MODULE:_4__

MODULE GALS

Explain the importance of

data in decision models and
decision making process. BUSINESS ANALYTICS:

DECISION MODE
Familiarize with Total Cost
Model and Break Even
Decision Model

PREPARED BY: MR. DAN JEWARD C. RUBIS, MBA

WHAT IS A
MODEL?
 DECIS ION-MAKING is a critical part of
every business operation, but making the right
decision, especially when a vast amount of data
is involved, isn’t always
easy.
What’s the best
way to go
about this?
DECISION
MODELING
 DECISION MODELING
Decision modeling helps business leaders understand and
organize data so that important conclusions can be made
quickly, easily, and accurately.
 DECISION MODELING
Decision modeling is a structured process that predicts the
outcome of certain scenarios, offering valuable insights to
business users. Decision models are a forecasting tool that
provide an overview of all the potential possibilities of
specific actions.
Every day, executives make dozens of critical decisions.

Should we enter a certain market?

How should we design our new product?
Which partners and distribution channels should we use?

These decisions need to happen quickly, and they often

determine the business’s profitability and overall success.
 MODEL
An abstraction or representation of a real system, idea, or object

Captures the most important features

a written or verbal description, a visual display, a mathematical formula, or a spreadsheet re

 DECISION MODEL
A decision model is a model used to
understand, analyze, or facilitate decision
making.
What are the types of
model input ?
NATURE OF DECISION MODELS
 INPUT OUTPUT
• Data
• Uncontrollable variables (example; quantity of products to be produced)
Variables are controllable (example; variable cost, fixed cost)
• • Performance Measures
• Behavioral Measures
DESCRIPTIVE DECISION MODELS
• Simply tell “what is” and describe relationships
• Do not tell managers what to do

EXAMPLE: TOTAL COSTS

TOTAL COSTS
= VARIABLE COSTS + FIXED COSTS

Influence Diagrams visually show

how various model elements relate
to one another
MATHEMATICAL MODEL FOR TOTAL COST
EXAMPLES:
You are an investor and planning to enter the construction industry as a
supplier.The potential number of forthcoming projects, you forecasted
that within two years, your fixed cost for producing formworks is Php
420,000.The variable unit cost for making one panel is Php 30.00. The
sale price for each panel will be Php 70.00.

If you charge Php 70.00 for each panel, how many panels you need to
sell in total, in order to start making money?

A. Prepare a table that shows total profits, fixed costs, variable costs,
and profit for monthly volumes of 8,000, 10,000, 12,000, 14,000,16,000,
and 20,000 units.
 SALES Variable Cost Total Cost PROFIT
VOLUME (Php 70) Fixed Cost
(Php 30) (Php) (Php)
(Units) Volume x (Php 420,000)
Selling Price
Volume x VC VC + FC SALES -
TC

8,000

10,000

12,000

14,000

16,000

20,000
 BREAK-EVEN POINT
The volume at which Total Cost and Total Sales (Selling Price x Volume) are
equal is referred to as the Break-Even Point (BEP)

Using the same problem, compute for the Break-Even Point in Units
 BREAK-EVEN POINT
SALES Variable Cost Total Cost PROFI
VOLUME (Php 70) Fixed Cost
(Php 30) (Php) T
(Units) Volume x (Php 420,000)
Volume x VC VC + FC (Php)
Selling Price
SALES -
TC

420,000
BEP in units =
P70-P30

420,000
BEP in units =
P40

BEP in units = 10,500 units

BREAK-EVEN DECISION MODEL
LINEAR DEMAND PREDICTION MODEL
PREDICTIVE DECISION MODELS
BUSINESS RULES
“In a business world, you cannot start or run a business
without rules.”
 A BUSINESS RULE is statement that imposes some form of
constraint on a specific aspect of the database, such as the
elements within a field specification for a particular field or the
characteristics of a given relationship.
You base a BUSINESS RULE on the way the organization perceives
and uses its data, which you determine from the manner in which the
organization functions or conducts its business.
 An important aspect of any design process is MAKING CHOICES.
In database design, for example, you must choose which data to
store in the database; you would not necessarily want or need to
store every last piece of data the organization might possibly use.
The data you finally choose to store and how you decide to store it
will be determined by the way the organization uses its data. A
hospital may wish to store times of various events to the second,
whereas a warehouse requires only the date for any given event.
The data you finally choose to store and how you decide to store it
will be determined by the way the organization uses its data. A
hospital may wish to store times of various events to the second,
whereas a warehouse requires only the date for any given event.
 To guide these and other choices you'll be required to make
during the database-design process, you need a formal
statement of the organization's business rules. These rules will
influence a wide variety of database issues, such as THE
DATA YOU COLLECT AND STORE, the MANNER in
which you define and establish relationships, the TYPES OF
INFORMATION that the database can provide, and the very
SECURITY AND CONFIDENTIALITY of the data itself
 A database is a collection of INFORMATION that is
organized so that it can be easily ACCESSED,
MANAGED and UPDATED. Computer databases
typically contain aggregations of data records or files,
containing information about sales transactions or
interactions with specific customers.
 Each organization has its own
data and information
requirements, and each has its
own unique way of conducting
BUSINESS
its business; therefore, every
LOGIC organization needs its own
specific set of business rules.
 EXAMPLE OF A TYPICAL BUSINESS

