Chapter 4

CHAPTER 4
Modeling and Analysis
1
Modeling for MSS
Key element in most DSS
Necessity in a model-based DSS
Can lead to massive cost reduction /

revenue increases
2
Major or Current Modeling Issues
Problem identification and Environmental analysis (which is the
monitoring, scanning, and interpretation of collected information. )
Variable identification (Identification of the model's variables
(decision, result, uncontrollable, etc.) is critical, as are their
relationships. )
Forecasting (is essential for construction and manipulation of models
because when a decision is implemented, the results usually occur in the
future. )
Multiple model use (A decision support system can include several
models (sometimes dozens), each of which represents a different part of
the decision-making problem )
Model categories or selection (Table 4.1 classifies DSS models into
seven groups and lists several representative techniques for each
category. )
Model management (Models, like data, must be managed to maintain
their integrity and thus their applicability).
Knowledge-based modeling (DSS uses mostly quantitative models,
whereas expert systems use qualitative, knowledge-based models in
their applications. Some knowledge is necessary to construct solvable
(and therefore usable) models. ).
3
Major or Current Modeling Issues
4
Static and Dynamic Models
Static Analysis
– Single snapshot (take a single snapshot of a situation.
During this snapshot everything occurs in a single
interval. For example, a decision on whether to make
or buy a product is static in nature).
Dynamic Analysis
– Dynamic models
– Evaluate scenarios that change over time
– Time dependent
– Trends and patterns over time
– Extend static models
– A simple example is a 5-year profit-and-loss projection
in which the input data, such as costs, prices, and
quantities, change from year to year.
5
Treating Certainty,
Uncertainty, and Risk
Part of Simon's decision-making process described in Chapter 2 involves
evaluating and comparing alternatives, during which it is necessary to
predict the future outcome of each proposed alternative. Decision
situations are often classified on the basis of what the decision-maker
knows (or believes) about the forecasted results. Customary, we classify
this knowledge into three categories (Figure 4.2), ranging from
complete knowledge to total ignorance. These categories are:
Certainty
Risk
Uncertainty
6
Treating Certainty,
7
Treating Certainty,
DECISION-MAKING UNDER UNCERTAINTY
In decision-making under uncertainty, the decision-maker considers
situations in which several outcomes are possible for each course of
action. In contrast to the risk situation, in this case the decision-maker
does not know, or cannot estimate, the probability of occurrence of
the possible outcomes. Decision-making under uncertainty is more
difficult because of insufficient information. Modeling of such
situations involves assessment of the decision-maker's (or the
organization's) attitude toward risk.
DECISION-MAKING UNDER RISK (RISK ANALYSIS)

A decision made under risk" (also known as a probabilistic or
stochastic decision-making situation) is one in which the decision-
maker must consider several possible outcomes for each alternative,
each with a given probability of occurrence.
8
MULTIPLE GOALS, SENSITIVITY ANALYSIS,
WHAT-IF, AND GOAL SEEKING
MULTIPLE GOALS
The analysis of management decisions aims at
evaluating, to the greatest possible extent, how far each
alternative advances management toward its goals.
Unfortunately, managerial problems are seldom
evaluated with a single simple goal like profit
maximization. Today's management systems are much
more complex, and one with a single goal is rare.
Instead, managers want to attain simultaneous goals,
some of which may conflict Different stakeholders
have different goals. Therefore, it is often necessary to
analyze each alternative in light of its determination of
each of several goals. For example, consider a profit-
making firm. In addition to earning money, the
company wants to grow, develop its products and
employees, provide job security to its workers, and
serve the community.
9
SENSITIVITY ANALYSIS
A model builder makes predictions and
assumptions regarding the input data, many
of which deal with. The assessment of
uncertain futures. When the model is solved,
the results depend on these data. Sensitivity
analysis attempts to assess the impact of a
change in the input data or parameters on
the proposed solution (the result variable).
The two types of sensitivity analyses are
automatic and trial-and-error.
10
WHAT-IF ANALYSIS
What-if analysis is structured as What will
happen to the solution if an input variable,
an assumption, or a parameter value is
changed? Here are some examples:
What will happen to the total inventory cost
if the cost of carrying inventories increases
by 10 percent?
What will be the market share if the
advertising budget increases by 5 percent?
11
GOAL SEEKING
Goal seeking analysis calculates the values of the inputs
necessary to achieve a desired level of an output
(goal). It represents a backward solution approach.
Some examples of goal seeking are:
What annual Research and development (R&D)
budget is needed for an annual growth rate of 15
percent by 2005?
How many nurses are needed to reduce the average
waiting time of a patient in the emergency room to
less than 10 minutes?
12

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Chapter 4 - Modeling & Analysis

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Modeling and Analysis

Necessity in a model-based DSS

Can lead to massive cost reduction /

DECISION-MAKING UNDER RISK (RISK ANALYSIS)

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