Business Simulation: Definition, Process, Benefits and Applications

Business Simulation: Definition, Process, Benefits and Applications

Business simulations bring management to life. Participants take responsibility for a virtual company, make strategic and operational decisions, and experience how these decisions affect business performance. They combine business knowledge with practical application and allow participants to test different strategies under simulated market conditions.

But what exactly is a business simulation? Which skills can participants develop? And what makes a simulation an effective learning tool?

What Is a Business Simulation?

A business simulation is a simulated business environment in which participants make and evaluate managerial decisions. Working in teams, they take responsibility for a virtual company and manage its development over several decision-making periods. They often compete directly with other teams.

Participants make decisions in areas such as marketing and sales, production, human resources, logistics and finance. The effects of these decisions are then calculated within a simulated market environment. Based on the results, teams analyse their performance, review their strategy and determine their next steps.

The key difference from purely theoretical learning is that participants do not just study business management concepts. They put them into practice and experience the consequences of their own decisions.

Business simulations are therefore used in experiential learning and game-based learning. A systematic review by Faisal and colleagues, published in 2022, examined 57 empirical studies on business simulation games in higher education (Business Simulation Games in Higher Education: A Systematic Review of Empirical Research (2022)). The findings indicate potential benefits for knowledge acquisition as well as cognitive, interactive and behavioural learning outcomes. However, learning success also depends on how the simulation is designed and integrated into the learning process.

How Does a Business Simulation Work?

The basic principle can be summarised in five steps:

Make decisions → Simulate the market → Review results → Analyse outcomes → Make the next decisions

At the beginning, teams receive information about their company and its market environment. This may include data on customers, competitors, costs, production capacity and financial performance.

Based on this information, each team develops a strategy and translates it into concrete business decisions. After each decision-making period, the simulation calculates how these decisions affect market conditions and the company’s performance.

Teams can then see how their decisions have influenced sales volume, revenue, costs, profit or company value. They analyse the results, review their assumptions and use their findings to inform the next round of decisions.

Example: Entering a New Market

A team decides to expand its business into a new market. To do so, it must weigh potential sales opportunities and expected returns against the necessary investments.

Several other areas are affected as well. Production must provide sufficient capacity, marketing activities must reach the new target group, and the additional financing requirements must be taken into account.

After the next simulation round, the team can assess the impact of its decision. It can examine whether its expectations were met, which interdependencies may have been underestimated and what it would do differently if faced with the same decision again.

This example illustrates why a business simulation involves more than a series of individual tasks: participants must consider the consequences of their decisions in the context of the business as a whole.

Which Decisions Do Participants Make?

A business simulation ideally covers several business functions and the interdependencies between them. The specific decisions available depend on the simulation model.

Typical decision-making areas include:

Marketing and Sales: Which pricing strategy makes sense? How should the company position itself in the market? Which measures can help increase demand and sales?

Production: What production capacity is required? How much should be produced? How can costs and capacity utilisation be managed?

Human Resources: How many employees are needed? How do staffing decisions affect capacity and costs?

Finance and Controlling: How is the company’s financial position developing? Are sufficient funds available? Which financial indicators are relevant to the next decision?

Strategy and Investment: Which markets should the company target? How should it position itself against competitors? Which investments support its long-term objectives?

The key is not simply to understand each function individually, but to recognise how they interact. A marketing decision, for example, can increase demand and create a need for additional production capacity. Investments can enable future growth while putting pressure on the company’s financial position.

These trade-offs make business decisions challenging and business simulations make them tangible.

What Do Participants Learn from a Business Simulation?

Business simulations can combine business knowledge with a range of management and interpersonal skills. The specific learning outcomes depend on the objectives and the design of the simulation.

1. Thinking from a Company-Wide Perspective

Participants learn to look beyond the perspective of a single department. They recognise that decisions in marketing, production, human resources and finance are interconnected and influence one another. This helps develop a holistic understanding of how a business operates.

