Simulation is an important underpinning of many TCC offerings. Our founder began his career simulating complex chemical processes and successfully transferred that competency to the simulation of products, development portfolios, market segments, industries, and businesses to drive improved decision making in overall business management, technology management, and negotiations.
Simulations deliver clarity from complexity and ambiguity. Business simulations avoid the cost, time, interruption, and possible disasters that can occur when “experimenting” with a running business.
Business simulations help clients understand markets, find and assess opportunities, optimize development portfolios, define strategies, test scenarios, and mitigate risk. Business simulations can be used to
* Predict the evolution of markets and businesses under different economic scenarios to identify a firm's best response given near and long term considerations
* Optimize the development portfolio of a life science firm given cash burn, clinical, intellectual property, market, regulatory, resource, scientific, supply chain, and NPV constraints and goals
* Define (a) the impact that proposed legislation, changes in tariffs, new technology, changes in the prices of traditional fuels, and other variables will have on biofuels and other alternative sources of energy and (b) the best path forward for alternative energy suppliers
* Determine the appropriate R&D and manufacturing infrastructure for a firm, by region, both internally and outsourced, given financial, geographic, market, risk management, technical, and other factors
* Understand the evolution of an end consumer market undergoing demographic and technology changes and, the impact of these changes on direct and indirect suppliers to this market; for example, toothpaste penetration in emerging markets and the popularity of striped and gel toothpastes have changed toothpaste formulations and impacted suppliers to the toothpaste industry
* Predict the impact that industry capacity additions will have on pricing and industry participants through time
* Understand the options that both parties have in upcoming negotiations to find the “win-win”
Business simulations lead to the “Ah ha!” moments where wisdom and confidence are found.
At TCC, a business simulation is comprised of three distinct phases – Definition, Construction, and Analysis.
Simulation Definition
Which door do we go through?
A business simulation starts with defining the questions to be answered. That is, what do we need to learn about the future, our opportunities, our business, our industry, and the impact of various internal decisions and external events to find the best path forward? TCC works with the client to define the questions to be answered, the scenarios and sensitivities to be investigated, and the simulation output metrics and format that are most useful to the client.
For example, output metrics might include NPV, cash burn per quarter or year, resource level by function, ROI, EPS impact, market share by application and region, and profit by product and region. The output format might include tables, tornado diagrams, pie charts, or line graphs contained in presentations or written reports. Output metrics and format are chosen to best convey the situation and the decisions to be made, as well as to reflect client preferences.
Simulation Construction
The inner workings…
The second phase of business simulation involves algorithm development, market research, and simulation programming. TCC, either by itself or working with the client, develops the mathematical relationships that describe how demand, price, cost, market share, resources, and other elements change through time with competition, product life cycle, government regulation, excess capacity, development stage, and other variables. Decision trees are constructed to include external events, internal decision points, and various outcomes. Market research on the underlying subject matter and close proxies is necessary to develop algorithms and find input data. In many instances, market research involves “scrubbing” data to understand and either (a) remove true one-off anomalies or (b) add non-recurring events that regularly occur.
Monte Carlo analysis may be utilized to (a) determine outcome probability or (b) define an operating window, optimum set of deal terms, or other areas of interest.
The simulation is programmed in a user friendly format and rigorously tested for quality assurance. Validation is accomplished using test scenarios.
Simulation Analysis
So that’s how it works!
Lastly, there is the “playing with spreadsheets” phase where scenarios are analyzed, insights and “Ah ha!” moments are found, and answers are obtained.
The usefulness of a good business simulation doesn’t end when the strategy project is over. The simulation can be periodically updated and used to guide ongoing decision making in many areas of the underlying business, including budgeting, marketing and sales, development portfolio management, supply chain, and performance management.
* Optimize the development portfolio of a life science firm given cash burn, clinical, intellectual property, market, regulatory, resource, scientific, supply chain, and NPV constraints and goals
* Understand the evolution of an end consumer market undergoing demographic and technology changes and, the impact of these changes on direct and indirect suppliers to this market; for example, toothpaste penetration in emerging markets and the popularity of striped and gel toothpastes have changed toothpaste formulations and impacted suppliers to the toothpaste industry
A business simulation starts with defining the questions to be answered. That is, what do we need to learn about the future, our opportunities, our business, our industry, and the impact of various internal decisions and external events to find the best path forward? TCC works with the client to define the questions to be answered, the scenarios and sensitivities to be investigated, and the simulation output metrics and format that are most useful to the client.
The second phase of business simulation involves algorithm development, market research, and simulation programming. TCC, either by itself or working with the client, develops the mathematical relationships that describe how demand, price, cost, market share, resources, and other elements change through time with competition, product life cycle, government regulation, excess capacity, development stage, and other variables. Decision trees are constructed to include external events, internal decision points, and various outcomes. Market research on the underlying subject matter and close proxies is necessary to develop algorithms and find input data. In many instances, market research involves “scrubbing” data to understand and either (a) remove true one-off anomalies or (b) add non-recurring events that regularly occur.
Lastly, there is the “playing with spreadsheets” phase where scenarios are analyzed, insights and “Ah ha!” moments are found, and answers are obtained.