Bus 36106

Managerial Decision Modeling

Baris Ata

BUS 36106: Managerial Decision Modeling

Professor:
Office:
Telephone:
E-mail:
Office Hours:

Bar Ata
Harper Center 364
(773) 834 2344
[email protected]
By Appointment

Course Overview
In this course we will learn how to model, analyze, and solve business decision problems on
Excel spreadsheets. We will address problems involving optimal resource allocation (how to
best utilize the available resources), risk analysis (how to incorporate uncertainty in problem
parameters), sequential decision analysis (how to make sequential decisions under uncertainty
with information), data analysis (how to synthesize the available data) and forecasting (how to
extrapolate the past into the future). In each area, we will consider a variety of business
problems, build models to structure them on spreadsheets, analyze and solve them using the
available Excel commands, tools and add-ins, and study their economic interpretation. The focus
of the course will be on modeling, analysis and interpretation, rather than the underlying theory
or algorithms. This practical approach to problem solving will not only complement the
theoretical one, but is also more readily accessible to managers, who find spreadsheets a natural,
intuitive, and user friendly platform for organizing information and performing what if
calculations, which has made them indispensable tools of modern business analysis.
The emphasis of the course will be on systematic, logical thinking, and problem solving, not
on learning spreadsheet skills. Good working knowledge of basic Excel will be assumed so
that we can focus on the problem solving aspects of the course. For example, knowing how to
write and copy formulas involving relative and absolute cell addresses, and how to insert and edit
charts in Excel will be essential. However, a typical Excel user may not be familiar with more
advanced tools, techniques and add-ins that have significantly increased the power of
spreadsheet analysis. This course will introduce and apply these, thereby furthering the
spreadsheet knowledge base of even an expert Excel user. In particular, we will use Excels
Solver tool for decision optimization, Simtools and @Risk add-ins for Monte Carlo simulation,
and Precision Tree add-in for sequential decision analysis. We will also learn Excels simple
but powerful data analysis tools such as Pivot tables and Filters to synthesize the available data,
and time series analysis for forecasting. Thus, the spreadsheet modeling and analysis
experience in this course should enhance your analytical problem solving capabilities as well as
Excel spreadsheet skills.
The course involves a hands-on, in-class learning, so attending each class, on time, and
actively participating in problem solving on laptops in class are absolutely essential. Course
requirements consist of developing, analyzing, and solving spreadsheet models of assigned
problems and cases, and exams.
Text: (Recommended) Practical Management Science, by W. Winston and C. Albright, South
Western, 3rd or 4th or 5th edition.

Case Packet: Cases, exercises and supplementary readings

Required Software
1. Microsoft Excel 2010 for Windows, and the Excel Solver.
2. The Palisade Corporation product Decision Tools Suite. This includes the Excel add-ins:
Precision Tree, @RISK, and RiskOptimizer. You can download this from Chalk under
Palisade software.
3. Please download the Excel add-ins FormList, SimTools from Prof. Roger Myersons
website: http://home.uchicago.edu/~rmyerson/addins.htm
4. Please download the Excel add-in Solver Table from Prof. Chris Albrights website:
http://www.kelley.iu.edu/albrightbooks/Free_downloads.htm

Hardware Requirements
1. You must bring your laptop to every class.
2. If you are a Mac user, you must find a way to be Windows compatible because the
DecisionTools Suite will not work in Mac. I recommend installing and using a Windows
emulator, e.g. VMWare Fusion or Parallels Desktop.

