Modeling the Budgeting Process: Enriching the Learning Environment Using Monte Carlo Simulations

Abstract

This paper discusses the development and use of a budgeting case study and an object-oriented modeling tool to introduce the concept of uncertainty and risk in financial analysis to students in upper-division accounting information systems classes. The emphasis is on teaching the concepts involving probabilistic budgeted financial statements using an object-oriented, discrete event, Monte Carlo simulation model of a simplified business environment. Teaching materials have been developed and tested in an advanced AIS course typically taught to senior or graduate-level students. Assignments are designed to assist students in understanding probabilistic models of business planning, and specifically, in development of budgeted financial statements, to create a stronger understanding of the interrelation of business processes and to expose students to business modeling via simulations.