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So summarizing what we've
done in this first module,

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we started off talking about uses for
models.

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The two key uses for
these quantitative models

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tend to be in predictive analytics,
in making predictions, and

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forecasts, and
also in doing optimization problems.

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We've seen the steps involved
in the modelling process.

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It starts off by defining some variables,
identifying the scope of the model.

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There's a formulation stage.

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But you must not forget that
there is an entire validation and

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sensitivity analysis phase as well.

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If your model works well, that's good.

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But typically it's not going to
work well the first time around.
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That's why I put a feedback
loop in the modeling process.

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So the model never in my
experience works perfectly

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straight out of the box
the first time around.

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We're very iterative, we go back and

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we revisit some of
the assumptions behind the model.

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We might look for
additional terms to put into the model.

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We might reformulate the model.

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There's an iterative process there.

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Ultimately, we feel that
the model validates well and

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we performed our sensitivity analysis.

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We then ask ourself the key question,
is the model fit for purpose?

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And I've used that language

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very purposely there because I have not
said, is the model right or is it wrong.
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Because models are never absolutely right
because they are almost by definition,

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simplifications of a much
more complicated real world.

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The key question is, is the model fit for

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purpose, is it useful at
helping me answer questions?

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In other words, is it going to be
a useful decision support tool.

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So don't forget to validate your model.

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We've discussed various types of models.

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That was the language that
I introduced in modeling.

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We talked about deterministic and
stochastic.

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We talked about discrete and continuous.

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We talked about static and dynamic models.

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So those terms are important to
understand because you might at some

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point have a conversation as you create
more of these models with someone and say,

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well did you create a discrete time or
continuous time model?

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And being able to understand
those words is very helpful

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if you want to be able to
participate in those conversations.

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The final part of the module
was reviewing some essential

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mathematics in particular seeing
the functions that we're going to be using

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as we create our quantitative models
there were four key functions.

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Linear, power, exponential, and log.

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And from a modeling point of view,

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what you want to understand about
these functions is how they relate

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changes in the input to changes
in the output and whether or

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not those changes are being thought of
in absolute terms or relative terms.

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So recall, a straight line is
characterized by its constant slope.
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And that tells us that absolute
changes in X are always

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accompanied with the same
absolute change in Y of M.

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That's what the slope of M equals.

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Whereas if we had a power function,
then we would have a 1%

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change in X is associated with
an approximate M% change in Y.

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So percent change in X
is percent change in Y.

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And you simply have to think about and
understand your business process and ask

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yourself, well, on which type of change
is this process most readily modeled?

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In terms of absolute change or
percent change.

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And by doing that,

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you're able to think which of these
functions should be used in the model.