Guolin Lai

DSC8240 Course Web

 
Business Modeling for Decision Support

Personal Statement
Chapter 1 Summary
Chapter 2 Report
    Breakeven Analysis
    Price & Demand Relationship
    Quantity Discounts Decision
    Hedging Investment Risk
    Time Value of Money
Enterprise DSS
Time Series Forecasting
DSS Development Project
Simulation Model Examples
    Government Contract Bidding
    GFAuto Model
    Customer Loyalty
    Game of Craps
Monte Carlo Simulation
Optimization Modeling
Term Project
Business Intelligence Research
 

Chapter One Summary

Introduction

The key to management science applications is a mathematical model.  A mathematical model is a quantitative representation, or approximation, of a real problem, and has the following advantages:

1, it enables an analyst to understand the problem better;

2, It allows the analyst to employ a variety of the mathematical solution procedures;

3, the modeling itself, if done correctly, can provide solution to people who must work with the system that is eventually implemented.

A Waiting-Line Example

Descriptive models simply describe a situation, while optimization or prescription models suggest a desirable course of action. 

A Seven - Eleven store has a single cash register.  The manager is concerned that people are waiting in line too long, and may be turning away potential customers. The example was used to illustrate the descriptive and prescriptive models for the purpose of describing the situation and then recommending a solution to the store’s waiting line that would maximize profit.

Descriptive Model:  This example is a typical waiting line (queneing) problem.  Input and outputs must be defined to describe the situation.  There are two inputs and three outputs.

Inputs:

Arrival rate (customers per minute)

Service rate (customers per minute)

Maximum customers (before others go elsewhere)

Outputs          

Average number in line

Average time (minutes) spent in line

Percentage of potential arrivals who don’t enter

A mathematical spreadsheet model is developed to solve for the outputs.

Optimization Model:  The descriptive model fails to reflect any economic solutions, but simply states the situation.  The optimization model defines three options the manager can take – (1) leave the system as is, (2) hire a second person to help the first cashier process customers more quickly, (3) lease a new model of cash register.  Based on the three options, a mathematical spreadsheet model is developed to calculate which option is the most optimal (economically).

Seven-Step Modeling Process

  • Problem Definition    The management scientist fist defines the organization’s problem, including specifying the organization’s objectives and the parts of the organization that must be studied before the problem can be solved.           
  • Data Collection         After problem definition, the analyst collects data to estimate the value of parameters that affects the organization’s problem.  
  • Model Formulation   The analyst formulates a mathematical model of the problem. The model should, first, represent the client’s real problem accurately; second, should be simple enough to allow a mathematical solution; third, should be approximations of the real world, not mirror images in every last detail.
  • Model Verification     Verify the model and use the model for prediction to test its reliability.
  • Selection of an Alternative   Given a model and a set of alternatives, choose the alternative that best meets the organization’s objectives.  
  • Presentation of the Results   Present the model and the recommendation to the organization.
  • Implementation of the Model            Implement the model and periodically evaluate its reliability.

Successful Management Science Applications

  • Citgo Petroleum – A linear programming model was developed to assist Citgo management not only in optimizing its refinery operations, but also in improving its supply distribution marketing system.  
  • San Francisco Police – The San Francisco Police Department (SFPD) developed Police Patrol Scheduling System (PPSS) to assist in determining schedules that would minimize fatigue and maximize productive hours for the police force.
  • GE Capital – Models were developed to assist in reducing delinquent accounts and the costs of processing them.

Why Study Management Science

  • Develops skills in structuring problems and logical thinking
  • Increase quantitative skills
  • Master the use of spreadsheets (Excel)
  • Help develop intuition and indicate where intuition also sometimes falls short