Discrete-Event Simulation for Corporate Financial Planning

Abstract

We note that discrete-event simulation is of importance for financial planning because it can at the same time handle uncertainty, the stochastic aspect, and allow us to follow a development completely over time, the dynamic aspect. It is probably of special importance for small and medium size firms in engineering and construction. We conclude that such stochastic and dynamic simulation cannot be done in a spreadsheet, but that a special language of discrete-event simulation, like GPSS, is the most suitable way of doing this. We give examples of how this can affect the teaching of finance at business schools. Finally we present a very simple program that illustrates how cash flow forecasting can be done using micro-GPSS, an easy-to-learn version of GPSS.