We do this because it is faster, cheaper, or safer to perform experiments on the model. In a simulation, we perform experiments on a model of the real system, rather than the real system itself. Selecting projects with uncertain payoffs in capital budgeting.Deciding on reservations and overbooking policies for an airline.Planning for retirement, given expenses and investment performance.Planning aircraft sorties and ship movements in the military.Forecasting sales and production requirements for a new drug.Setting stock levels to meet fluctuating demand at retail stores.Evaluating environmental impacts of a new highway or industrial plant.Choosing drilling projects for oil and natural gas.
Here's just a sample of the applications where simulation is used: Simulation is one of the most widely used quantitative methods - because it is so flexible and can yield so many useful results. Often - but not always - a simulation deals with uncertainty, in the system itself, or in the world around it. By performing simulations and analyzing the results, we can gain an understanding of how a present system operates, and what would happen if we changed it - or we can estimate how a proposed new system would behave. Simulation is a flexible methodology we can use to analyze the behavior of a present or proposed business activity, new product, manufacturing line or plant expansion, and so on (analysts call this the 'system' under study).