Information Technology Concepts

An Introduction to Modeling

Modeling

Process of creating simplified representation Working with the representation to understand some aspect of the real world E.g. Maps

Classification of Models

Mental Affect hiring decisions Visual Maps, sports coaches Physical Design of airplanes, buildings etc. Mathematical Engineering, Science, Public policy

Why Study Modeling

Improves thinking skills Provides a structure for problem solving Improves quantitative skills Generate insights leading to better decisions

Types of Models

One time Decision models Corporate Valuation models Decision Support models Computer systems that tie together data analysis tools Models embedded in computer systems Inventory replenishment decisions Models used in business education Models used as part of Finance, Marketing etc

Benefits of Business Models

Allows to make inexpensive errors Allows to explore these impossible alternatives Improves business intuition Provides information in a timely manner Reduces costs

Spreadsheets
Role of Spreadsheets Principle vehicle for modeling in business Allows us to build more detailed and complex models Best way to do most of the modeling Risk associated with Spreadsheets Contain internal errors More errors are introduced as the sheets are modified

Challenges for Spreadsheet Users

End-user spreadsheets have major bugs End-users are overconfident about the quality of their spreadsheets Processes employed by end-users are inefficient Fail to employ most productive methods for generating insights

Read World and Model World

REAL WORLD MODEL WORLD ASSUMPTIONS and MODEL STRUCTURES

PROBLEM STATEMENT

FORMULATION

ANALYSIS

SOLUTION

INTERPRETATION translation communication

RESULTS and CONCLUSIONS

Model Formulation
Decisions Refer to possible choices or courses of action For example, Quantities to buy, manufacture etc. Outcomes Refer to consequences of the decisions For example, Profit, cost, efficiency etc. Structure Refer to logic and mathematics that link the elements of a model For example, linking revenue and costs to profit Data Refer to specific numerical assumptions For example, interest rate on borrowed funds etc.

Modeling Process

Problem context
Situation from which the modelers problem arises

Model Structure
Actually building the model itself

Model Realization
Fitting the model to available data

Model Assessment
Evaluating the models correctness, feasibility and acceptability

Model Implementation
Deriving value for the client from the model

Problem Solving Process

Sequential, step-by-step procedure Starts with recognition of problem and ends with implementation of the proposed solution

Six stages Exploring the mess Searching for information Identifying the problem Searching for solutions Evaluating solutions Implementing a solution

Exploring the mess

Divergent Phase
Search mess for problems and opportunities

Convergent Phase
Accept a challenge and undertake systematic efforts to respond to it

Complete when a satisfactory description of the situation is available

Searching for information

Divergent phase
Gather data, information, observations Examine situation from different viewpoints

Convergent phase
Identify the most important information

Complete when relevant information is found and organized

Identifying the problem

Divergent phase
Generate many different potential problem statements

Convergent phase
Choose a working problem statement

Complete when a working problem statement is produced

Searching for solutions

Divergent phase
Develop many alternative solutions

Convergent phase
Select one or few ideas that seem most promising

Complete when a list of potential solutions is produced along with advantages and disadvantages

Evaluating Solutions

Divergent phase
Formulate criteria for reviewing and evaluating ideas

Convergent phase
Select the most important criteria Use the criteria to evaluate, strengthen and refine ideas

Complete when a recommended course of action along with justification is produced

Implementing the solution

Divergent phase
Consider possible sources of assistance Identify implementation steps and required resources

Convergent phase
Prepare the most promising solution for implementation

Complete when an implementation plan is produced and executed enough to evaluate the success

Mental and Formal Models

Mental Models Construct quick informal models at different points in the process Help relate cause and effect in a simplified way Formal Models Link cause and effect and evaluate potential solutions Costlier and more time consuming to build

Skills for modeling

Simplify the problem Break the problem into modules Build a prototype and refine it Sketch graphs of key relationships Identify parameters and perform sensitivity analysis Separate the creation of ideas from their evaluation Work backward for desired answer Focus on Model structure

Thank you