Chapter 1: Introduction to Managerial Decision Modeling

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Chapter 1 Introduction to ManagerialDecision Modeling 2007 Pearson Education What is Decision Modeling .
A scientific approach to managerialdecision making The development of a mathematical modelof a real world scenario The model provides insight into the solution of.
the managerial problem Types of Decision Models Deterministic ModelsWhere all the input data value are known withcomplete certainty.
Probabilistic ModelsWhere some input data values are uncertain Quantitative vs Qualitative DataThe modeling process begins with data Quantitative Data.
Numerical factors such as costs and revenues Qualitative DataFactors that effect the environment which aredifficult to quantify Spreadsheets in Decision Making.
Computers are used to create and solve Spreadsheets are a convenient alternativeto specialized software Microsoft Excel has extensive modelingcapability via the use add ins .
Steps in Decision Modeling1 FormulationTranslating a problem scenario fromwords to a mathematical model2 Solution.
Solving the model to obtain the optimal3 Interpretation and Sensitivity AnalysisAnalyzing results and implementing a Example Model Tax ComputationSelf employed couple must estimate and.
pay quarterly income tax joint return Income amount is uncertain 5 of income to retirement account up to Personal exemption 2 x 3200 6400 Standard deduction 10 000.
No other deductions Tax BracketsPercent ofTaxable Income Taxable Incomeup to 14 600 10 .
14 601 to 59 400 15 59 401 to 119 950 25 Example Model Break Even AnalysisProfit Revenue CostsRevenue Selling price x Num units .
Costs Fixed cost Cost per unit x Num units The Break Even Point BEP is thenumber of units where Profit 0 so.
Revenue CostsBEP Fixed cost Selling price Cost per unit Possible Problems inDeveloping Decision Models.
Defining the Problem Conflicting viewpoints Impact on other departments Beginning assumptions Solution outdated.
Possible Problems inDeveloping Decision Models Developing a Model Fitting the textbook models Understanding the model.
Acquiring Input Data Using accounting data Validity of data Possible Problems inDeveloping Decision Models.
Developing a Solution Hard to understand mathematics Limitations of only one answer Testing the Solution Analyzing the Results.
ImplementationTypes of Decision Models Quantitative vs. Qualitative Data Spreadsheets in Decision Making Steps in Decision Modeling Steps in Modeling Example Model: Tax Computation Tax Brackets Percent of Taxable Income Taxable Income up to $14,600 10% $14,601 to $59,400 15% $59,401 to $119,950 25% Example Model: Break-Even Analysis Slide 11 Possible ...

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