Spreadsheet risk analysis uses both a spreadsheet model and simulation to analyze the effect of varying inputs on outputs of the modeled system. One type of spreadsheet simulation is Monte Carlo simulation, which randomly generates values for uncertain variables over and over to simulate a model.
Monte Carlo simulation was named for Monte Carlo, Monaco, where the primary attractions are casinos containing games of chance. Games of chance such as roulette wheels, dice, and slot machines exhibit random behavior.
The random behavior in games of chance is similar to how Monte Carlo simulation selects variable values at random to simulate a model. When you roll a die, you know that either a 1, 2, 3, 4, 5, or 6 will come up, but you do not know which for any particular trial. It is the same with the variables that have a known range of values but an uncertain value for any particular time or event (for example, interest rates, staffing needs, stock prices, inventory, phone calls per minute).
The following sections describe the benefits of Monte Carlo simulation and how it works in Crystal Ball: