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Welcome To Decision Science: MBA Term I (2023)

This document provides an introduction to modeling and decision analysis for an MBA program. It discusses applications of optimization at companies like Chevron, Kroger, Dell, and the Alliance for Paired Donations. It also outlines key benefits of modeling like cost savings, increased revenue and profits. The document introduces various types of analytical models and discusses characteristics of models and benefits of modeling. It also briefly discusses the psychology of decision making and principles of problem-solving. Finally, it provides an introduction to optimization and linear programming.

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Udhav Joshi
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75 views27 pages

Welcome To Decision Science: MBA Term I (2023)

This document provides an introduction to modeling and decision analysis for an MBA program. It discusses applications of optimization at companies like Chevron, Kroger, Dell, and the Alliance for Paired Donations. It also outlines key benefits of modeling like cost savings, increased revenue and profits. The document introduces various types of analytical models and discusses characteristics of models and benefits of modeling. It also briefly discusses the psychology of decision making and principles of problem-solving. Finally, it provides an introduction to optimization and linear programming.

Uploaded by

Udhav Joshi
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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Welcome to

Decision Science

MBA
Term I (2023)
Session 01

Introduction to Modelling and Decision Analysis

•Applications of Mathematical optimization


Success stories
• Chevron
• Alliance for Paired Donations (APD)
• Developed optimization tool for
• Transplant patients needing a kidney
often have potential donors who are • Operational & strategic planning
incompatible • Mixing crude oils
• APD finds exchanges with other patient- • Planning capital expenditures
donor pairs to optimize paired matches • Benefits:
• Benefits: • Annual savings of $1.0 billion
• 220 lives saved since 2006
• Value of savings: priceless

• Kroger • Dell
• Analytics team created models to • Built analytics models to
determine reorder point & order up to • Optimize hardware configurations
quantities for items in 1,950 in-store
pharmacies • Optimize its website’s design
• Benefits: • Optimize promotion design and timing
• Benefits:
• Reduced prescription stock outs by
1.6 million • Increased profit by $142 million
• Lowered inventory by over $120
million
• Increased revenue by $80 million
Introduction
• We face numerous decisions in life & business.

• A set of mathematical relationships and logical assumptions


implemented in a computer as an abstract representation of
a real-world object of phenomenon.

• We can use computers to analyze the potential outcomes of


decision alternatives.

• Spreadsheets are the tool of choice for today’s managers.


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
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.

Insights
• Models give us insight & understanding that improves decision making.
Example of a
Mathematical Model

Profit = Revenue - Expenses

or

Profit = f(Revenue, Expenses)

or

Y= f(X1, X2)
What is
Business Analytics?

• A field of study that uses


computers, statistics, and
mathematics to solve business
problems.

• Considerable overlap with:

• Operations Research

• Management Science

• Decision Science
Categories of
Analytical
Models
PACADI A five-page PACADI case analysis based on the following six
steps.

A Six-Step Decision-Making Step 1: Problem definition

Approach Step 2: Alternatives

The PACADI framework offers a structured,


Step 3: Criteria
integrated, and iterative process that requires

students to analyze case information, apply Step 4: Analysis

business concepts to derive valuable insights,


Step 5: Decision

and develop recommendations based on these


Step 6: Implementation plan
insights.
Ref: Art Weinstein, Herbert V. Brotspies, and John T. Gironda, “Do Your Students Know How to Analyse a Case—
Really?- A Framework for Using Cases to Help Students Become Better Decision Makers”, Published at hbsp.edu
Identify Formulate &
Problem Implement Analyze Test Implement
“Probortunity” Model Model Results Solution

unsatisfactory
results

The Problem-Solving Framework for


Leveraging Business Opportunities
Think out loud

• We have a way of reasoning and


applying our intuition, developed
over many years.

• There are lots of implicit frameworks


and processes in what we do, even in
how we structure a simple
spreadsheet in anticipation of future
application and insight.

The modeling cycle, Noonan P. (2020)


Problem taxonomy by Noonan P. (2020)
The Psychology of Decision Making

1 2 3
Models can be used Other aspects cannot Caution: Human
for structurable be structured easily, judgment and
aspects of decision requiring intuition intuition is not
problems. and judgment. always rational!
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 ?
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 you’ve 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
Framing Effects (Example)

• Now suppose you’ve 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


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 can’t guarantee good outcomes.
A good decision is one that harmonizes

What we What we What we


can do know want

Good Decisions

And to which we are committed


• Systems view
Problem-solving principles
• Define Objective

• Simplicity is a key design


principle

• Be effective

• Putting together

• Alignment

• Read and restate…


Ref: Noonan (2020)
Introduction to Optimization
and Linear Programming
Introduction to Optimization

• We all face decision about how to use limited


resources such as:
• Oil in the earth
• Land for dumps

• Time

• Money

• Workers
Mathematical Programming...
• MP is a field of management science that finds the optimal,
or most efficient, way of using limited resources to achieve
the objectives of an individual of a business.
• a.k.a. Optimization
Determining Manufacturing
Product Mix
Applications of
Optimization

Routing and Financial Planning


Logistics
Decisions

Characteristics
of
Constraints
Optimization
Problems

Objectives

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