What is Monte Carlo Analysis?

Monte Carlo analysis is a statistical technique that is used to model and analyze the behaviour of complex systems and processes. It is named after the city of Monte Carlo in Monaco, which is famous for its casinos.

In a Monte Carlo analysis, a model is used to generate a large number of random samples from a given distribution, and the results of these samples are used to estimate the probabilities of different outcomes.

Monte Carlo analysis is often used in finance, engineering, and other fields to evaluate the risk and uncertainty associated with different decisions or scenarios. For example, it can be used to evaluate the potential returns of an investment under different market conditions, or to analyze the reliability of a design under different load and environmental conditions.

Monte Carlo analysis can be an effective tool for making decisions in business cases where there is a high degree of uncertainty or when there are many variables that cannot be accurately estimated.

Monte Carlo Analysis is one of the techniques discussed in the Business Case Masterclass workshops.