Background 5 second year MBA students in Hamburg Media school worked on consulting project. Only a week remain.

(Spiegel was a major contributor to the hamburg media school) Executive at Spiegel Online were considering entering the competitive classified online advertising market. The students assignment was to identify potentially attractive market segment and develop a business plan for the three most promising projects: art, jobs and automotive. problem: the financial calculations showed that there was no way the investment would pay off within the next five years-----so no senior management will agree to invest this problem. Spiegel Online, introduced in 1994, was the leading news web site in Germany. Ranking 6th 90% revenue from online advertising three most important market segment: automotive, real estate, job art: market niche

Model----Inputs----outputs----simulation----interpretation

Certainties: Things you know in advance but cant decide (relationship with other uncertainty) Decisions: Decisions Uncertainties: Things you dont know in advance and cant decide (critical success drive)

Basic input distributions for revenue and cost estimation

Normal Widely known Symmetric Unbounded on both sides Use: When model input is sum of many random processes Pragmatic distribution Easy to understand Bounded on both sides Use: Symmetric ranges Problem: Overstates tail-events

Triangular

PERT (beta) Pragmatic distribution Bounded on both sides Use: Symmetric and nonsymmetric ranges

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Distribution: Pert: Min, Mode, Max for PERT Normal: mean, standard deviation for Normal Triangle: Min, Mode, Max for triangular The Triangle distribution offers considerable flexibility in its shape, coupled with the intuitive nature of its defining parameters and speed of use. It has therefore achieved a great deal of popularity among risk analysts. However, a and c are the absolute minimum and maximum estimated values for the variable and it is generally a difficult task to make estimates of these values. It should be noted that the Triangle shape will also usually overemphasise the tails of the distribution and under emphasise the shoulders in comparison with other, more natural, distributions. The PERT distribution takes the same parameters as the Triangle, but generally offers a more reasonable interpretation of the parameter values in modeling expert opinion.