Technology & Innovation

What is business simulation and what is its importance in obtaining good results?

Learn what business simulation is, with it it works, what its main types are and facilitate the decision-making process

Published on Feb 3, 2022

You've probably heard of simulation or even used some simulator, have you? To simulate is to try to rephrase a fact that has happened or will usually happen with as much reality as possible.

The purpose of a simulation is to have a better understanding of an event that has occurred or is still doing what is a business simulation and what is its importance in obtaining good results?

In the administrative branch is not different, there is the business simulation, also known as managerial simulation, or business games. It seeks, objectively, to recreate strategies, procedures and behaviors to aid the decision-making process.

But where does all this business simulation come from?

In order for you to learn more and more about what business simulation is and how it works, we have separated, in this article, some topics full of information. Check it out!

How did business simulation come about?
What is the concept of business simulation?
What is business simulation?
What is the importance of business simulation?
Business simulations in the academic field
Main types of business simulation

Ready?

How did business simulation come about?

Business simulation emerged in China long ago, around 3000 BC, under the name of business games. But it was only in 1956 that the world's first known management game, Top Management Decision Simulation, emerged.

Currently, the purpose of these games is to improve management knowledge through simulation, bringing to the players a practical environment of tests of knowledge and skills, inciting critical thinking and teamwork.

They are used as a way to support the teaching of business administration in undergraduate and postgraduate courses for assisting in the learning process through a business simulation applied to teaching.

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What is the concept of business simulation?

In a company, all the modifications and initiatives to be implemented have direct or indirect consequences for the business, whether they are positive or not.

In addition, the business environment is influenced by several factors, among them: competitiveness, market trends, consumer behavior and demands. These aspects make the decision-making process difficult.

Therefore, making decisions that are aligned with each of the factors without prior planning and testing is very risky and can be costly for the company. But how so?

For example, in the implementation of improvement methodologies. There needs to be a full understanding of the changes they can make in the company to decide which methods to implement and which to discard.

Thus, through business simulation, it is possible to create strategies to solve specific situations, safely, through tests. Therefore, these simulations are indispensable for those who need to evaluate the consequences of changes to be applied in a company.

In this way, one can draw conclusions about methodologies that have not yet been implemented, knowing better the impacts that these changes can generate, avoiding unpredictability in the results.

These results are evaluated by the team at the end of the simulation, and then, from them, decisions are made before the modification is performed, avoiding unexpected consequences, such as overspending, errors or reworking.

What is business simulation?

Business simulations are based on operating models that approximate the maximum of the environment to be analyzed. In this way, a detailed description is required to be able to reliably represent this model.

This description can be transformed into instructions and calculations that are executed by a computer, using algorithms using artificial intelligence, seeking to determine the performance of the system over time.

The validation of the simulation results depends on the degree of conformity between reality and the proposed model. Therefore, decision-making will depend on this level of agreement and also on the degree of reliability of the data used in the model description.

What is the importance of business simulations?

Business simulations allow a better contextualization on how changes will reflect throughout the organization, as it helps to see, as a whole, its processes, projects, failures and results.

Therefore, they help managers to make the best possible decisions about a project or process to be implemented, analyzing some key points, always aiming at a positive impact on the organization.

Managers apply business simulations to the key points for executing a new project or improvement processes:

Risk assessment: seeks to determine what are the main risks of implementing new measures, assessing whether it is possible to apply them with a considerable financial return ;
Financial planning: complements the risk assessment and quantifies all actions to be implemented in the balance sheet to avoid excessive spending;
Process mapping: outlines the tasks and steps needed in a form of easy-to-understand representation and visualization;
Forecast: analyzes historical data of the company seeking to gather information to simulate future situations, discovering and evaluating trends.

The simulation allows the manager to have a facilitated view of expected growth. Thus, if some nonconformity is identified in the risk assessment, its correction can be avoided, avoiding associated extra cost, impacting less on the company's financial position.

Business simulations in the academic field

Business simulations are also of great importance in the academic field, being used to complement teaching and to make management courses more dynamic.

One of the key benefits of using simulation tools is to provide an increasingly motivating and facilitative climate in the consolidation of the teaching process in disciplines such as people management, managerial accounting, and human resources.

The theories and methods with these tools establish greater interactivity in problem-solving, which allows a better attachment of contents by the student and makes him better develop his managerial capacity.

Business simulation is essential to build a strong relationship between theory and practice and functions as an important decision support system (SAD) that seeks the best way to solve a problem.

Main types of business simulation

Simulations can be performed in several ways; through written evaluations, group dynamics and even through computer software as mentioned above. Following are some of the main types of simulations:

Functional simulations: search for improvement of aspects in the various functional sectors, among them: administrative, human resources, commercial or marketing and financial. It empowers managers to know the main tools used in each area.
Market simulations: this is a simulation aimed at attending to the most expressive subjects of a business, among them, clients and the competition. Satisfaction surveys and competitive pricing are some examples;
Systemic simulations: focused on a macro view of the organizational structure, addressing various business issues such as environmental monitoring and analysis of internal and external factors. It is most influential in assisting decision-making by raising a general analysis of the business.