A SHIP DATE cannot be prior

to an ORDER DATE for
any given order.
 This particular business rule imposes a constraint
on the Range of Values element of the field
specifications for a SHIP DATE field. It will help
ensure that the value of SHIP DATE is meaningful
within the context of a sales order. Without this
constraint, you could enter any date into the field
(including one prior to the ORDER DATE), making
the SHIP DATE field's value absolutely
meaningless. The business rule is what makes the
SHIP DATE field's value contextually meaningful.
EXAMPLE OF A BUSINESS RULE:

A CUSTOMER must have an

EMAIL ADDRESS.
WORKFLOWS
“A WORKFLOW consists of an orchestrated and repeatable
pattern of business activity enabled by the systematic
organization of resources into processes that transform
materials, provide services, or process information It can be
depicted as a sequence of operations, declared as work of
a person or group, an organization of staff, or one or more
simple or complex mechanisms.”
How to Get Started Building
and Organizing Your New
Workflow
You first need to know how complicated your workflow will
need to be, which means you will have to understand the
difference between a simple project workflow versus a
complicated process workflow.
CHOOSING THE
RIGHT
FLOWCHART OR
DIAGRAM
 Flowcharts and other diagrams can be

FLOWCHAR
used for:

PROJECT PLANNING

SYSTEM MAPPING

PROCESS

DOCUMENTATION

CREATING ALMOST ANY TYPE

OF WORKFLOW
PROJECT PLANNING
Project planning is a discipline
for stating how to complete a
project within a certain
timeframe, usually with defined
stages, and with designated
resources.
SYSTEM MAPPING
A system map shows the
components and boundary of
a system and the components
of the environment at a point in
time.
PROCESS DOCUMENTATION
A process document outlines the
steps necessary to complete a task
or process. It is an internal,
ongoing documentation of
the process while it is occurring—
documentation cares more about
the “how” of implementation than the
“what” of process impact.
They can be useful when
organizing a process that
involves a series of tasks, like
processing a customer’s order,
office procedures, loan
approvals, etc.
A typical waterfall chart is used to show how an initial
value is increased and decreased by a series of
intermediate values, leading to a final value.

A waterfall chart is actually a special type of Excel

column chart. It is normally used to demonstrate
how the starting position either increases or
decreases through a series of changes.
Processes involving more than one person
typically require swim lane diagrams.

A swim lane diagram illustrates a process

workflow which is grouped in columns and rows
called swim lanes.

The primary advantage of a swim lane diagram

is the ability to very clearly illustrate
responsibilities of a functional area in a specific
workflow.
HOW TO BUILD YOUR WORKFLOW
FLOWCHART
1 Name your workflow.
The name should help you identify your ultimate outcome, but don’t worry too much about
this, as you can change it later.

2 Identify start and end points.

What events or tasks will trigger the process to start? How will you know when your
outcome has been reached?

3 Identify what is needed to perform the process

What tasks, documents, and actual materials (paper, pens, automation software,
programs, etc.) are needed to complete the process?

4 List any tasks and activities

What needs to be done to accomplish your outcome? State these in a verb/object format
(e.g. approve the request, sign the paperwork, etc.)
HOW TO BUILD YOUR WORKFLOW
FLOWCHART

Identify the order tasks should be

5 accomplished
Identify roles
6 Identify who is responsible for which task and process in your workflow.

Identify your flowchart type and draw it out.

7
Again, swimlane diagrams are best for processes, while a simple flowchart may work for
projects or other smaller workflows.

