Hotel Booking 1 - Basic @RISK Model
The deterministic model in the file Hotel Booking 0 - Basic Model No Uncertainty is an unrealistic model of hotel booking. It completely ignores the uncertainty in demand for rooms, cancellations, and willingness to upgrade or downgrade. (With the dice button toggled to Static, you can see the results of the deterministic model below. However, to understand the logic better, you might want to toggle the dice button to Random.)
The example below builds in uncertainty. It uses @RISK to find the distribution of total profit and several components of profit. The formulas in the green cells generate customer demands from the Poisson distribution and cancellation and upgrade/downgrade numbers from the binomial distribution. For example, if 100 reservations are taken for regular rooms and the probability of cancelling is 15%, this does not mean that exactly 15 customs will cancel. The binomial distribution is appropriate for generating the actual number of cancellations.
The histogram below indicates that the mean profit is almost $11,700, considerably less than the $13,425 value in the deterministic model. However, the mean is only one measure of the profit distribution. As you can see from the histogram of profit, the distribution is quite skewed to the left.