Just a few weeks ago, I received the second quarter issue of Business Appraisers Practice and I was highly intrigued since it was centered around the
topic of Monte Carlo method, also known as Monte Carlo simulation. While I am new to the profession of business valuations, I found some of the
articles and concepts in it quite astounding. Unfortunately, not astounding from the standpoint that the information was so groundbreaking that
it altered my entire perception of an idea or method, but astounding from the standpoint that business valuation community has been so slow to
adopt this incredibly simple method.
Monte Carlo simulation has been a well know stochastic simulation process in the scientific community since the 1950s, yet the business valuation community
is just now starting to have serious conversation about its practicality to the profession. In the opinion survey that opens the publication, the
results of the poll are disheartening. Toby Tatum, MBA, CBA, CVA, MAFF, the editor of the publication, and the author of the survey, indicated
some very disappointing statistics among business valuation professionals. Of those polled, about thirty-five percent had little or no knowledge
of Monte Carlo simulation. Thirty-five percent of professionals! Not just random folks of the street.
In this poll, only sixty-five percent of respondents said they were moderately to very familiar with it, and of them, seventy-two percent said they
had actually used this method. So doing some simple math, if we have one hundred business valuation professionals in the room, thirty-five have
no knowledge of what Monte Carlo Simulation is, sixty-five people know what it is, and of those sixty-five people only forty-seven have used it
in any way. More than half of business valuation professionals have not used it. To me, this is simply astonishing. Learning this inspired me to
write a whitepaper to continue a discussion on Monte Carlo simulation, and its significant role in Business Valuations.
To continue the conversation, check out my white paper, Monte Carlo Simulation and Business Valuation: A Better Way to Value.
Business Appraisal Practice: 2016 Second Quarter, “Opinion Survey”, Toby Tatum