2. Strategic Thinking

A decision that produces good short-term results is not necessarily the best choice in the long run. Teams must consider market developments, competitors, investments and risks, aligning their decisions with broader business objectives. Strategy is not just discussed in theory; participants must apply it and review it regularly.

3. Decision-Making Skills

Business decisions often have to be made under conditions of uncertainty. Information may be incomplete, future developments cannot be predicted with certainty, and time and resources are limited. A simulation provides a protected environment in which participants can weigh different options, make decisions and analyse their consequences.

4. Business Acumen and Financial Understanding

Financial indicators become easier to understand when they are linked to concrete business decisions. In a simulation, participants can experience how operational decisions influence profitability, liquidity or company value. They learn not just to calculate or interpret figures, but to use them to support business decisions.

5. Teamwork and Communication

Managing a company in a simulation is often a team effort. Participants must exchange information, consider different perspectives and make decisions together. They gain practical experience in role allocation, communication, handling disagreements and sharing responsibility.

At MARGA, a team size of three to six participants is recommended. This is intended to encourage interaction while ensuring that each team member has opportunities to contribute.

Why Is Learning Different in a Business Simulation?

The key difference between a business simulation and many traditional learning formats is that participants take action themselves and experience the consequences of their decisions.

In a seminar, participants might learn which factors should be considered when making an investment decision. In a business simulation, they must decide for themselves whether and when to invest. They then see how that decision affects the simulated company.

This connects knowledge, practical application and reflection. Participants can test their assumptions, analyse mistakes and change their approach in subsequent decision-making rounds.

Research also highlights the importance of instructional design. In a 2015 study, Lynn Vos examined how educators assess learning outcomes from business simulations, drawing on surveys and interviews with educators (Simulation games in business and marketing education: How educators assess student learning from simulations (2015)). The study discusses regular feedback, transparent assessment criteria and reflection on results as important elements of the learning process.

A business simulation is therefore not automatically an effective learning tool simply because it includes competition. What matters is that participants reflect on their experiences and draw conclusions that inform future decisions.

Who Can Benefit from a Business Simulation?

Business simulations can be used with different target groups in companies and higher education. The most suitable simulation depends on participants’ prior knowledge, learning objectives and the desired level of complexity.

Managers and Leaders

For managers and leaders, business simulations can help strengthen strategic thinking, entrepreneurial decision-making and an understanding of overall business performance. They can be particularly valuable for professionals who have not studied business administration but are responsible for employees, budgets or important decisions within their area of expertise.

Emerging Leaders and High Potentials

Emerging leaders and high potentials can practise making management decisions and experience their consequences. They learn to connect different business functions, weigh alternative courses of action and take responsibility for their decisions. This can help prepare them for future leadership roles.

Trainees and Young Professionals

For trainees and young professionals, a business simulation offers the opportunity to apply business knowledge in practice and develop a holistic understanding of how a company operates. Working in teams also helps them understand how decisions across different functions interact.

University Students

Business simulations are also used in higher education to connect theoretical concepts with practical decision-making. Students learn to apply business concepts, develop strategies and assess the impact of their decisions based on results and financial indicators.

Online or In-Person: How Can a Business Simulation Be Delivered?

Business simulations can be delivered in different formats. The most suitable approach depends on the learning objectives, available time and organisational requirements.

Online: Digital simulations enable participants to collaborate regardless of location. Depending on the format, teams can work independently between decision-making periods and submit their decisions digitally.

In-class: Face-to-face sessions provide opportunities for direct discussion, spontaneous collaboration and shared reflection.

Blended learning: This format combines digital learning phases with in-person sessions or live virtual meetings.

MARGA offers all three formats. This makes it possible to integrate business simulations into both compact training sessions and multi-week learning programmes.

What Makes a Good Business Simulation?

Not every simulation is automatically an effective learning tool. In our view, six factors are particularly important.

