Introduction to
Managerial Decision Modeling
MGO 336 Operations Analytics
Outline
•What is Decision Modeling
•Types of Decision Models
•Steps in Decision Modeling
•Example
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What is Decision Modeling?
• Scientific approach to decision making
• Often mathematical/analytical
• Model real-world scenarios
• Provide insights into solutions
MGO 336 Operations Analytics
Outline
•What is Decision Modeling
•Types of Decision Models
•Steps in Decision Modeling
•Example
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4
Type of Decision Models
• Deterministic models
•
•
•
All relevant data known with certainty
Mathematical models
Examples?
• Stochastic models
•
•
•
Some data uncertain
Use of probability and statistics
Examples?
MGO 336 Operations Analytics
Type of Decision Models
• Quantitative Models
– Numerical values
• Qualitative Models
– Factors can’t be quantified
– Can be important
• May be combined in decision making
–
e.g., demand forecasting
MGO 336 Operations Analytics
Type of Decision Models
• Specialized Software
• Spreadsheets in Decision Modeling
– Excel built-in functions (e.g., Goal Seek, Data
Table, Charts, etc.)
– Excel add-ins (e.g., Data Analysis, Solver)
MGO 336 Operations Analytics
Outline
•What is Decision Modeling
•Types of Decision Models
•Steps in Decision Modeling
•Example
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Steps in Decision Modeling
1. Formulation
– Aspects translated and expressed as a
mathematical model
2. Solution
– Finding the optimal solution
3. Interpretation and Sensitivity Analysis
– How the manager uses the results
MGO 336 Operations Analytics
Steps in Decision Modeling
MGO 336 Operations Analytics
Outline
•What is Decision Modeling
•Types of Decision Models
•Steps in Decision Modeling
•Example
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Break-Even Analysis Example
• Clock repair shop
• Break-even on repaired springs
Profit = Total Revenue – Total Cost
= (Selling price per unit = $10) x (# of units)
– (Fixed cost = $1,000)
– (Variable cost per unit = $5) x (# of units)
Let X denote # of units.
Profit Function = $10X – $1,000 – $5X
MGO 336 Operations Analytics
Break-Even Analysis Example
MGO 336 Operations Analytics
Break-Even Analysis Example
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Using Goal Seek for Quick Analysis
MGO 336 Operations Analytics
Using Goal Seek
MGO 336 Operations Analytics
Next…
Linear Programming Models
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