Evaluation and analysis of total flexibility in the production using Monte Carlo simulation

Nearly unpredictable turbulence on an overall economic level, radical changes in the legal framework and a shift in the moral concepts prevailing in the general public emphasize the importance of increased corporate flexibility. Usually, most flexibility measurements suffer from the defect that they are not pecuniary, that interactions between different flexibility dimensions are not considered and that they lack the required relatedness to the respective context. These problems contribute to a large extent to the fact that, when making investment decisions, the value of flexibility is considered but intuitively or insufficiently. Frequently, the results are irrational myopic pseudo decisions. The present work can be regarded as an attempt to design a pecuniary and context-related flexibility measure of three single flexibility dimensions in an extremely simplified framework and under restrictive assumptions. The primary method used is Monte Carlo Simulation. The present study shows that the value of flexibility can be substantive and that taking into account the interactions of various single flexibilities when strategic investments are made can be of great importance. In this paper, we work out the connection between "environmental volatility" and the "value of flexibility". Our work shows a numerically strong positive relation between these two properties.