Rainy days happen.
Companies should buy insurance.
They should not buy too much.
Calculating the appropriate amount of insurance to buy is a tricky endeavor.
Too little and your company could go bankrupt; too much and your company could be wasting
precious resources.
In this insuring capital equipment module, we help an airline determine the proper amount
of insurance and type of insurance to buy to cover a fleet of aircraft.
We do this by leveraging mathematical simulation in three simple steps.
First, we create a deterministic framework.
For this case, we define the entire fleet makeup, assess likelihood of aircraft failure,
and calculate expected costs under a number of insurance options.
Second, we run simulations.
Our software runs the deterministic framework four hundred thousand times to give us a perspective
of most likely outcomes and outlier scenarios.
Third, we apply judgement.
With visualizations of 400,000 outcomes, we can apply business judgement and select the
best option.
Simulation is not always an appropriate mathematical tool.
In this scenario it is.
Follow along and not only learn to choose an insurance policy, but also develop the
skills to determine when to leverage simulation modeling.