To build a risk analysis model, we must first identify the uncertain variables - also called random variables. Unit costs will also vary depending on vendor prices and production experience. Sales volume (in units) can cover quite a range, and the selling price per unit will depend on competitor actions. But the other factors all involve some uncertainty. Fixed costs (for overhead, advertising, etc.) are known to be $120,000. Net profit will be calculated as Net Profit = Sales Volume* (Selling Price - Unit cost) - Fixed costs.
You need to estimate the first year net profit from this product, which will depend on: Imagine you are the marketing manager for a firm that is planning to introduce a new product.
A Business Planning Example using Monte Carlo Simulation
