Setting up the simulation

Simulation requires an open dataset. For this example, you can use any dataset.

After opening a dataset, from the menus choose:
Analyze > Simulation...
Select Type in the Equations in the Simulation: Model Source dialog and click Continue.
Click New Equation on the Model tab in the Simulation Builder.
Enter NPV in the Target field in the Equation Editor dialog.
Click New under Defined Inputs in the Equation Editor dialog.
Figure 1. Defined Inputs dialog
In the Defined Inputs dialog, enter revenue in the Name field.
Click Continue.
Repeat the process to create the input opcost.
The inputs growth, rate and startcost will be specified as fixed inputs, meaning that their value is the same for each simulated data record.
Click New in the Equation Editor dialog.
Enter growth in the Name field.
Based on market demand, the analysts estimate that a conservative value for the revenue growth rate is 8%.
Select Fixed value input and enter 8 in the Default field.
Click Continue.
Repeat the process to create the inputs rate and startcost. For the discount rate, the analysts use the average rate of return on the company's investments, which is currently 7%, so use the value 7 for the default value of rate. Startup costs are estimated to be $1,000,000, so use the value 1000000 for the default value of startcost.
Figure 2. Equation Editor dialog
Enter the expression for net present value shown here into the Numeric Expression field in the Equation Editor.
```
(revenue-opcost)/(1+rate/100) + 
(revenue*(1+growth/100)-opcost)/(1+rate/100)**2 + 
(revenue*(1+growth/100)**2-opcost)/(1+rate/100)**3 - startcost
```
Notice that growth and rate in the original expression for net present value have been replaced by growth/100 and rate/100, so that those values can be entered as percentages rather than decimals.

Note: You can simplify the task of building the expression by selecting the inputs from the Defined Inputs list and moving them into the Numeric Expression field. You can also copy the expression displayed here directly into the Numeric Expression field, using standard copy and paste operations.
Click Continue and then select the Simulation tab.
Figure 3. Simulation Builder Simulated Fields

Annual operating costs for the new distribution center are estimated to be $220,000 with an uncertainty of approximately 5%. To model the uncertainty, the analysts choose a triangular distribution whose mode is the estimated value of $220,000 and with a range of approximately plus or minus 5% of that value.
Select Triangular in the Type drop-down list for opcost.
Enter 210000 in the min field, 230000 in the max field and 220000 in the mode field.
The projected revenue for the first year is $600,000 with an estimated uncertainty above and below that value of $100,000, which suggests a triangular distribution over that range with a mode at the projected value.
Select Triangular in the Type drop-down list for revenue.
Enter 500000 in the min field, 700000 in the max field and 600000 in the mode field.
For each of the two inputs that are to be simulated (opcost and revenue), check the box in the column with the lock icon.
This action locks the inputs. When explicitly specifying probability distributions for simulated inputs, as done in this example, it is good practice to lock them to prevent any unintentional changes. Locked inputs can be unlocked by deselecting the check box.
Click Advanced Options in the Select an Item list on the Simulation tab.
Figure 4. Simulation Builder Advanced Options

Advanced options include settings for determining the number of simulated cases to generate. The default settings specify that cases will be generated until the confidence interval of the mean of the target, at the 95% confidence level, is within 1% of the mean value. In addition, the Maximum Number of Cases field specifies that a maximum of 100,000 cases will be generated, so if the criteria on the confidence interval of the mean has not been met after 100,000 cases, then no more cases are generated.

The analysts decide to accept the default criteria, but intend to analyze the simulated data to ensure that adequate data are generated.
Click Output in the Select an Item list on the Simulation tab.
Figure 5. Simulation Builder Output
In the Display Formats grid, change the formats for NPV, opcost, revenue and startcost to Dollar and change the associated number of decimals to 0. Also, set the number of decimals to 1 for growth and rate.
Click Save in the Select an Item list on the Simulation tab.
Figure 6. Simulation Builder Save

The Save the plan file for this simulation box is checked, indicating that the specifications for the simulation will be saved to a simulation plan file. Although the analysts are designing the simulation and running it for an initial set of values for the fixed inputs, the finance department is better suited to run the simulation under various scenarios to ascertain the feasibility of the project. By saving the specifications to a simulation plan file, the analysts can pass the plan file to the finance department, whose staff can then run the simulation from the plan file in order to conduct their scenario analysis.
Click Browse to navigate to where you want to save the simulation plan file and enter a name for the file.
To ensure that the specified triangular distributions are being adequately sampled by the simulation, the analysts choose to save the simulated data to a new dataset.
Select Save the simulated data as a new data file, select the choice labeled A new dataset and enter a name for the dataset.
Click Run.