Course Outline
I. Introduction: Modeling and analysis of business decision problems on Excel spreadsheets.
Review of basic Excel, including Goal Seek, Data Tables and Solver. Applications to new
product introduction, monopoly pricing and buy vs. lease decisions. (1 week)
II. Optimal Resource Allocation: Constrained optimization models of problems involving best
utilization of available resources equipment, personnel, materials, time, space, capital to
optimize some measure of performance such as profit, cost, sales, return on investment.
Model formulation, solution by Solver, sensitivity analysis, and economic interpretation.
Applications to optimal product mix, blending, portfolio planning, project selection,
assignment, budget allocation, asset-liability matching, airline revenue management,
workforce scheduling, production planning, portfolio optimization, and incentive contract
design. (4 weeks)
III. Risk Analysis: Monte Carlo simulation of uncertain environmental variables, using the
Rand() function, data tables, Simtools, and @Risk. Applications to performance evaluation,
inventory planning, yield management, competitive bidding, project valuation, cash flow
analysis, stock option prices, optimal job search and portfolio optimization. (3 weeks)
IV. Sequential Decision Analysis: Modeling and analysis of multiple stage decision problems
under uncertainty, using Precision Tree. Applications to valuing real options, oil drilling,
process selection, and capacity planning. (1 week)
V. Data Analysis and Forecasting: Synthesizing data by Pivot tables, Auto filter and Advanced
Filter. Forecasting by time series analysis with trend and seasonality. Moving average and
exponential smoothing. (1 week)
Course Requirements and Guidelines
Prerequisites: Everyone is expected to know the basics of working with Excel spreadsheets.
These include developing and copying formulas with relative and absolute cell addresses,
and drawing and editing charts in Excel.
Class Work: A detailed class schedule showing topics, classroom examples, homework
assignments, and readings appear at the end of this syllabus. Preparation for each class
involves reading and preparing the case(s) to be covered in that class. Data files relating to
these cases data should be downloaded from the Chalk before (not during) the class. They
will be used in class to build models, analyze them, and interpret solutions. This problem
solving process seems deceptively simple when watching someone else do it, or reading the
solution. The only way to learn this important and difficult skill is by practicing it yourself.
Everyone is expected to attend all classes, on time, and actively contribute to the class
discussion, sharing ideas, experiences and insights.
Grading: The course grade will be based on the homework assignments (35%), a midterm
(25%), a project (30%), and class participation, which includes class attendance as an
essential component (10%).
Assignments: The homework problems and cases are designed to enhance your
understanding of the process of modeling and analysis learned in class. Some assignments
are to be completed individually, while others may be done in groups. Grading will be based

on demonstrated comprehension of the case, logic of the model, and application of concepts,
methods and tools learned in class. An ideal homework should include:
a write-up explaining the problem, model, analysis and results
a well organized spreadsheet with clear explanations and documentation including
formulas, gridlines, row and column headings, color coding, shading, etc.
Although many assignments are to be submitted as a group, everyone is expected to work on
each assignment individually first, and then combine the individual effort to produce the best
group output. Each group should submit one report per assignment electronically (through
Chalk) of their model, analysis and solution.
Guidelines: Each submission should include (a) short write-up explaining your model (1-2
pages), analysis and conclusions, and (b) supporting exhibits such as spreadsheets, charts,
formulas, figures, etc.
Write-up: This should be a clear and concise explanation of your approach to the
problem, model, analysis, and conclusions. Use a presentation format with outlines,
bullets and tables, rather than long verbose essays. The write-up should include:
Executive Summary: Brief overview of the problem addressed, key issues involved,
and your solution, clearly demonstrating your understanding of the problem and
results
Model: Explanation of the logical structure of your model, outlining its step-by step
development, which summarizes your thought process in approaching the problem.
State the objective, decisions and tradeoffs involved, as well as the key structural
assumptions you made to simplify the analysis. Do not just restate the problem data
as assumptions. Explain key formulas in words, such as: Cash Receipts this month =
0.2*Sales 2 months ago + 0.8*Last Months Sales + 0.2*This months sales.
Analysis: Summarize the key spreadsheet functions, commands and tools used to
analyze your model and how. (Do not simply list them.)
Conclusions: Provide concrete answers to the specific questions asked. Highlight the
key results, and provide an intuitive economic interpretation. Make references to the
exhibits attached, but do not just state See Exhibit 1 for answer to part (a).
Spreadsheets: Spreadsheets are notoriously difficult to understand, trace the logic of, and
debug, even for the person who creates them, let alone for an unfamiliar reader. It is your
responsibility to make your spreadsheets absolutely clear and easy to follow. For
tractability, try to organize your model and results on one page. If it will not fit on one
page, determine logical break point(s) and provide sufficient documentation to guide the
reader from one page to the next. The goal is to help the reader follow your work
effortlessly. Each spreadsheet should be self-contained and well documented to show
The title of the exhibit that is descriptive of its content
Careful, logical layout, with data separated from the model and its analysis
Key cell formulas displayed using the Formula List add-in. Try to place the formula
text close to the cells containing the formulas. For conciseness, do not repeat similar
formulas; manually type instead copied to... Make sure to print the gridlines, and
row and column headings, without which formula lists are useless. Add

