Business Simulations

Business SimulationsThe term business simulations refers to exercises that represent processes involved in the production and delivery of goods and services. These exercises may be used to study the processes themselves, to enhance their teaching, or to assess proficiency in their management. When the exercises are scored, they often are called “business games.”

Business simulations may represent processes phenotypically or genotypically. In a phenotypical representation, the process is modeled mathematically; in a genotypical representation, it is played out in a form constrained by the setting of the exercise. The marketing process, for example, is represented phenotypically when participants of the simulation sell goods to fictitious customers. The same process is represented genotypically when participants sell goods to each other. Both types of representation may be included in a single exercise.

Many business simulations are computerized, but the computer’s role in the exercise can vary substantially. The simulation can be computer directed, computer based, computer controlled, or computer assisted, depending on the relationship among participants and between the computer and the participants. The nature of these relationships determines the resources required to develop the simulation and the settings to which it may be applied.

A simulation is computer directed if the participants interact primarily with the computer, which controls the flow of events. In these simulations, a participant’s actions are limited to deciding the pace, starting point, and ending point of the simulation. Often, the simulation animates a sequence of events. It may show, for example, how goods are delivered and payment received in international transactions.

A simulation is computer based if the participants, interacting primarily with the computer, control the flow of events. These simulations are often called discrete-event simulations. They may be implemented using either a general-purpose spreadsheet program or a specialized software package that supports animation. Typically, the participant launches the software repeatedly, to see how changes in values and algorithms affect the outcome.

A simulation is computer controlled if the participants, interacting primarily with each other rather than with the computer, must conform to a mandated flow of events that strictly constrains the number of decisions they can make and the time they have for making their decisions. These simulations are often designed to enable teams, each representing the management of a firm, to compete against each other. Accordingly, the results of the decisions made by each firm depend on the decisions made by the other competing firms. This type of simulation was introduced in the late 1950s, when mainframe computers became widely available. They are used extensively in schools of business administration, especially in the disciplines of management and marketing.

A simulation is computer assisted if the participants, interacting primarily with each other, control the flow of events. In these simulations, the computer program presents a scenario, tracks accounts, processes transactions, and facilitates interactions, generally performing the kinds of supportive tasks that computers perform in the everyday world, without strictly constraining the number or timing of participants’ decisions. Thus, decisions may be entered whenever participants choose to enter them, and each decision is executed whenever the necessary conditions for its execution have been met. When this kind of simulation is played competitively, the advantage generally goes to the player who acts first, so participants tend to be more keenly aware of the pressure of time than they would be with the formal deadlines of computer-controlled simulations.

With respect to scope, business simulations may be functional, total enterprise, or total economy in scope, depending on the scenario they present and the roles they make available. Functional simulations limit themselves to the concepts of a particular business discipline, such as marketing or operations management. They put participants into discipline-specific managerial roles. Total-enterprise simulations encompass all the functional areas of business. These put participants into top-management roles. Total-economy simulations give participants multiple roles, such as consumer, investor, and company manager, which jointly support a sustainable economy.

With respect to technological sophistication, business simulations range from simple board games to software packages that track every participant and coordinate activities remotely through the Internet. The simple board games are useful for occasional events in variable settings. They are usually amenable to shorter or longer play, depending on the circumstances. Internet-remoting software packages are ideal for distance education, as they allow participants to interact with each other even when they are not physically present at the same place and time. Between the two extremes are batch-processed setups, whereby participants enter decisions on paper or electronic forms that are sent to an administrator for processing, after which the administrator returns the results. Batch-processed setups generally are run for 4 to 12 rounds. Transmission between participants and administrator may be physical or by fax, telephone, electronic file transfer, or electronic mail.

Free riding, endgaming, and chance factors are issues that must be managed when business games are used in a context in which scores have serious consequences for participants. Free riding occurs when some participants receive credit for work that is not theirs, a situation that arises when teamwork is required. It is attenuated when the simulation supplies individual scores in addition to team scores, when teams are limited to three members, and when teams have the authority to remove recalcitrant members. Endgaming occurs when participants take account of the impending termination of the exercise in the decisions they make. It can be reduced by not announcing the termination period of the exercise in advance, by requiring a narrative justification of each participant’s or each team’s final state, and by running the exercise for a longer interval. Chance factors arise from stochastic elements in the simulation’s algorithms and from the circumstances of the exercise. These factors are mitigated by running the exercise for a longer interval and by a tournament approach, whereby each participant associates with a different collection of other participants in each phase of a multiphase exercise.

The learning benefits of business simulations have been studied extensively. Simulations supply experiences, the value of which depends on the participants, setting, design, and execution of the exercise. How the benefits are affected by differences in these factors is a subject of continuing research.

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