Useful Risk Modeling / Simulation Excel Add-Ons

I have had a lot of “modeling” and simulation conversations over the last several months. One common strand of these discussions is around Excel add-ons used to perform simulations and analysis. I want to share with you a few thoughts as well as some of the add-ons I use.

THOUGHTS

1.    Add-ons are great and they can make a lot of aspects of simulation and analysis “easy”. However, I would argue that you still need to understand “the why” and “the how” of features and functionality of the add-on to ensure you are using the add-on correctly. One of my modeling mentors discourages extensive use of “fancy” add-ons – he prefers plain vanilla Excel. He prefers native Excel because most of the add-ons are not worth the money. He has also suggested that if you are forced to write your own calculations and create your own model / charts, it forces you to learn the trade – especially the probability theory and statistics. There is truth in what he says but one has to balance time with learning.

2.    Generally speaking, most of what you need for Monte Carlo simulations is already in Excel. So, if you have the input parameters you need, know the right distribution to reference, and have some little to moderate VBA skills – you can begin to conquer the world.

3.    Add-on documentation. Any add-on or 3rd party plug-in should have ample documentation. In cases where the add-on includes its own probability distributions – understand why you would use one tool’s probability distribution implementation over any other.

TOOLS

1.    Microsoft Excel. At a minimum you want to use Excel 2007 – just to get around some of the row and column limitations of previous versions of Excel. Do not use versions of Excel prior to Excel 2003 as the random number generator was flawed. With Excel 2010, Microsoft included a new random number generator algorithm called Mersenne Twister. I won’t bore you with the details – just understand that it is a good thing and reduces the need for yet another Excel plug-in or 3rd party tool.

2.    SimTools. This is a recent find for me and it is FREE. The primary reason I like this add-in is for its broad implementation of inverse cumulative-probability functions that Excel 2007 does not have. Another reason I like this add-on is that the SimTool VBA code can be found here; just in case you need to validate calculations that are occurring or if your work is being audited / challenged.

3.    Simulacion. I was originally turned onto this add-on by my modeling mentor and it’s free as well; though there is a shortage of documentation. Some of the useful features are: distribution fitting and correlation capabilities. I do not use this add-on very much – but the distribution fitting capability alone makes it worth having.

4.    RiskAmp. I was introduced to RiskAmp via Risk Management Insight (RMI). Some of RMI’s tools leverage (require) the RiskAmp add-on. RiskAmp includes a few continuous probability distributions not included in Excel. One specifically is the betaPERT distribution. RiskAmp’s implementation of betaPERT allows for a fourth parameter called lamda which determines the height of the distribution. For what its worth, Oracle’s CrystalBall betaPert implementation does not allow for lamda. So, if betaPERT is a big deal in your analysis / simulations and you don’t need other flash-whiz-bang functionality out of Oracle ChrystalBall – save yourself over a $1000 dollars and purchase a copy of RiskAmp. One more thing on RiskAmp – I cannot prove it yet – but I think there are some memory sharing issues with their code. If you have multiple spreadsheets of which you are using RiskAmp for simulations – the speed of any one simulation is painfully slow.

5.    Mersenne Twister (MT) pseudorandom number generator. The nice folks at Structured Data (makers of RiskAmp) were nice enough to make a MT pseudorandom number generator add-on available for FREE. I have used this add-on in both Excel 2003 and Excel 2007. There is no need for it if you are using Excel 2010 – since Microsoft implemented the MT algorithm in its RAND() function.

6.    XLSim. This is a nifty Monte Carlo simulator that has a bunch of goodies in it that make it worth the couple of hundred dollars. There is a lot of flexibility with the chart output and the simulation menus are very intuitive. XLSim also includes the ability to store simulation results via the DIST standard. I will limit discussion of DIST for this post – but there are quite a few vendors that have already accommodated their software to create and/or work with DIST files.

7.    MegaStat. MegaStat came with one of my decision science textbooks while taking some courses at the Fisher College of Business; The Ohio State University. There is a great correlation matrix generator, the descriptive statistics functionality is great, and there are some other useful functions. While you can definitely find MegaStat for free on the Internet – consider buying a textbook from the creator of MegaStat, Professor J.B. Orris; Butler University. It’s ethically the right thing to do and it’s a small price to pay for a great utility!

8.    XY Chart Labler. This FREE Excel add-on has nothing to do with statistics or probability distributions. I use this add-on to add labels to data points for some charts. Does not sound like much but the functionality makes up for a shortcoming in Excel.

That’s it for now. Feel free to leave comments; especially if you have a really useful add-on or tool that you have used. I will mark as SPAM any comments that I feel are purely product pitches – with no substantive, experience based content.

Advertisements

2 Responses to Useful Risk Modeling / Simulation Excel Add-Ons

  1. Marty Miracle says:

    Great info! I can support your notion that RiskAmp has memory sharing issues. I have to be diligent in closing all other spreadsheets when I need to run a simulation. However I used it to my advantage when requesting a faster laptop at work!

  2. John Hoffoss says:

    Helpful list, thanks Chris!

%d bloggers like this: