Ram Rajagopalan

Monte Carlo is a Decision Science approach that helps in improved decision making under uncertainty. It helps in seeing all possible scenarios, outcomes and helps in accessing the Risk. The technique was first used by scientists working on the atom bomb; it was named for Monte Carlo, the Monaco resort town renowned for its casinos. Since its introduction in World War II, Monte Carlo simulation has been used to model a variety of physical and conceptual systems.
 
Risk is there in any and every part of our lives. There is always uncertainty, ambiguity and variability that makes it difficult to predict future, even with more information available today.
For agriculture - every season the farmers have to make calculated risks on the crops they need to sow. And the risks they face are below, many that are not even remotely under his control
There will be adequate monsoons for the water required for the crops Input prices for fertilizers don’t shoot up too much as they are dependent on global oil markets Pest attacks this season will be reasonable Overall crop harvests will be near demand, so that the prices will be under control Government doesn’t ban exports and block sales avenues  
Monte Carlo simulations provides the decision makers with a range of possible outcomes and probabilities they will occur for any choice of action.
 
Monte Carlo is applicable in a wide range of industries and functions
Project Management - Every task involved has a inherent risk of completion ahead or behind schedule. The duration for each task follows a probabilistic model, and hence a sequence of tasks will have cumulative effects Manufacturing - A flow manufacturing is a sequence of events/ activities for a job to be completed. Uncertainties include availability of raw materials, machine breakdowns etc. Stock Market - Probably one of the largest applications of Monte Carlo Simulations, the whole underlying aspect of stocks is that over a period of years it grows and its only due to the underlying uncertainties. Energy - Power consumption could be dependent on the weather conditions Insurance - Car premiums always factor in the risk components based on vehicle, the profile of the driver, the city of residence, type of use (commercial/ personal) etc.  
The underlying concept uses randomness to solve problems that look deterministic. The approach is
State the target variable (Project Completion Time, Energy Consumption at a particular date etc) List the underlying input variables Model the input variables using probability distribution. This is done using historical data Model the Target variable as a function of the input variables Repeat multiple time Calculate the Target variable using Deterministic values of the inputs Aggregate multiple times  
The results are computed over repeated sampling and statistical analysis. Monte Carlo Simulations can take thousands and maybe ten thousands of iterations to produce results. Sawilowsky lists the characteristics of a high-quality Monte Carlo simulation
the (pseudo-random) number generator has certain characteristics (e.g. a long "period" before the sequence repeats) the (pseudo-random) number generator produces values that pass tests for randomness there are enough samples to ensure accurate results the proper sampling technique is used the algorithm used is valid for what is being modeled it simulates the phenomenon in question.  
Advantages of Monte Carlo Simulation over traditional What If Analysis include
Flexbile, considers wide range of parameters and outcomes, reduces uncertainty Ability to model outcome with its probabilities Scenario modeling, sensitivity analysis Visual descriptions Correlation of input variables  
The limitations of the model, are more due to the nature of the problem/ the domain its used
Extending randomness - In real time many are time bound, like life expectancy etc, while probability models don’t have those Incorporating reality: Since the models are done using underlying distributions, it may predict numbers that are not realistic like interest rates in certain geos (like US which is almost 0). Brining reality into model is a tough task Use errors on the model, parameters and distributions  
Reference
https://en.wikipedia.org/wiki/Monte_Carlo_method
https://www.advisorperspectives.com/articles/2014/08/26/the-power-and-limitations-of-monte-carlo-simulations
https://www.palisade.com/risk/monte_carlo_simulation.asp

Pareto charts are used to identify the top causes for a particular effect (defects). Its often associated with 80-20 rule, 80% of variances are due to 20% of causes, though often not necessary to meet the guideline.
 
Paynter Chart is a statistical graphical tool that drills down the Pareto chart. It enhances the Pareto Chart with a run chart, that indicate what items add up to the count for each reporting period.
 
The chart displays a subset of key sub groups as a bar chart, with the total across subgroups on the top.
 
Benefits - Helps to drill down the composition of each bar of the Pareto to spot trends and patterns.
 
Paynter Chart was developed by Ford Motor Company

 

Reference Sites
https://www.yumpu.com/en/document/view/17279712/paynter-chart-analysis-guidelines-chrysler
http://www.statit.com/support/faqs/gpaynter.shtml
http://www.statit.com/support/quality_practice_tips/usingpareto_payntercharts.shtml

Customer is always King!. But all organizations need to determine what type of Kings they want to deal with, which will help them in achieving a sustainable and profitable growth.
 
In IT services sector, ideally you want to work with Customers who treat you as Transformation partner, to work in join partnership on solving their business requirements. This is in contrast to vendor partnership resulting in staff augmentation. But to get there takes a lot of effort to build the Brand, capability and delivery excellence etc. for customers to treat you that way.
 
Working with larger Fortune 500 Corporations means a more structured approach for contracts, services and payments. But they also typically tend to mitigate risks by having more than one vendor for their requirements. Working with small to medium size organizations, may lead to challenges on size of contract, payment issues etc, with upside of becoming a strategic partner when the customer organization grows. Working with customers mean investments in Customer Relationships, Proposals, Proof of concepts etc, which are justifiable only if the relationship grows. Its better to trim the tail (where returns are meagre compared to investments) and refocus on profitable customers.
 
Organizations need to decide on their customers based on the products and services they provide, their stage of growth,  risk appetite and financial situation. Its better to turn down customers, when the requirement is not a skill the company has or wants to build, or there is insufficient capacity to meet the requirement, or requirements are not clear leading to potential scope creeps.
 
There is an Explicit and Implicit way of selecting the customers to do business with. Implicit is indirectly stated or implied, while Explicit is directly stated and spelled out.
 
In Explicit, companies usually spell out policies to meet to work with customers and vendors. There might be a minimum revenue size requirement, years of existence, credit worthiness, geographical location etc. This usually changes as the organization grows.
 
In Implicit, Companies can segment the customers they want to work with and design appropriate strategies so that customers self select. For example, a high end luxury brand Retailer, will have stores located in Premium locations or malls, offer limited but exquisite products and pricing is in the higher range. They offer excellent customer service (Nordstorm, Coach, Burberry etc). Similarly Retailers, like Walmart offering Every day low price, target the general population, offer a wider catalogue at affordable price range. There is a dynamic of margin vs volume play, and based on which companies design their investments. This is visible in many sectors Hotel (2 or 3 star vs 5 star), Mobiles (Apple vs Android), Cars (BMW vs Hyundai) etc.