsheet%

Con#ergence:to'Sto"is hel*"ul i" ou don!t know how man iterations ou

should runthis o*tion tells the simulation to sto* once the num'ers (eg meanand standard de#iation o" the R2s% 'ecome sta'le at the le#el o" con#ergence ou

s*eci"

When all things are set, click the .imulate (with red >0D icon% 'utton$ 8" ou are in the

)cel #iew ou can see the actual random num'ers change

.te* E: Reading and gra*hing the results

When the simulation is "inished, ou see two windows (u**er and lower%:

7**er window: TheRes#lts Re"ort: shows the minFma)Fmean o" each in*ut and out*ut

during this simulationower window: The Stats. Re"ort: shows more detailed statistics (eg Gtile #alues,

mean, #ariance, skewness, etc% o" the in*ut and out*ut R2s HHH =ou can s*eci" x

#alues "or +Target ?/ , etc to de"ine e#ents and see the associated *ro'a'ilities >(R2

x%

8" ou want to see all the raw data, click +0ata 'utton in u**er window

=ou can also co* the results to )cel: use *ull-down menu!s res#lts re"orts to

orks*eet (check whate#er it is ou want to e)*ort to )cel%

To gra*h a distri'ution "or a simulated R2, ust click and highlite, sa, the +&etwinnings column "or our gam'ling e)am*le, and then click the Bra*h 'utton with a

red histogram =ou can "ormat the gra*h ' right-clicking on it

Remem'er that ou will usuall need to e)*ort the stats to an )cel worksheet and do

some "urther work 'e"ore su'mitting the num'ers