Monte Carlo simulations can be applied at different levels of the account hierarchy

Description

In the realm of Corporate Performance Management (CPM) software, Monte Carlo simulations provide an indispensable tool for forecasting and predictive analytics. By running multiple simulations using different input variables, a company can assess a range of outcomes. For this requirement, the outcomes produced must be available at any level of the account and dimensional hierarchy.

Example Use Case

Scenario: A mid-market tech company utilizes CPM software for financial management. The company wants to predict future revenue and determine potential impacts of varying market conditions on their product lines. In some cases they will make these predictions on a grouping of products and a grouping of channels. In other cases, they only want to look at one product and one region.

Solution: By implementing Monte Carlo simulations at different hierarchy levels (e.g. individual product, product category, region, global), the company can generate a multitude of potential scenarios based on varying input parameters. This allows them to assess potential risks and opportunities in a detailed, hierarchical manner, and to strategize accordingly.

Considerations

Monte Carlo simulations are like other types of statistical analysis, where historical data is needed to produce a prediction. Flexibility is needed here as historical data can be associated with just one product, but the simulation is being applied to a new, like product with no history. In other cases, you might need to run a simulation for all t-shirts in blue for Colorado, Kansas, and Missouri. The ability to be granular or high level will be helpful.

Questions to Ask a Vendor

• Application Ease: How accessible is the process of running Monte Carlo simulations within your CPM system? Can non-technical personnel configure and execute these simulations?
• Visualization: Does your tool offer data visualization for the results of simulations, to facilitate in-depth analysis and forecasting?
• Scalability Performance: How does your system handle large-scale Monte Carlo simulations across a detailed account hierarchy?
• Versions: Can I produce an entire version of our budget or forecast using one of these simulations?