Interpretive and Ethical Issues in using Monte Carlo Simulations to Support Executive Decision-Making: How to avoid giving your boss impressive, but misleading guidance

Dr. Robert Ameo is principal of Market Modelers, LLC, with over 20 years’ experience in health care management, marketing and business development. Prior to founding Market Modelers, he served in the corporate development group at Johnson & Johnson. He is a recognized expert and innovator in the modeling and forecasting of new technology adoption and market share. Robert has extensive experience evaluating investment opportunities and their portfolio impact for mergers and acquisitions, venture investing, research development, and marketing efforts. Using his training as a psychologist and his extensive industry experience, he designs and executes targeted market and expert research experiments to quantify the defensible range of possibilities for new technology and product adoption. His forecasts are used both by start-up ventures to create a vision of their potential worth, and well-established biopharmaceutical and medical device companies to understand the true economic (uncertainty adjusted) value of their potential investments. Prior to his industry experience, Robert was VP of Clinical Operations and Utilization Management for a national managed care company. He holds a behavioral science PhD from the University of Miami.

Dr. Ameo will present a case study next week at the 2009 Palisade Conference: Risk Analysis, Applications, & Training,  21 – 22 October at the Hyatt Regency in Jersey City (10 minutes by PATH from Manhattan’s Financial District).

See the abstract for his case study below, and see the full schedule for the Conference here.

Interpretive and Ethical Issues in using Monte Carlo Simulations to Support Executive Decision-Making: How to avoid giving your boss impressive, but misleading guidance

Simulations are proliferating throughout the business community powered by a troop of freshly minted MBAs armed with their requisite course on decision sciences and their student versions of @RISK.

Finance organizations are asking their analysts to “do a Monte Carlo.”  Dutifully, the analysts select a handful of “key” variables, assign triangular or Pert distributions, set iterations to 1000, push the simulate button. The laptop’s screen displays a colorful histogram and a sensitivity analysis to add to the PowerPoint.

Lo and behold, the simulation analysis supports the original scenario model showing the mean or median simulated output to be just about in the middle of the distribution. Mission accomplished. Senior leadership is assured that the model has been tested by simulating 1000 potential outcomes. Management moves forward in their pre-decided direction with confidence bolstered by a state of the art Monte Carlo analysis.

This scenario happens every day and for so many reasons it is very wrong.

Using simulations to support executive decision-making introduces ethical concerns that are not present in “most likely case” scenario modeling. In this presentation, Bob Ameo discusses the ethical responsibilities of using simulation models to inform executive decision-making. Specific recommendations are made how to appropriately conduct and present outcomes from simulation models.

Next Week: October 21-22 in NYC

Building on the success of last year’s record-breaking event, the conference will offer a wide range of software training, model building, and real-world case study sessions. Last year, the event drew over 150 practitioners and decision-makers from a broad spectrum of industries. The @RISK and DecisionTools software tracks were more popular than ever. This year, we’re expanding software training with sessions that let you walk through examples and try the tools directly. This will enable you to take some new tips back to the office. Please join us in October for a great opportunity to learn and connect with colleagues.

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