by Rick Nason, PhD, CFA
Partner, RSD Solutions Inc.
Everyone who has been to business school is familiar with business simulations. These computer models simulate economic conditions and the competitive environment of one industry or another. You spend the weekend, or time during an offsite competing against either the computer, or your peers to see who can run the most successful company according to the simulation.
Business simulations are fun, and students and training participants enjoy them up to a point. Simulations attempt to get participants to learn how to juggle the multitude of factors that affect the outcomes of business decisions.
Business simulations function by taking a set of rules, and correlations between rules and create outcomes based on the participant’s decisions. They are based on a set of assumed cause and effect relationships. If a simulation is played for too long of a period of time (or too many rounds), then it has been my experience that participants start to focus on reverse engineering the simulation, rather than thinking about making good decisions.
This raises an interesting question; “Can we create a risk management simulation?” In other words, can we create a realistic simulation that allows a risk manager to develop their skill at making risk based decisions? Are there a set of well known rules and correlations – cause and effect mechanisms, that will allow the construction of such a simulation?
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