Monte Carlo Simulation 1. Simulation is the process of creating a virtual environment that mimics the behavior of a real-world system. 2. This virtual environment is used to train Machine Learning Models, test new algorithms, and explore the behavior of complex systems. 3. It provides a safe and controlled space to test different options, predict outcomes, and make insight-informed decisions. Project Objective 4. Which is better: joining a partnership or starting own business? Strategies For Modelling & Data Analysis 5. Simulate Number of Deliveries Made/Month 6. Simulate Labour Cost 7. Calculate Revenue Per Delivery 8. Calculate the Monthly Total Revenue & Profit, Calculate Estimated Average Profit & Variances Author: Anthony mok Date: 16 Nov 2023 Email: xxiaohao@yahoo.com

1. IS IT BETTER OFF
JOINING A
PARTNERSHIP OR
STARTING OWN
BUSINESS?
AN APPLICATION OF MONTE CARLO
SIMULATION IN DECISION MAKING
AUTHOR: ANTHONY MOK
DATE: 16 NOV 2023
EMAIL: XXIAOHAO@YAHOO.COM

2. 16 November 2023 An Application of Monte Carlo Simulation in Decision Making
AGENDA
• Brief On Simulation In Decision Making
• Project Objective
• Context & Opportunity
• Strategies For Modelling & Data Analysis
• Findings, Conclusions & Recommendations
2

3. 16 November 2023 An Application of Monte Carlo Simulation in Decision Making
BRIEF ON SIMULATION IN
DECISION MAKING
Simulation is the process of creating a
virtual environment that mimics the
behavior of a real-world system.
This virtual environment is used to train
Machine Learning Models, test new
algorithms, and explore the behavior of
complex systems.
It provides a safe and controlled space
to test different options, predict
outcomes, and make insight-informed
decisions.
3

4. 16 November 2023 An Application of Monte Carlo Simulation in Decision Making
PROJECT
OBJECTIVE
WHICH IS BETTER: JOINING A
PARTNERSHIP OR STARTING
OWN BUSINESS

5. 16 November 2023 An Application of Monte Carlo Simulation in Decision Making
CONTEXT
DANNY
Danny, an aviation engineer, works
for a major company in Singapore
He always wanted to start Door-2-
Block Delivery Services using
delivery robots
Danny researched and estimated
costs before starting the business
RESEARCH
Based on his research, he estimated
the following:
Costs
• Fixed: S$20,000
• Maintenance: S$10/delivery
.
5

6. 16 November 2023 An Application of Monte Carlo Simulation in Decision Making
CONTEXT
RESEARCH
Profitability Influencers
Deliveries:
• Singapore: deliveries is normally
distributed with mean of 7,000
deliveries and standard deviation
of 1,500 deliveries per month
6
RESEARCH
Labour Costs:
• Labour costs is uniformly
distributed between S$7,000 and
S$10,000 per month
Revenue:
• Fixed price based on distance
(*refer to next slide)
• Demand assumed unaffected by
price within the planned range

7. 16 November 2023 An Application of Monte Carlo Simulation in Decision Making
CONTEXT & OPPORTUNITY
* FIXED PRICE BASED ON DISTANCE
In a meeting with an online retailer, its Managing
Director made an offer of partnership to Danny
In this partnership deal:
• The Retailer guarantees Danny a salary of at
least $$7,500 per month. So, if his earnings in
a given month fell below S$7,500, the
Retailer will compensate the difference
• In exchange, the Retailer receives 70% of all
monthly earnings in excess of S$17,500
• In cases of earnings between S$7,500 and
S$17,500, all earnings will go to Danny
THE OPPORTUNITY
7

8. 16 November 2023 An Application of Monte Carlo Simulation in Decision Making
STRATEGIES FOR MODELLING & DATA ANALYSIS
1. SIMULATE NUMBER OF
DELIVERIES MADE/MONTH
Simulated the number of deliveries
made per month using RAND() and
NORM.INV() in Excel. The following
formula was used simulate the
Number of Deliveries Made Per
Month: “=NORM.INV(B19,$F$10
,$F$11)”; and “=RAND()” was
applied to Cell B19 to create the 1st
simulation, thereafter this is
reiterated 1,000 times
2. SIMULATE LABOUR COST
Simulated Labor costs and ‘Revenue
per Delivery’. The following formula
“=$J$10+($J$11-$J$10)*D19” was
used to simulate the Labor Cost and
“=LOOKUP(F19,$R$12:$R$15,$O$12:
$O$15)” to simulate the Revenue Per
Delivery; “=RAND()” was applied to
Cells D19 and F19 to create the 1st
simulation, thereafter these are
reiterated 1,000 times
3. CALCULATE REVENUE
PER DELIVERY
Calculated the monthly total revenue,
monthly Individual (sole) Profit for
Danny, and (monthly profit for Danny in
partnership
The following formula are used: (i) Monthly Total
Revenue = “=C19*G19”, which is Monthly Deliveries X
Revenue Per Delivery (ii) Monthly Individual (sole) Profit
for Rowan = “=H19-$B$7- ($B$8*C19)-E19”, which is
Total Monthly Revenue – NonLabour Fixed Cost –
(Maintenance Cost/Delivery X $10/Delivery) – Labour
Cost (iii) Monthly Profit for Rowan in Partnership =
“=IF(I1917500,(I19-17500)*0.3,I19))” These are to
create the 1stsimulation, thereafter these are reiterated
1,000 times.
4. CALCULATE THE MONTHLY
TOTAL REVENUE & PROFIT,
CALCULATE ESTIMATED
AVERAGE PROFIT &
VARIANCES
Calculated the estimated average
individual & average partnership
profits and variance of individual
& partnership profits by applying
“=AVERAGE()” and “=VARP()” to
the columns for Monthly
Individual (sole) Profit for Danny
and Monthly Profit for Danny in
Partnership 8

9. 16 November 2023 An Application of Monte Carlo Simulation in Decision Making
SIMULATIONS* & CALCULATIONS BASED ON STRATEGIES
9
* There is a total of 1,000 simulations in this model. This is just a portion of these.

10. 16 November 2023 An Application of Monte Carlo Simulation in Decision Making
AVERAGE & MIN/MAX MONTHLY PROFITS CALCULATIONS
9

11. 16 November 2023 An Application of Monte Carlo Simulation in Decision Making
FINDINGS, CONCLUSIONS & RECOMMENDATIONS*
9
1. The data suggests, through its variability, that the partnership provides better stability to the business during
its formative period of development and growth
2. While going alone may yield higher profitability, but this is highly varied (as displayed in the Histogram), and
losses seem to be severe
3. Recommendation would be to begin with the partnership to gain market experience and market share
4. Recommendation also includes the conduct of a follow-up simulation later the business becomes more
matured. By this time, there is a learning curve with historical data, which is better at informing on costs,
revenue and their probabilities. Currently, the data is based on estimates benchmarked from other
businesses in the locality of the business park Danny works at * More details on the findings, conclusions and recommendations are
found in the project report, which are not released at the request of Danny

12. IS IT BETTER OFF
JOINING A
PARTNERSHIP OR
STARTING OWN
BUSINESS?
AN APPLICATION OF MONTE CARLO
SIMULATION IN DECISION MAKING
AUTHOR: ANTHONY MOK
DATE: 16 NOV 2023
EMAIL: XXIAOHAO@YAHOO.COM