Tuesday 30th March 2010

This article, written by Chris Mortimer, was published in the April 2010 edition of the National Business-to-Business Centre Newsletter. You can also read the article here on the National Business-to-Business Centre Website.

With the economic recovery yet to materialise and the threat of a double dip recession still real, it is likely that your business is looking at strategies to achieve cost-savings. Efficient resource use must be balanced, moreover, against the need to maintain levels of service and retain customers. In this context, what tools are at our disposal that allow us to evaluate alternative resource allocation strategies in a risk-free environment?

Business Simulation – providing clarity and confidence in tough economic times

Business simulation describes a bundle of analytical tools that can assist managers with staffing and capital investment decisions. Software platforms include Simul8 and Microsoft Excel. The discipline has traditionally been confined to the big corporations, central government and the academic world, and was notably deployed by the NHS to develop staffing strategies for accident and emergency departments. However, the required software and expertise is now becoming accessible to a broader audience and potential applications in the SME sector are many and varied.

It is likely that your business deals with various flows – components in a factory, orders in restaurant, phone calls in a call centre, customers in a bank. These flows are difficult to predict, yet key decisions about staff and resource allocation must be made. Managers have looked to business simulation to help evaluate the feasibility of alternative approaches.

An application of business simulation

Take your local bar. As with any bar, the venue manager must make decisions with regard to how many staff to hire and the lengths of their shifts.

What are the risks for the manager? One is that the bar gets impossibly busy, waiting times are long and punters are driven elsewhere, generating negative word of mouth. Another is that the crowds do not materialise, possibly due to circumstances out of our control such as bad weather. Staff are left with very little to do; a breeze for the staff, a nightmare for a manager running a tight ship! A successful strategy will keep queues under control with a sensible number of staff.

In this situation a well-constructed simulation model would allow the manager to quantify and mitigate the above risks. Required data could be quickly gathered and would include customer inflow rates, average drinks purchased, and staff service times. The simulation model could subsequently be tested against real scenarios to check its validity. If x customers turn up, for example, and we use y staff, then what are average queue times? How certain are we about this? And does this adequately reflect reality?

This process will build, test and refine a tool that allows the manager to experiment with different staffing strategies whilst harnessing the power of the software to examine multiple scenarios. Critical issues can be highlighted and explored. If we cut one member of staff, for example, what would the ramifications be for average queue time? What if we were to have a busy night? In this way, trade-offs can be identified and their implications considered.

Our manager would probably be able to formulate a streamlined staffing strategy in a risk-free environment. Of course business simulation is no guarantee of success; but it will allow you to pursue your cost-saving initiatives with renewed confidence.

Move forward with confidence

Too often, following managerial instinct or pursuing an analytical approach are perceived as two separate pathways to reaching a decision. When budgets are tight, moreover, the later may be jettisoned in favour of the former. Business simulation can help you to synthesise the two, placing you in the best possible position to make tough decisions about cost-cutting: your experience and intuition supported by robust analysis. In this way business simulation can help managers to move forward with confidence.

If you would like to learn more about business simulation techniques and their applications, get in touch with the author.

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