Types of Business Simulation
This page provides a taxonomy of computerised business simulations based on my Churchill Fellowship study and design experience - their purpose, characteristics and where they might be used.
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Computerised business simulations that use a model to simulate the impact of business decisions divide into several classes (above and to right) each of which address different training needs and involve a different process.
The first four categories (strategic management, business appreciation, tactical management and totality simulations) involve model all or most business functions. They are often described under the blanket category of Total Enterprise Simulation or game. However, their separation allows one to link closely the simulation to development needs and the experience and knowledge of learners. This "focusing" ensures learners do not waste time exploring irrelevant issues or find the simulation too complex.
Interaction between competing trams of learners
TOTAL ENTERPRISE SIMULATIONS
These involve learners running a complete business (total enterprise) for several simulated periods and, depending on their scope, detail and target audience, divide into:
These simulations cover the strategic management of business. The simulation model tends to be complex and, consequentially, the simulation lasts one or more days. They may be run in a single session, spread over a course or, run on a spare time basis, over several months.
Since the simulation is concerned with strategic management it covers the general management of a "total enterprise". Decisions cover marketing, finance, operations and product design and development. However, the emphasis, in terms of the number of decisions made, is usually on marketing and finance. Each period simulated is usually represents a quarter's trading, although, occasionally this is a whole year.
To constrain complexity (and so duration) the tactical operation of the business (scheduling, material supply, distribution, etc.) is usually done automatically and so no decisions are made in these areas.
Because of the subjects covered, these simulations are most appropriate for middle to senior managers. But they can be used to integrate general management courses designed for "high-potential" junior management who are moving into middle management.
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These simulations cover the tactical management of a business. Just as strategic simulations tend to focus on the external environment these concentrate on the internal aspects of the business.
The simulation model is usually complex, especially concerning factory and financial operations. Marketing aspects may be quite simple with emphasis on the efficient use of resources, budgetary control and cash flow. Because of their complexity, these simulations usually last a day or more.
They are designed to provide learners with experience in the day to day operation of a total business. Reflecting this, each period simulated may represent a quarter or month's trading. However, to concentrate on operational aspects the results provided may be on a sub-period basis. A simulation with a quarterly decision cycle might produce monthly results and one with a monthly cycle provide weekly or even daily results.
To constrain complexity and focus on strategic issues, strategy and business appreciation simulations, usually, are deterministic and, often, do not include inflation. In contrast, simulations covering tactical management may include stochastic (random) elements, operate in an inflationary economy and involve tutor or software initiated crises.
Depending on the business simulation these simulations are appropriate for junior or middle managers.
Learn more about our Tactical Management Business Simulations
These simulations are designed to show manager how businesses operate and develop basic financial and commercial acumen. The simulation models are generally of intermediate complexity and, consequentially, typically the simulation lasts from half a day to a day.
Besides running as a single session, they can be spread throughout a course, with one or more periods simulated each day. However, their lack of complexity means that they are, usually, not challenging enough to be used on a distant learning basis. But, they can be used on a stand-alone basis.
They involve the management of a total enterprise with decisions covering marketing, finance and operations. The financial decisions may be rudimentary although financial consequences are emphasised. To test financial understanding, learners may be asked, manually, to prepare their own accounts from sales demand figures. Each period simulated usually represents either a year's or a quarter's trading.
These simulations are appropriate for junior management, supervisors, functional specialists, and management trainees. Middle management who lack financial knowledge and cross functional experience. However, in an accelerated manner, more senior management may use them.
These simulations attempt to replicate, in detail, the total operation of a "real" business. They combine the characteristics of strategy and tactical simulations.
This reality and scope means that these simulations are very complex with dozens sometimes, hundreds of decisions made every period. This complexity means that they take considerable time to run and their scope may mean that they lack the focus necessary for efficient use of delegate time.
Often these simulations have been developed for use in an academic environment, where their use is spread over one or more terms or semesters and where student time is not at a premium!
The duration and lack of focus means that they may not be suitable for management courses. But, if run over several months, with managers working in "spare" time, they may provide useful learning. However, because of their niche nature and costs we do not provide Totality Simulations
These involves learners running a functional area of a business with strategic, tactical and operational decisions.
These simulations are complex and, usually last a day or more. Many decisions are made each period. But, unlike most other simulations, these are of differing level of importance. To explain, general management simulations (involving the management of a total enterprise) represent a horizontal slice across the organisational structure. Therefore, most decisions have a similar level of importance and require the same level of managerial effort. In contrast, functional simulations take a vertical slice through the organisation. As a result some decisions are of strategic importance, some of tactical importance and some are operational necessities. (As in the real world, these operational necessities can occupy a disproportionate amount of managerial time.)
