Utilise Monte
Carlo simulation to perform a risk analysis of profitability levels in the Aberdeen
Homeware department (Note: the analysis should assume overall gross profit
margins between 60% to 70% on revenue sales. The department also makes a daily
contribution to overheads of £4,250. Use
non-promotion sales only for your simulation).
This is the steps suggested in class
1. Gross Profit Margin (GPM): Randomly generate the gross profit margin as a percentage between 60% and 70%.
2. Daily Sales Revenue: This value can be estimated based on historical data or assumed based on average market conditions. If not available, you might assume a range and then randomly generate sales data from within this range for the simulation.
3. Fixed Daily Overheads: £4,250 contribution to overheads per day.
4 Simulation Size: Decide how many simulations you want to run. A larger number, like 1,000, would typically provide more robust results.
5 Revenue Model: Define the range or distribution of daily sales revenue. This can be modeled based on historical data (e.g., normal distribution, log-normal distribution).
6 Profit Calculation: For each iteration, calculate the daily profit using: