Scenario Planning via Monte Carlo Simulation

Josip Novak

Contact for pricing

About this service

Summary

I offer Monte Carlo Simulation for scenario planning, enabling businesses and researchers to assess risk, optimize strategies, and make data-driven decisions under uncertainty. Unlike traditional forecasting methods that provide single-point estimates, this approach generates thousands of possible outcomes, offering a range of probability distributions and risk assessments. My scientific background and specialization in advanced statistics and psychometrics ensure dependable insights for you specific context and aims.

Process

1. Initial Consultation & Problem Definition

Discuss the business challenge or research question.

Identify key variables that influence outcomes.

Determine the type of uncertainty to be modelled.

Establish the goals for the simulation.

2. Data Collection & Preparation

Gather historical data, industry benchmarks, or expert estimates.

Clean, preprocess, and structure the dataset for analysis.

Define appropriate probability distributions for key variables (e.g., normal, uniform, lognormal) based on the available information.

3. Monte Carlo Model Development

Set up the mathematical/statistical model based on target variables.

Define key metrics (e.g., expected values, confidence intervals, worst-case/best-case scenarios).

4. Running the Simulation & Analysis

Execute the simulation, generating thousands or millions of possible outcomes.

Generate risk assessments and scenario-based insights.

5. Reporting

Present the results of the Monte Carlo simulation in a detailed report.

Provide visualizations to make the findings easy to interpret.

FAQs

What is Monte Carlo Simulation, and how does it help with scenario planning?
Monte Carlo Simulation is a statistical method that models possible future scenarios by running thousands of simulations based on defined probability distributions. It helps businesses and researchers assess risk, optimize strategies, and make data-driven decisions under uncertainty.
What kind of problems can be solved with this service?
Monte Carlo Simulation is widely used for: * Financial forecasting (e.g., revenue projections, investment risk assessment) * Operational risk analysis (e.g., supply chain disruptions, resource allocation) * Strategic planning (e.g., evaluating business expansion scenarios) * Product development (e.g., estimating project timelines and cost overruns) * Human resources analytics (e.g., workforce planning under different economic conditions)
What data do I need to provide?
You’ll need to provide historical data relevant to the scenario you're modeling, including key variables that influence outcomes. If you're unsure, I can guide you in defining the necessary inputs.
What if I don’t have historical data?
If historical data is unavailable, we can use expert estimates, previous reports, industry benchmarks, scientific findings, or synthetic data to build a robust simulation model. Even with limited data, Monte Carlo methods remain a powerful tool for scenario planning and risk analysis, as they explore a wide range of potential scenarios rather than relying on a single deterministic outcome.
Can I modify the simulation in the future?
Yes! If you opt for the reproducible code, you can adjust input variables and assumptions to test new scenarios. If needed, I can develop R Shiny application with a user-friendly interface, so you can modify the parameters in real-time without coding.
How long does it take to complete the work?
The timeline depends on the complexity of the problem and data availability. It can take anywhere from a week to a month.
How is this service different from standard forecasting methods?
Most traditional forecasting techniques—such as regression models or time-series analysis—offer a single-point estimate, assuming a fixed future outcome. This approach often fails to account for uncertainty, volatility, and variability in real-world conditions. Monte Carlo Simulation, on the other hand, provides: * Probability Distributions Instead of Single-Point Estimates – Instead of saying, “Your expected revenue next year is $5M,” Monte Carlo Simulation might say, “There’s a 70% chance your revenue will be between $4.5M and $5.5M, but there’s also a 10% chance it could drop below $4M.” * Risk Quantification – It doesn’t just predict an outcome—it measures uncertainty and helps decision-makers mitigate potential risks before they occur. * Scenario Testing & Sensitivity Analysis – This allows you to test different "what-if" scenarios, adjusting variables such as market conditions, costs, and demand fluctuations to see how they affect outcomes. * Nonlinear & Complex Models – Unlike linear forecasting models, Monte Carlo methods can handle interdependent variables, random shocks, and nonlinear relationships, making them ideal for financial modeling, supply chain risk assessment, and strategic planning.

What's included

Report (.html, .docx, etc.)
A comprehensive, structured report detailing the scenario planning process using Monte Carlo simulation. It includes: 1. Problem Definition – A clear statement of the business or research problem being modeled, including objectives and key variables. 2. Assumptions & Input Variables – Explanation of key inputs, their probability distributions, sources, and assumptions made during the modeling process. 3. Methodology – Overview of the Monte Carlo Simulation process, including the generated data validity check, number of replications, and statistical techniques used. 4. Results & Interpretation – Detailed presentation of the simulation outcomes, including key results, probability distributions, confidence intervals, and risk analysis. Clear interpretation of the findings to highlight potential risks and opportunities. 6. Summary of Insights – A clear overview of the most important insights. This section will also highlight potential risks or opportunities based on the results.
The Simulated Dataset (.csv, .xlsx, etc.) (Optional)
If required, a cleaned and pre-processed version of the dataset will be delivered alongside the report. This dataset will be formatted for easy use and further analysis, including: 1. Data Cleaning – Any issues such as missing values, duplicates, or outliers will have been addressed to ensure the dataset is tidy. 2. Normalization & Transformation – If necessary, the variables will be scaled, normalized, or transformed to ensure consistency and compatibility with specific techniques. 3. Feature Engineering – Relevant new features/variables (if applicable) will be created to enhance the dataset’s usability for mining. 4. Format & Structure – The dataset will be provided in a clean, structured format (e.g., .csv, .xlsx) with clear labeling of variables and standardized data types for ease of use.
Actionable Insights (Optional)
A focused section that translates key findings from the Monte Carlo simulation into practical implications. It includes: 1. Strategic Recommendations – Data-driven suggestions on how to leverage insights for optimization, problem-solving, or future planning. 2. Potential Risks & Considerations – A discussion of any limitations, uncertainties, or risks associated with the findings and how they might be mitigated. 3. Implementation – Suggested next steps tailored to your specific context to help integrate insights into actionable plans.

Example projects