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Chapter 7 & 12 Final

business analytics

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17 views

Chapter 7 & 12 Final

business analytics

Uploaded by

beyatrizmariegarcia
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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CHAPTER 7: SPREADSHEET MODELS 7.

2 WHAT-IF ANALYSIS

Excel offers a number of tools to facilitate what-if


7.1 BUILDING GOOD SPREADSHEET MODELS analysis. In this section we introduce two such tools,
Data Tables and Goal Seek. Both of these tools are
Spreadsheet models are mathematical and logic-based
designed to rid the user of the tedious manual trial-and-
models. Their strength is that they provide easy-to-use,
error approach to analysis.
sophisticated mathematical and logical functions,
allowing for easy instantaneous recalculation for a
An Excel Data Table quantifies the impact of changing
change in model inputs.
the value of a specific input on an output of interest.
Spreadsheet models are often referred to as what-if
Excel can generate either a one-way data table, which
model.
summarizes a single input's impact on the output, or a
two-way data table, which summarizes two inputs'
The total cost of manufacturing a product can usually be
impact on the output.
defined as the sum of two costs: fixed cost and
variable cost.
Excel's Goal Seek tool allows the user to determine the
value of an input cell that will cause the value of a
Fixed cost is the portion of the total cost that does not
related output cell to equal some specified value (the
depend on the production quantity; this cost remains the
goat).
same no matter how much is produced.

Variable cost, on the other hand, is the portion of the


7.4 AUDITING SPREADSHEET MODELS
total cost that is dependent on and varies with the
The Error Checking button provides an automatic
production quantity.
means of checking for mathematical errors within
formulas of a worksheet. Clicking on the Error
The conceptual model helps in organizing the data
Checking button causes Excel to check every formula
requirements and provides a road map for eventually
in the sheet for calculation errors.
constructing a mathematical model.

An influence diagram is a visual representation that


GLOSSARY
shows which entities influence others in a model.
Parts of the model are represented by circular or oval
 What-if model - A model designed to study the
symbols called nodes, and arrows connecting the nodes
impact of changes in model inputs on model
show influence.
outputs.
 Make-versus-buy decision - A decision often
The cost-volume model for producing q units of the
faced by companies that have to decide whether
Viper can then be written as follows:
they should manufacture a product or outsource its
TMC(q) = FC + (VC x q)
production to another firm.
Similarly, a mathematical model for purchasing q units is
as follows. Let P = the per_ unit purchase cost and
TPC(q) = the total cost to outsource or purchase q units:
TPC(q) = P

We can now state mathematically the savings


associated with outsourcing. Let S(q) = the savings due
to outsourcing, that is, the difference between the total
cost of manufacturing q units and the total cost of buying
q units.
S(q) = TMC(q) - TPC(q)

q = number of units required


FC = the fixed cost of manufacturing
VC = the per-unit variable cost of manufacturing
TMC(q) = total cost to manufacture q units
P = the per-unit purchase cost
TPC(q) = the total cost to purchase q units
S(q) = the savings from outsourcing q units
CHAPTER 12: DECISION ANALYSIS

12.1 PROBLEM FORMULATION

The first step in the decision analysis process is problem


formulation.

We then identify the decision alternatives; the


uncertain future events, referred to as chance events;
and the outcomes associated with each combination of
decision alternative and chance event outcome.

In decision analysis, we refer to the outcome resulting


from a specific combination of a decision alternative and
a state of nature as a payoff.

A table showing payoffs for all combinations of decision


alternatives and states of nature is a payoff table.

A decision tree provides a graphical representation of


the decision-making process.

12.2 DECISION ANALYSIS WITHOUT


PROBABILITIES

The optimistic approach evaluates each decision


alternative in terms of the best payoff that can occur.

The conservative approach evaluates each decision


alternative in terms of the worst payoff that can occur.

In decision analysis, regret is the difference between


the payoff decision associated that would with a yield
particular decision alternative and the payoff associated
with the decision that would yield the most desirable
payoff for a given state of nature.

As its name implies, under the minimax regret


approach to decision analysis, one would choose the
decision alternative that minimizes the maximum state of
regret that could occur over all possible states of nature.
This approach is neither purely optimistic nor purely
conservative.

Risk analysis helps the decision maker recognize the


difference between the expected value of a decision
alternative and the payoff that may actually occur. A
decision alternative and a state of nature combine to
generate the payoff associated with a decision.

The risk profile for a decision alternative shows the


possible payoffs along with their associated probabilities.

Sensitivity analysis can be used to determine how


changes in the probabilities for the states of nature or
changes in the payoffs affect the recommended decision
alternative.

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