Part 2. MM4XL Tools > 1. Strategic Tools > Risk Analyst > 1. How to run Risk Analyst > 1. Model Building > Defining distributions

Risk Analyst

Defining distributions

In order to simulate a model there must be one or more formulae in it that change every time the model is recalculated. This can also be accomplished using one single output formula, for instance like the one below, where the mmRANDBETWEEN function makes the NPV function, an Excel own function, returning every time a new value based on a different interest rate taken randomly from the range 3%-5%.

=NPV(mmRANDBETWEEN(3%, 5%), B12:E12)+mmOUTPUT()

Models built with one single variable cell, however, may satisfy very basic needs only. More complex issues may well require larger models.

The 25 Probability Distribution Functions (Pdfs) that Risk Analyst provides can model the vast majority of common instances that can be handled by means of simulation. The formula below provides an example of a variable that Risk Analyst treats as an input one:

=mmBINOMIAL(5, 0.5)

Defining a distribution function with Risk Analyst is this simple!

We do want to remind you to be very careful to write the functions correctly. From our experience working with managers, we have found that many modeling problems arise from badly written or from poorly understood formulae. The following pages of this help chapter provide a detailed profile for each function available in Risk Analyst. These pages are an important reference for newcomers to the art of decision analysis, as well as for more expert modelers. We strongly recommend that you print them out and read them carefully.
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