Because of this, the time base of the simulation may be complex. For instance, a production management simulation might involve making decisions to set-up the factory and those to run it. The factory set-up decisions are made once, at the start of the simulation. The factory scheduling decisions are made, repetitively, each month.
By its nature sales and marketing management involves competition and therefore, certainly at a tactical or strategic level, interaction between teams is necessary. However, other functional areas usually do not require this interaction and can be run as stand-alone simulations where the learners make direct use of the computer. Features of these non-interactive simulations are their stochastic nature, varying levels of business information available and possibly, operation on a "real-time" basis.
Although, financial measures are important, it must be said, that sales and marketing "experts" are often financially naive. This may be reflected in the design of the simulation. For instance, the financial results may be limited to the calculation of profits. As a result cash flow, profitability and liquidity issues may be inadequately covered.
Also, the overlap between marketing and general business strategy, means that total enterprise, strategy simulations often cover the same learning issues as strategic marketing simulations. Consequentially, simulations that focus on marketing management often focus of the tactical issues of market segmentation and the promotion mix rather than the strategic issue of business portfolios. (How these balance with each other and support the generation of profitability, growth and the survival of the business.)
We provide these functional simulations:
Functional simulations are suitable for junior and middle management of functional areas and middle managers of other functions who need to understand the issues facing the management of intersecting functions.
These are short simulations that address one or a very limited range of business concepts such as:
These are short, two to three hour, simulations where teams enter decisions into their own computer, receive and analyse results. In this manner they run a simulated business for six to a dozen simulated periods in a very short time.
These simulations focus on specific business issues and concepts. For example, this might be the launch of a new product or the operation of a simple factory unit. To be a viable learning tool these simulations must be simple and involve making only three or four decisions each period.
These business simulations are used to reinforce a topic, test learners' understanding and provide a change of pace. The topics covered and the managerial level of the learners vary widely.
These involve creating a plan based on a series of what-if analyses such as:
These involve the preparation of a business plan using a "What-If" model. For example, this might be long range market diversification plan or the development of an annual budget. The process allows learners to apply what they have learned and explore the dynamics and interactions that exist in business.
The process differs from the simulation. Although the process is similar to that of figure 1 the time allocated to analyse and plan is not set, the number of plans is not predefined and time does not move forward when the decisions (assumptions) are entered and a plan produced.
For example, the initial plan may be used as the basis of a second plan. In turn, this may be the basis of two further plans. However, this may lead to the team reconsidering and a return to the first plan. This is used as the basis of another plan. This plan, in association with an earlier plan produces the final plan.
Planning simulations are of particular use where managers need to understand the business implications of the topic. For instance, a manager may have learned about the composition of the Profit & Loss and Balance Sheet and how various Financial Ratios are calculated. For this knowledge to be of practical use, the manager must understand how managerial actions impact these and the business implication of the results of these actions.
The simulation must be designed so each team can decide to meet different objectives and produces a different plan. This diversity and divergence ensures productive discussion during the review session.
These business simulations are used to explore a topic, test learners' understanding and provide a change of pace. The topics covered and the managerial level of the learners vary widely.
These are exercises that involve the practical exploration of a business process such as statistical forecasting, inventory planning, analysis of sales performance etc. Practicalities must be considered, the results are interpreted and quantitative and qualitative issues balanced. An examples is
The process simulation exercise involves teams working on different sets of data or situations to find patterns, discussing implications and explore the process.
The data sets or situations illustrate differing situations and, associated with the written brief, have a degree of ambiguity (requiring qualitative interpretation and ensuring discussion and reflection).
After exploring the process, learners must justify their actions and discuss session in a review session. Also a simulation model may be used to simulate future reality.
The simulator provides computational support and "encapsulates" the skills of technical staff, so learners concentrate on discussing the practical issues rather than "doing arithmetic". This increases learning productivity and the activity need last only a few hours.
These business simulations are used to explore a business process, test learners' understanding and provide a change of pace. The processes covered and the managerial level of the learners vary widely.
This covers exercises that help role-playing activities such as Sales Negotiation. Here simulation models are added to the role-play to provide information as the role-play progresses.
An example is where separate financial models are added to a conventional sales negotiation role-play. Little or no time is added to the negotiation. However, the separate financial models ensure the negotiation has reasonable financial complexity and focuses on the financial implications of the agreement. This overcomes the problem of "invented" financial constraints and ensures a "win-win" result.
Most recent update: 01/01/15
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