Business Decision Modelling Rahul Roy

Course Objective

Enable development of facility in generating insights via modeling in a wide range of realistic situations. Build the essential skills and abilities to be a successful modeller which include

Ability to recognize the key problem(s) in a situation, Skill to develop a structure for analyzing the problem, Ability to carry out a cogent analysis, Mental flexibility to present the analysis and insights to interested parties in a convincing, non-technical manner.
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Course Evaluation

Quizzes Project End-term

20% 40% 40%

Instructors Office hours for discussions

Fridays, 5.00 pm to 6.00 pm

Session Plan: Pre-Midterm

Date Sep 20
Sep 27 Oct 11

Coverage Introduction to Modelling

Preparation

Problem formulation and Retirement Planning(A)* influence diagram

Iterative analysis, outcome presentation Building a decision support system Data interpretation and model formulation Retirement Planning (B) Customer Service at Pizza Kutir* Racquet Ball Racket*

Oct 18
Oct 25
*

Available on courseweb
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Session Plan: Post-Midterm

Date Nov 15 Coverage Modelling unstructured problem Data analysis Nov 29 Preparation Draft Commercials (A)*

Nov 18 Nov 22

Draft Commercials (B)*

Cases to be uploaded on courseweb

Dec 06
*

Executive dashboards

Available on courseweb In lieu of session in Summer Placement week

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Quiz & Project Schedule

Quiz I (10%)

Week of Oct 10

Excel proficiency Excel proficiency

Model formulation, data use and spreadsheet engineering

Quiz II Week of Nov 21 (10%) Oct 14 Topic announcement Project Nov 18 Interim evaluation (40%) Dec 17 Final evaluation

Instructor Expectation

Version of Software - Office 2010 Exercise blanks available on laptop Laptop battery fully charged Required reading performed Excel/Access are the only applications running Everyone carrying ones own tagged flash drive
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Why Managers have to Understand Models and Modeling?

EvEn tHouGH It Costs All You HAvE, GEt undErstAndInG tHosE wHo Know How wIll AlwAYs worK For tHosE wHo Know wHY

Old Proverbs

Managerial Decision Making

Businesses are always fraught with challenges Managers must make decisions almost on a daily basis Many of those decisions have significant financial and organizational impact

Examples:

What tools can we use to make the decisions efficiently (not waste too much time and resources) and more effective (have greater impact on the final outcome)

Illustrative Example

I am interested in buying a dwelling unit in a decent locality. I, of course, have a budget with some stretching potential. How I do some preliminary analysis and model my decision problem?

Decision Making Process

I can download data from Internet (Magicbricks etc.) For me it can be in nice format, or can be dirty Once I have the data, I can start simple shifting to see if it would meet my initial criteria (if I looking at too expensive an area) I will then articulate my house decision and start creating models for payment, quality of life etc. The results can then be shown in charts with the histogram of the house prices (bar graph), the trend in school budget and the quality ratings (line graphs), change in my house budgets (pie chart) etc. to make decisions.

Decision Making Process

Nobel Laureate Herbert Simon postulated that rational decision maker goes through the following stages:

Design

This is where modeling comes in Essentially we are trying to recreate or represent the decision scenario and the environment so that we can start playing with various options Model is nothing but an abstraction of the reality Much easier (and cheaper) to do it in the model world than trying it out and then finding the errors!

Information that I have Gathered

Apartments of my liking cost around Rs. 20,00,000 Banks will grant me a loan at 12% - 14% interest rate. The loan term can be up to 240 months or remaining period of service whichever is less I have to make a down-payment of 10% - 20% of the a apartment price

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An Accounting Problem
Before paying employee bonuses and state and federal taxes, a company earns profits of $ 60,000. The company pays employees a bonus equal to 5% of after-tax profits. State tax is 5% of profits (after bonuses are paid). Finally, federal tax is 40% of profits (after bonuses and state taxes are paid). Determine the amount paid in bonuses, state tax and federal tax.
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