Business dynamics
Traditional forecast methods are unable to predict the turning points in cyclical markets Article by Pekka Aarnisalo, STE Analytics Ltd.
Simulation based modelling methods offer a fundamentally new and a different view as compared to many traditional, well established, concepts.
Simulation based modelling methods offer a fundamentally new and a different view as compared to many traditional, well established, concepts. These models imitate the real market structure and decision-making. At their heart the models are based upon accurately portraying the existence and role of this dynamic structure. Most of the operating structures in industries are formed around human decision-making. These decision-making policies and principles
cover the demand chain from the producers to brokers and to end customers. In addition to the decision-making rules, the structure also includes the physical properties of the industry like production facilities, inventories, etc. The structure follows the real industry practices in every aspect which means that no economic or other theories are included in the structure, unless it can be clearly shown that both the real market and the actors in the market also behave accordingly. In simulation modelling market forecast is derived from the industry operating structure in three steps. First, the industry structure is translated into a set of mathematical equations. Secondly, these equations are programmed as a computer model. Thirdly, simulation of the model produces numerical market forecasts. Accurate
Figure 1. The main causes for business cycles are the decision making practices. Example is from consumer board industry and represents end consumption growth rate. Market circumstances at each moment are a result of actions taken in the industry. These actions are determined by the decisions made by the industry players. The decisions are typically driven by the short-term market status.
PAPERFIRST MAG SPRING 2020
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