1. A Realistic Business Scenario

A good business simulation represents economic relationships in a realistic and understandable way. Participants make decisions similar to those they might encounter in their professional lives. The more relevant these decision-making situations are to the target group, the easier it becomes to connect the learning experience with professional practice.

2. Visible Consequences of Decisions

Participants need to understand how their actions affect business performance. This includes recognising the interdependencies between different business functions. They learn to look beyond individual financial indicators and assess decisions from the perspective of the company as a whole.

3. The Right Level of Complexity and Clear Learning Objectives

A simulation should be challenging without overwhelming or underchallenging participants. Its complexity must match the learning objectives, target group and participants’ existing knowledge. Beginners may initially focus on basic business concepts, while more experienced participants can tackle complex strategic questions.

4. Competition and Interaction

Competition between teams can add momentum to a business simulation. Participants experience how different strategies lead to different outcomes and learn to consider their decisions in the context of market developments. Collaboration within each team also encourages the exchange of perspectives and joint decision-making.

5. Feedback and Reflection

The simulation alone does not constitute a complete learning process. Participants need to analyse their results, understand the consequences of their decisions and draw conclusions for future action. Feedback and reflection help them evaluate successes and mistakes and develop alternative approaches.

6. Professional Guidance

Trainers help participants understand business relationships, consider new perspectives and critically examine their decisions. Rather than simply providing the answers, they ask questions, offer impulses and encourage participants to develop their own solutions.

Effective guidance should strengthen the team’s independence, not replace it. Participants remain responsible for their decisions and learn to assess their consequences themselves.

What Happens When a Decision Does Not Work Out?

A strategy can fail, a market can develop differently than expected, or an investment may not deliver the anticipated return. These situations are part of business decision-making — and they can become valuable learning opportunities in a simulation.

Teams can examine which assumptions proved incorrect, which factors they underestimated and which alternative decisions might have been more effective. In a subsequent round, they can adjust their approach and compare the results.

This does not mean that a simulation can fully replace real management experience. Rather, it provides a protected environment in which participants can test decisions, observe their consequences and refine their approach.

What Does a Business Simulation at MARGA Look Like?

MARGA has been developing and delivering business simulations since 1971. The approach combines business knowledge, hands-on management decisions and dynamic market simulations. Participants do not simply learn about business relationships; they experience how different decisions interact and influence business performance.

From Individual Business Functions to the Company as a Whole

In the MARGA simulation, teams take responsibility for a virtual company and compete with other teams. They make decisions in areas such as marketing, production, human resources and finance.

These decisions involve trade-offs. A marketing strategy can influence demand, while production planning, staffing and financing also affect business performance. Teams must take these interdependencies into account and develop a coherent business strategy.

Using Financial Indicators to Evaluate Decisions

The simulation runs over several decision-making rounds. After each round, teams analyse their results, review their assumptions and adapt their strategy.

Financial indicators play an important role. EBIT, ROCE and free cash flow, for example, help participants assess different aspects of business performance. MARGA Value Added also introduces the concept of value-based management.

These indicators are not ends in themselves. Their value lies in helping participants connect financial results with their decisions and draw conclusions for the future management of the company.

Personal Guidance Instead of Ready-Made Answers

A central element of the MARGA approach is the support provided by tutors. They assist teams throughout the programme with subject-related, organisational and technical questions.

They do not make decisions on behalf of the participants. Instead, they help teams understand business relationships, critically examine results and develop their own approaches to solving problems.

Additional learning resources, including instructional videos and the online course Financial Basics, support participants in building or deepening their business knowledge. This allows them to connect practical decision-making experience with targeted learning.

Different Formats for Different Learning Objectives

MARGA offers business simulations in online, in-person and blended learning formats. The specific design depends on the programme and its learning objectives.

This flexibility makes it possible to integrate simulations into a range of professional development initiatives, including leadership development, the development of emerging talent and business training for specialists.