Corporate financial simulation models for top management

Abstract

Use of corporate financial simulation models for strategic decision taking is increasing rapidly. They are needed because conventional approaches have severe limitations. Corporate models represent the enterprise by means of mathematical and logical expressions. They may be optimizing or purely descriptive; assume a certain world or explicitly recognize variation and risk; be flexible or inflexible; use highly aggregated or disaggregated data; be batch run or interactive. Characteristics chosen should depend on the specific situation of the firm. A series of questions to focus attention on issues which should influence choice are posed. These are followed by brief reviews of the kind of models used by firms in the U.S.A. and U.K., of conditions that contribute to success, and of the range of likely costs.