Why use computer models?

As well as financial modelling, spreadsheetspreadsheet: A spreadsheet is made up of cells, rows and columns. Each cell holds a piece of numeric (numbers) or alphanumeric (text) data. Cells can also contain formulae to calculate their contents. softwaresoftware: A general term used to describe an application or a program. can be used for many other kinds of computer model:

• modelling supermarket queues
• modelling the stresses which will be borne by a new bridge
• modelling traffic flow in a new road system

Computer models are cheaper to setup than alternative methods that could be used to predict what will happen in a system, eg building a prototype. Other benefits include being able to:

• make alterations and quickly see the outcomes
• repeat tests several times over
• learn from "what if?" scenarios
• model dangerous situations safely

Limitations of computer models

A model is only as good as the rules used to create it. A mistake could have been made by whoever wrote the model and not every situation might have been considered - both of these issues could cause the model to give incorrect answers.

Now try a Test Bite