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Decision Intelligence: Time Series Forecasting Risk Analysis Optimization

AA

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Muhammed Al-Bajri
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41 views33 pages

Decision Intelligence: Time Series Forecasting Risk Analysis Optimization

AA

Uploaded by

Muhammed Al-Bajri
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPT, PDF, TXT or read online on Scribd
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Desktop Business Analytics --

Decision Intelligence
Time Series Forecasting
Risk Analysis
Optimization
Current Products
Crystal Ball


Excel-based Monte Carlo simulation
Crystal Ball Pro
Integrated Optimization and Monte Carlo
simulation
CB Predictor
Integrated Time-Series Forecasting with Monte
Carlo
CB Turbo
Distributed Processing capability to speed up
simulations
Monte Carlo Applications
Capital Budgeting
New Venture Planning
Manufacturing Planning
Marketing Planning
Quality Design
Environmental Risk
Petroleum Exploration
Spreadsheets - Pros
Easy to use
Popular
Flexible model-building tool
What-if Analysis
Methodically entering even increments
of values to view the projected
outcomes

Pros: Reveals incremental range of possible
outcomes

Cons: Time-consuming, Results in a mountain
of data, Reveals what is possible, not what is
probable
What is missing?
The ability to know the range of possible
outcomes and their likelihood of occurrence

As a result, we use Monte Carlo Simulation
as a system that uses random numbers to
measure the effects of uncertainty on our
decision-making process
What is Simulation?
Modeling a real system to learn
about its behavior
The model is a set of mathematical
and logical relationships
You can vary conditions to test
different scenarios

Advantages of Simulation
Inexpensive to evaluate decisions
before implementation
Reveals critical components of the
system
Excellent tool for selling the need for
change
Results are sensitive to the accuracy
of input data
Garbage in, Garbage out
Intelligent agents using secret rules
Investment in time and resources
Disadvantages of Simulation
1. Develop a system flow diagram

2. Write an Excel spreadsheet to model the system

3. Use Crystal Ball to model uncertainty

4. Run the simulation and analyze the output

5. Improve the model and/or make decisions
The Five Steps of
Model Development
Crystal Ball Demonstration

2+2 = 4 ?

Crystal Ball Pro
Decision Intelligence
Includes
Crystal Ball
Optimization
Extenders
Developer Kit
Optimization Model
Decision Variables
Quantities over which you have control
(Accept or reject each project)
Upper and lower bounds
Continuous or discrete
Optimization
Function
X F(X) = Y
Find the possible input values that make
the output as large or as small as possible
Project Selection
Model
Find the project mix that generates
the highest combined NPV
Project Mix
Combined
NPV
Uncertainty analysis
Constraints and Requirements
We will us the simplifying assumption of applying a
budgetary constraint to limit investment
A Realistic Model
The Flaw of Averages
Never try to walk across a river just
because it has an average depth of four
feet.
Milton Friedman
Academic v. Real World
Professors and students have used
many techniques
Inaccessible
Difficult to implement
Clients do not understand the results
Decisioneering makes Monte Carlo easy
to use in everyday spreadsheet
modeling.
How are you handling
uncertainty?
Do you use low, middle and high
values?
Do you do What-if analysis?

Multiple What-if
scenarios confuse as
much as enlighten...
A Picture is Worth...
A thousand What-ifs
Decisioneering, Inc.
Provider of Analytic Tools since 1986
Headquartered in Denver, Colorado,
USA
More than 70,000 Users
85% of Fortune 500 Companies
45 of Top 50 Business Schools
65% CAGR over 3 Years
Monte Carlo
Random number generation simulates
the uncertainty in the assumptions. The
program selects a value for the
assumption, recalculates the
spreadsheet, plots the forecast and
repeats.

Deterministic v. Stochastic
Fixed
Data
7%
Fixed Outcomes
$1,200,00
Variable
data
Variable
Outcomes
Deterministic
Stochastic
3 5 0 .0 0 4 2 5 .0 0 5 0 0 .0 0 5 7 5 .0 0 6 5 0 .0 0
Monthly S avings
Frequency Chart
D ol l ars
M e an = $6 46, 19 8
. 00 0
. 02 4
. 04 7
. 07 1
. 09 4
0
11 .7 5
2 3. 5
35 .2 5
4 7
$3 00, 00 0 $5 25, 00 0 $7 50, 00 0 $9 75, 00 0 $1 ,2 00, 00 0
500 Trials 6 Outliers
Forecast: Scenario ARetirement Portfolio
Statistics
Normal Distribution, Mean and Standard
Deviation

3 5 0 .0 0 4 2 5 .0 0 5 0 0 .0 0 5 7 5 .0 0 6 5 0 .0 0
Monthly S avings
Mean
Standard Deviation
Retirement Example
Monthly Dollar Saving 500 $
Number of Years 20
Annual Growth Rate 12%
Value at Retirement 432,315 $
Uncertainty
Define Assumptions
Retirement Example -
Assumptions
Retirement Example
Assumptions
Retirement Example-
Forecasts
Retirement Example
Forecasts
Communicating Results
Get the client to understand alternatives
Take action
Uncertainty over time
Compare Alternatives

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