explanations, comments and text boxes to help the reader understand your
spreadsheet.
Color coding and shading to highlight contents of key cells and results, with a legend.
Project: This involves creating, modeling, and analyzing a business decision problem of
your choice. It may be based on your own work experience, a business problem youre
aware of, a case from another course, a magazine article, or even a start-up idea of yours.
You should then develop a spreadsheet model for this case to illustrate a new application of
the modeling concepts and analytical methods learned in this course. The case should be an
internally consistent business story, and the model its stylized representation that captures its
essence. The case need not have real data, and the model need not address all aspects of the
problem or employ all of the tools learned in this course. The key is to identify and focus on
a central nugget of an interesting business problem and write a convincing story around it.
Keep the model manageable by suppressing inessential details and by making simplifying
assumptions. At the end of the term (during the time reserved for final if needed), you will
make a presentation of your project to the class. At that time, you will also submit a
typewritten project report, clearly explaining your problem, model, and solution, just as in
case of the weekly assignments. Your group peer evaluations will also be due at the time of
your project presentation.
The project report has a page limit of 8 pages not including exhibits and appendices. It
should explain your problem, motivation, the modeling approach and your model, the results,
insights, and any relevant sensitivity analysis.
Honor Code: The honor code requires that you must not obtain solutions to the assignments,
cases or projects from other students in the past or present classes. Also, you must not
include your name on a group report if you have not contributed substantially to the group
work. Students are required to adhere to the standards of conduct in the Booth Honor Code
and the Booth Standards of Scholarship. The Booth Honor Code also requires students to
sign the following Booth Honor Code pledge, I pledge my honor that I have not violated the
Honor Code during this examination, on every examination and homework
Class Room: Everyone is expected to attend all classes, and on time. To minimize delays
and disruptions, please come to the class early and set up your laptop, so that the class can
start on time, and then stay in your seats until the end of the class. You must not surf the web
or use e-mail during class.
Re-grading Policy: If a student wishes to contest a grade given, s/he should adhere to the
following procedure:
1. Students have up to 10 working days after graded written work has been made available
to them to submit it for re-grading. If the work is returned to students at the end of the
term, they have 10 days in the next registered term to resubmit the work for re-grading. In
contesting a grade, students should be informed that the entire work will be reviewed, not
only the sections in question, and the final grade adjusted accordingly.
2. Submissions for re-grading must be done in writing, with the student outlining the
specific areas of the work that s/he feels were incorrectly graded. All submissions should

be signed and dated by the student.

3. The professor will re-grade the work being contested and provide a response to the
student within 20 working days, explaining the results of the review and indicating
whether the students grade has changed. Oral or written responses may be provided.
4. If a student remains dissatisfied with the grade, s/he has 5 working days after receiving
the re-graded work to submit it a second time for re-grading, as outlined in Step 2.
5. The professor will re-grade the work within 5 working days of receiving it, as outlined in
Step 3. This concludes the grading appeal process.
The professors judgments on second submissions of written work will be final. There are
no provisions for student appeal to outside parties in resolving grading disputes.

Peer Evaluation
Please evaluate all members of your group (including yourself) in terms of their
contribution to the group assignments and the final project, and record the scores on the
spreadsheet on the back page. Highlight your own name and grade each member of your
group on each assignment. Allocate a total of 10 points among all group members to
reflect their relative contributions to the group effort on each assignment and the term
project. At the end of the quarter, compute the average scores for all of your group
members in the last column and return this evaluation form with your final project report.
Please fill these forms this carefully, as time progresses. It will be one of the important
inputs used in deciding the individual course grades. Submission of the peer evaluation
forms is mandatory; your grade may be withheld for failure to submit it. These
evaluations will be guarded with utmost confidentiality, and will be used only by me, and
that too only for grading purposes.
During this peer evaluation process, please keep in mind the following criteria in terms of
each individual group members contribution.
Communication: Does the member listen to and consider others points of view?
Communicate ideas well? Adhere to the group meeting schedule? Is open to
feedback?
Innovation: Does he/she generate ideas on how to achieve group goals? Apply past
knowledge and experience to the current project? Offer alternative approaches to
current ways of thinking? Challenge the status quo when necessary? Encourage
innovative thinking among the group members?
Initiative: Does the member help move ahead efficiently? Go beyond the
requirements of the task? Look for opportunities to improve? Help others in the
groups understand the background material?
Team Orientation: Does the member work well with the group? Acknowledge and
pay attention to the group and individual activities? Treat all members as colleagues?
Complete individual task requirements to achieve group goals? Give other members
credit for their ideas? Consider the group goals as the top priority? Attend all group
meetings or provide advance notice when absent? Informs the group of his/her task
so that it can be completed when absent?