8
Review and finalize.
you will want to test your workflow and review it to ensure that all processes are efficient
and achievable
FLOWCHART
SYMBOLS
TERMINATOR The terminator symbol represents the
starting or ending point of the system.

PROCESS/ A box indicates some particular operation.

OPERATIO
N

DECISION A diamond represents a decision or

branching point. Lines coming out from the
diamond indicates different possible
situations, leading to different sub-
processes.
 Flow - Lines represent the flow of the
sequence and direction of a process.

DOCUMENT This represents a printout, such as a

document or a report.

It represents information entering or leaving

DATA the system. An input might be an order from a
customer. Output can be a product to be
delivered.
FINANCIAL
MODELS
 Tools such as Microsoft Excel have powerful data modeling
tools. Finance professionals and business executives rely on
these tools to project financial performance and make financial
decisions.

For example, they can use financial modeling for raising

capital, entering into new market segments, increasing
market share and valuing the company or assets.
WHAT IS FINANCIAL
MODELING?
Your business intelligence and analytics
strategy should include financial
modeling.
Businesses can create dynamic models
using tools such as Excel in which users
can link important financial documents
such as income statements, balance sheets,
complex debt obligations and more.
 FINANCIAL MODELING
Generally, financial modeling relies on inputs from a company's financial
and operational history. The financial models provide insight and data for
future planning, income forecasting and expense projecting.

Other uses include:

Sell Prepare
or scalefor
down a
business Project
transactions (e.g., merger, stockcapital expenditure
buyback, corporateneeds and allocate funds accordingl
purchases)
business unit

Budget
INTERNAL
FINANCIAL EXTERNAL
MODELS
MODELS MODELS
 INTERNAL MODELS

Most financial models provide insight valuable to a

company's executive team for internal purposes. Such
purposes include budgetary planning and business and
market expansion or consolidation.
Three-Statement Model
One of the standard financial models is the
three-statement model, which includes:

• Income Statement: Displays the company's

net income and tracks profits through
various points in the company's fiscal year.
• Cash Flow Statement: Accounts for
investment and financing activities and uses
non-cash charges and changes in net working
capital to adjust the company's net income.
• Balance Sheet: Reflects the business's
assets and funding sources.
Discounted Cash Flow Model
The discounted cash flow (DCF)
model accounts for the time-value of
money by discounting projected free
cash flows to the present date. These
free cash flows may be levered or
unlevered.

In both cases, the DCF illustrates a

company's (1) enterprise value and
(2) equity value. This model
demonstrates whether the company's
current market value is underpriced or
overpriced.
Sum of the Parts Model
The sum of the parts model combines multiple DCF models into one
projection. Unlike investments with a tangible value, the sum of the
parts model includes assets that don't neatly fit into a DCF analysis.
Consider marketable securities, for example, which are valued based on
the market.

Like the DCF model, you can use a sum of the parts analysis to derive
the business's net asset value (NAV). For instance, you add the value of
Business Unit 1 to Business Unit 2 and Investments 3. You then
subtract Liabilities 4 to determine the NAV.
 Consolidation Model
As compared with the sum of the parts model, the
consolidation model sums up each business unit.

This creates a single model consolidating each business unit.

 Budget Model
A budget model is simple but plays a vital role in your
company's business planning process. Depending on your
financial calendar, you may include either monthly or
quarterly figures. Like the three-statement model, the budget
model also incorporates the income statement and enables
financial analysts to plan for future years.
 Forecasting Model
The forecasting model enables financial planning and
analysis professionals to compare future projections with
present budget estimations. You may combine the forecast
with the budget in one workbook or maintain separate
models.
 EXTERNAL MODELS

Financial analysts can employ the following models to

make business decisions affecting other corporations.
For example, these models help explain whether
combining with another business entity is a prudent
financial decision.
 Leveraged Buyout Model
Where one of the most common financial models is the three-
statement model, the leveraged buyout model is more complex and
builds on the business's projected performance. The leveraged buyout
(LBO) model is useful for private equity and investment banking
analysts.

The nature of the purchase requires complex debt modeling. For

example, you must account for cash flow waterfalls and circular
references created by the multi-tiered financing structure.
 Initial Public Offering Model
Another model valuable to investors and corporate institutions is the
initial public offering (IPO) model. The IPO model requires analysts
to evaluate their business's potential value with comparable
companies against an underlying assumption about what potential
investors would pay for the business's potential stock.
 Merger Model
The merger model is a category including the accretion and dilution of
a merger or acquisition.
THANK YOU!