Free resource · Where a shape comes from
Two dice. One roll.Ten thousand rolls.
A forecast is one roll of the dice. Roll enough times and the shape of what's likely reveals itself. This is the idea behind Monte Carlo simulation, in the simplest form there is.
NAKED FINANCE · MONTE CARLO · THE IDEA
Live · Where a shape comes from
Roll the dice. Watch the shape arrive.
Step through one roll, ten, a hundred, a thousand and ten thousand. Then overlay the true odds and see how close ten thousand rolls got to the shape that was always there.
–
LAST ROLL
SPACE / → NEXT · T TRUE ODDS · R RESET
ROLLS SO FAR
0
MOST COMMON TOTAL
–
LANDED ON 7
–
P( TOTAL ≥ 10 )
–
What the dice show
The shape was always there.
One roll is a forecast
A single roll gives you a number. It is an answer, but it tells you nothing about how likely it was or how far off it could have been.
Enough rolls reveal the shape
Ten rolls disagree. A hundred start to bunch. Ten thousand draw the triangle that was always there: seven most likely, two and twelve one-in-36 each.
The shape answers a better question
P(total ≥ 10) is a probability of hitting a target. That is the question a board actually wants answered, and a single number can never answer it.
Where this leads
From dice to your forecast.
Swap the dice for revenue growth, gross margin and cost inflation, and the same idea becomes a Monte Carlo model of your business. The full talk, the field guide and the plain-Excel workbook are on the Monte Carlo page.
Back to Training and resources