DATA MODELLING

The uses of Data Modeling:

1) To enhance the decision maker’s understanding of the decision

2) To stimulate creativity in the search for possible solutions to the problem
3) To aid evaluation of alternative course of action
- Directly and indirectly

The process of Modeling

1) The classification of decision variables

2) The construction of cause-effect diagrams of the relationship between variables
3) The major types of mathematical models in common use
4) Competitive modeling (Game Theory)

Classification of Decision Variables

Controllable Uncontrollable
Exogenous The variables which represent The environmental variables
the decision options which represents the
uncontrollable factors
Endogenous Do not exist The variables which represent
the consequences of the
decision

EXAMPLE:

Suppose a decision needs to be made by a wholesaler about the quantity of a particular item to keep
in stock.

Controllable Exogenous Variables:

- Order Quantity
- Recorder Level

Uncontrollable Exogenous Variables:

-Demand rate
-Lead time for supply
-Cost of capital
-Extent of buyer substitution

Uncontrollable Endogenous Variables:

- Money tied up in stock
-Organizational effort
- Cost of storage provision
- Probability out of stock

Controllable
Order Quantity
Recorder Level
Money tied up in
Uncontrollable THE stock
Demand rate MODEL Organizational
Lead time for effort
supply Cost of storage
Cost of capital Cause and Effect provision Diagram
Extent of buyer Probability of
substitution stock out
Variable 1

Variable 3

Variable 2

Example

Price

Demand

Promotion

Example:
Order Quantity
(Exogenous
Variable)
Order Frequency

Demand Rate
(Exogenous
Variable)
Total Ordering cost
(Endogenous
Variable)
Organizational cost
of Ordering
(Parameter)
Mathematical Modeling:

A symbolic model is one which uses any set of symbols to describe decision variables and relationship
between them. The mathematical model of the relationships implied by cause and effect model is
shown below:

T o = C o * (R/ Q)

Where

T o = Total ordering costs in time period

C o = Organizational cost of placing an order

R = demand per time period

Q = Qunatity