Spreadsheet Modeling - PowerPoint PPT Presentation

1 / 24
About This Presentation
Title:

Spreadsheet Modeling

Description:

Cliff T. Ragsdale. 1-2. Introduction to Modeling & Problem Solving. Chapter 1. 1-3. Introduction ... We can use computers to analyze the potential outcomes of ... – PowerPoint PPT presentation

Number of Views:194
Avg rating:3.0/5.0
Slides: 25
Provided by: CliffRa5
Category:

less

Transcript and Presenter's Notes

Title: Spreadsheet Modeling


1
Spreadsheet Modeling Decision Analysis
  • A Practical Introduction to Management Science
  • 4th edition
  • Cliff T. Ragsdale

2
Introduction to Modeling Problem Solving
Chapter 1
3
Introduction
  • We face numerous decisions in life business.
  • We can use computers to analyze the potential
    outcomes of decision alternatives.
  • Spreadsheets are the tool of choice for todays
    managers.

4
What is Management Science?
  • A field of study that uses computers, statistics,
    and mathematics to solve business problems.
  • Also known as
  • Operations research
  • Decision science

5
Home Runs in Management Science
  • Merril Lynch
  • 5 million customers
  • 16,000 financial advisors
  • Developed a model to design product features and
    pricing options to better reflect customer value
  • Benefits
  • 80 million increase in annual revenue
  • 22 billion increase in net assets

6
Home Runs in Management Science
  • Jan de Wit Co.
  • Brazils largest lily farmer
  • Annually plants 3.5 million bulbs and produces
    420,000 pots 220,000 bundles of lilies in 50
    varieties.
  • Developed model to determine what to plant, when
    to plant it, and how to sell it.
  • Benefits
  • 26 increase in revenue
  • 32 increase in contribution margin

7
Home Runs in Management Science
  • NBC
  • Must determine program schedules
  • Schedules must meet advertisers demographic and
    cost requirements
  • Developed optimization model to determine optimal
    timing and pricing of commercials
  • Benefits
  • 50 million increase in annual revenue

8
Home Runs in Management Science
  • Samsung Electronics
  • Leading DRAM manufacturer
  • Semiconductor facilities cost 2-3 billion
  • High equipment utilization is key
  • Developed comprehensive planning and scheduling
    system to control WIP
  • Benefits
  • Cut cycle times in half
  • 1 billion increase in annual revenue

9
What is a Computer Model?
  • A set of mathematical relationships and logical
    assumptions implemented in a computer as an
    abstract representation of a real-world object of
    phenomenon.
  • Spreadsheets provide the most convenient way for
    business people to build computer models.

10
The Modeling Approach to Decision Making
  • Everyone uses models to make decisions.
  • Types of models
  • Mental (arranging furniture)
  • Visual (blueprints, road maps)
  • Physical/Scale (aerodynamics, buildings)
  • Mathematical (what well be studying)

11
Characteristics of Models
  • Models are usually simplified versions of the
    things they represent
  • A valid model accurately represents the relevant
    characteristics of the object or decision being
    studied

12
Benefits of Modeling
  • Economy - it is often less costly to analyze
    decision problems using models.
  • Timeliness - models often deliver needed
    information more quickly than their real-world
    counterparts.
  • Feasibility - models can be used to do things
    that would be impossible.
  • Models give us insight understanding that
    improves decision making.

13
Example of a Mathematical Model
  • Profit Revenue - Expenses
  • or
  • Profit f(Revenue, Expenses)
  • or
  • Y f(X1, X2)

14
A Generic Mathematical Model
Y f(X1, X2, , Xn)
Where
Y dependent variable (aka
bottom-line performance measure) Xi
independent variables (inputs having an impact on
Y) f(.) function defining the relationship
between the Xi Y
15
Mathematical Models Spreadsheets
  • Most spreadsheet models are very similar to our
    generic mathematical model

Y f(X1, X2, , Xn)
  • Most spreadsheets have input cells (representing
    Xi) to which mathematical functions ( f(.)) are
    applied to compute a bottom-line performance
    measure (or Y).

16
Categories of Mathematical Models
Model Independent OR/MS Category Form of
f(.) Variables Techniques
  • Prescriptive known, known or under LP, Networks,
    IP,
  • well-defined decision makers CPM, EOQ, NLP,
  • control GP, MOLP
  • Predictive unknown, known or under Regression
    Analysis,
  • ill-defined decision makers Time Series
    Analysis,
  • control Discriminant Analysis
  • Descriptive known, unknown or Simulation,
    PERT, well-defined uncertain Queueing,
    Inventory Models

17
The Problem Solving Process
Formulate Implement Model
Identify Problem
Analyze Model
Test Results
Implement Solution
unsatisfactory results ???
18
The Psychology of Decision Making
  • Models can be used for structurable aspects of
    decision problems.
  • Other aspects cannot be structured easily and
    require intuition and judgment.
  • Caution Human judgment and intuition is not
    always rational!

19
Anchoring Effects
  • Arise when trivial factors influence initial
    thinking about a problem.
  • Decision-makers usually under-adjust from their
    initial anchor.
  • Example
  • What is 1x2x3x4x5x6x7x8 ?
  • What is 8x7x6x5x4x3x2x1 ?

20
Framing Effects
  • Refers to how decision-makers view a problem from
    a win-loss perspective.
  • The way a problem is framed often influences
    choices in irrational ways
  • Suppose youve been given 1000 and must choose
    between
  • A. Receive 500 more immediately
  • B. Flip a coin and receive 1000 more if heads
    occurs or 0 more if tails occurs

21
Framing Effects (Example)
  • Now suppose youve been given 2000 and must
    choose between
  • A. Give back 500 immediately
  • B. Flip a coin and give back 0 if heads occurs
    or give back 1000 if tails occurs

22
A Decision Tree for Both Examples
23
Good Decisions vs. Good Outcomes
  • Good decisions do not always lead to good
    outcomes...
  • A structured, modeling approach to decision
    making helps us make good decisions, but cant
    guarantee good outcomes.

24
End of Chapter 1
Write a Comment
User Comments (0)
About PowerShow.com