Managerial Decision Modeling

B. Ata

Peer Evaluation Form

Your Name
Group No.
Assignment Number

10

11

Project

Total Score

10

10

10

10

10

10

10

Group Member / Score

1.

2.

3.

4.

Comments:

Average
10

BUS 36106 (Spring 2015)

Week 1
March 31

Week 2
April 7

Week 3
April 14

Week 4
April 21

Week 5
April 28

Managerial Decision Modeling

Classwork
I. Introduction: Excel in Modeling
Introduction to Decision Modeling
Review of Excel: Goal Seek and Data Tables
Case: New Product Development
Case: Buy Now, Pay Later
Case: Price Is Right
II. Resource Allocation: Optimization
Introduction to Resource Allocation
Linear Optimization: Solver
Case: Producing for Profit
Sensitivity Analysis: Shadow Prices
Case: Picking a Portfolio
Optimal Blending
Case: Make Me Wine (and Profit Too)
Airline Network Revenue Management
Case: BlueSky Airlines A, B, C
Integer Optimization
Case: Project Selection
Case: Managing a Marketing Budget
Case: Asset-Liability Matching (time permitting)
Multi-period Planning:
Case: Workforce Planning (time permitting)
Case: Production Planning
III. Risk Analysis: Simulation
Financial Risk Management: Solver Table
Case: Portfolio Optimization (A)
Introducing Uncertainty: The Rand() function
Case: Performance Evaluation

Homework
Note: * = individual assignments

B. Ata
Readings
Essential Excel
Chapters 1 and 2
Principles of Spreadsheet Modeling
Chapter 7, Section 3

Case Write-up Due: Saving For the

Future*
Case Write-up Due: Mastering the
Mortgage*

Interpreting the Solver Report

Chapter 3, sections 1 3 and 7
Chapter 3, sections 4 6 and 9
Chapter 4, section 6

Case Write-up Due: Shelby

Shelving*

Chapter 4, section 5
Chapter 5, section 6

Case Write-up Due: Red Brand

Canners

Chapter 3, section 8
Chapter 4, sections 2-4, 6, 7

Case Write-up Due: McPherson

Refrigeration
Project Proposals Due

Nonlinear optimization models

Chapter 7, section 7
Review basic probability
Chapter 11, sections 1 4

2
Classwork

Homework

Week 6
May 5

MIDTERM EXAM

Case Write-up Due: Portfolio

Optimization (B)*

Week 7
May 12

Discrete Probability Models: Binomial and Poisson

Case: Inventory Planning
Case: Yield Management
Continuous Prob. Models: Normal and Triangular
Case: Competitive Bidding
Case: Project Valuation
Case: Cash Flow Analysis of a Project
Role of Uncertainty over Time
Cases: Bonds, Stocks and Options
Case: Optimal Job Search
Correlated random variables & Risk Optimizer
Case: Portfolio Optimization Revisited
IV. Sequential Decision Analysis
Precision Tree Case: Decision Analysis with
Information, Sequential Decisions with Information,
Expected value of information
V. Data Analysis and Forecasting
Data Analysis: Pivot Tables, Filters
Case: Actors Incomes
Forecasting: Exponential Smoothing
Case: Merriwell Bag Co.
Project Presentations

Case Write-up Due: Lets Make a

Deal*
Detailed Project Roadmap Due

Week 8
May 19

Week 9
May 26

Week 10
June 2

Week 11
June 9

Readings

Review Binomial and Poisson dist.

Chapter 12, sections 1 and 2
Guidelines for Simulation with addins
Chapter 12, section 4
Case Write-up Due: Confederated Pulp Review Normal distribution
& Paper
Chapter 12, section 3

Case Write-up Due: Marsh and

McLennan (A)

Chapter 11, section 6

Decision Analysis (HBS Case)
Chapter 10

Case Write-up Due: Mergers and

Acquisitions
Case Write-up Due: Hawthorne
Plastics

Chapter 16

Project Reports Due