Monte Carlo simulation

Basically Monte Carlo simulation replaces single point estimate inputs to a model with random variables that can assume a range of values that follow a probability distribution. For example, costs and revenues for a project cash flow analysis might be assumed to follow a normal probability distribution. We then specify the mean and standard deviation for each cost and revenue input. Monte Carlo simulation then samples from the probability distribution of each input and calculates the resulting output. This is repeated thousands of times. The resulting output values can be analyzed to determine the variability (risk) of outcomes. My company sells Monte Carlo simulation software for Excel. This may help understand Monte Carlo simulation using a spreadsheet.