University of Economics in HCM city

FACULTY OF INTERNATIONAL
BUSINESS – MARKETING

FINAL EXAM
BUSINESS MODELLING AND APPLICATIONS

Student’s name : Trần Thanh Thảo

Student ID : 31221021683
Major : International Business
Course : K48
Class : IBC02
Lecturer : Ms. Nguyen Thi Hong Thu

Ho Chi Minh city, December 8, 2023

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 PROLOGUE
1. Endorsement:

I declare that this assignment is my own work and it is not copied from any projects of other
organizations or individuals.

Student,
(signed)

Tran Thanh Thao

2. Teacher’s feedback:

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 TABLE OF CONTENTS

PROLOGUE..................................................................................................................................2

1. Endorsement:.....................................................................................................................2

2. Teacher’s feedback:...........................................................................................................2

DESCRIPTION OF TABLES AND FIGURES..........................................................................4

MAIN TEXT..................................................................................................................................5

1. Linear Programming:.......................................................................................................5
a. Formulate a linear programming model and write down the mathematical model
for this problem......................................................................................................................5
b. Solve this problem using QM and Solver:...................................................................6
c. Create a sensitivity report:...........................................................................................7
d. Explain the shadow price, reduced cost and the allowable range (increase and
decrease):................................................................................................................................7

2. Decision Making:...............................................................................................................8

a. Using the average method, calculate the forecasting demand.......................................9

b. Using the moving (3-month) average method, calculate the forecast...........................9

c. Using the last-value method, calculate the forecast......................................................10

d. Explain 3 methods of forecast. Which one is better and more accurate according to
you? You can explain however you want..............................................................................10

REFERENCES............................................................................................................................13

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 DESCRIPTION OF TABLES AND FIGURES
Table 1 Payoff Table
Table 2 Monthly demand of a water bottle extracted from a supermarket
Figure 1.1 QM Solution
Figure 1.2 Solver Solution
Figure 1.3 Sensitivity Report
Figure 2.1 Bayers’ Decision Rule for Petrolimex Gas Station
Figure 2.2 QM Decision Tree
Figure 3.1 Using the Average method
Figure 3.2 Using Moving (3-month) Average method
Figure 3.3 Using Last-value method

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 MAIN TEXT
1. Linear Programming:
Director Baron of a wildlife conservation organization seeks to maximize the return of
conversation efforts in a biodiversity region for their scheduled 14-day expedition. He can
conduct biodiversity surveys, run community engagement programs, or carry out wildlife habitat
restoration projects. These alternations are not without tradeoffs, since different local
communities prefer different options, depending largely on understanding the ecological and
social dynamics of the region. Among the limitations Baron must consider is the commitment to
conduct at least five different conservation activities daily for the ten days they'll be stationed in
the area. In addition, the biodiversity initiatives must exceed 12 distinct ecosystems, and
community engagement programs should rotate themes every other day for the 14 days. It's
possible to rotate them twice a day, but Baron wants to ensure that the conservation teams have
enough time for meaningful interactions with local communities. Ideally, each ecosystem
surveyed should be linked to a specific community engagement theme. The total budget for the
expedition, including survey equipment, community programs, and habitat restoration, has been
set at $150,000. The cost of biodiversity surveys is $750 per ecosystem survey, community
engagement programs cost $450 each, and habitat restoration projects require an investment of
$2,500 per site. Based on historical data, Director Baron expects each new community
engagement theme will generate $1,200 revenue, each surveyed ecosystem will bring in $2,500,
and each habitat restoration project will generate $8,500.
a. Formulate a linear programming model and write down the mathematical model
for this problem.
Decision Variables:
C: number of community engagement programs
S: number of biodiversity surveys conducted in ecosystem
H: number of habitat restoration projects
The objective:
The objective is to maximize the return of conservation efforts (measured by the sum of
community engagement revenue, biodiversity data revenue, and habitat restoration revenue).
Max Z = 1200*C + 2500*S + 8500*H
Constraints:

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Constraint 1: Community engagement programs should rotate themes every other day for the 14
days.
C >= 7
Constraint 2: It's possible to rotate them twice a day.
C <= 28
Constraint 3: The biodiversity initiatives must exceed 12 distinct ecosystems.
S >= 13
Constraint 4: Each ecosystem surveyed should be linked to a specific community engagement
theme.
C - H <= 0
Constraint 5: The commitment to conduct at least five different conservation activities daily for
the ten days.
C + S + H >= 50
Constraint 6: The total cost must not exceed the total budget for the expedition.
450*C + 7500*S + 5000*H <= 150000
b. Solve this problem using QM and Solver:
Solve this problem using QM:

Figure 1.1

Solve this problem using Solver:

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 Figure 1.2
c. Create a sensitivity report:
Through the use of Solver, generating a sensitivity report becomes a straightforward task. For a
more detailed and comprehensive view, I can access the attached Excel file.
Sensitivity analysis allows me to gain insights into how the optimal solution transforms when
modifying the coefficients of the model. Once Solver discovers a solution, it enables me to
produce a sensitivity report to delve into these variations further.

Figure 1.3
d. Explain the shadow price, reduced cost and the allowable range (increase and
decrease):
- Shadow Price (the orange column) indicates that the optimal solution can be adjusted higher
or lower by altering the right-hand side constraint by one unit.
- Reduced Cost (the yellow column) informs us of the extent to which the objective
coefficient of a variable must increase (for maximization problems) or decrease (for
minimization problems) before that variable is incorporated into the optimal solution.

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- Allowable Range (the blue columns) indicates the restricted interval in which a coefficient
(either a constraint or an objective coefficient) can be adjusted without impacting the
optimal solution. In essence, for Allowable Increase, the coefficient can ascend by an
amount within the range (0, Allowable Increase). Similarly, for Allowable Decrease, the
coefficient can decline by an amount within the range (0, Allowable Decrease). In both
cases, the optimal solution will remain unaffected.
2. Decision Making:
Petrolimex Gas station are soon going to open a new dealership. They have 3 offers : from a
local gas company, from a provider and from a big gas corporation. The success of each
type of dealership will depend on how much gasoline is going to be available during the
next few years. The profit of each type of dealership, giving the availability of gas, is shown
in the following payoff table (unit: million VND). Draw a decision tree to help Petrolimex
choose what’s best for the profit.
Dealership Gasoline Shortage 60% Gasoline Surplus 40%
Local gas company 300.000 150.000
Provider -100.000 600.000
Corporation 120.000 170.000
Table 1

Figure 2.1
To solve this Decision Making problem, I used TreePlan - Decision Tree in QM.
Decision Trees (DTs) are a non-parametric supervised learning method used for classification
and regression. The goal is to create a model that predicts the value of a target variable by
learning simple decision rules inferred from the data features. Below is the result I gained:

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 Figure 2.2
 In conclusion, the Local gas company is the most effective choice for Petrolimex Gas
according to decision tree.
3. Forecasting:
The monthly demand of a water bottle extracted from a supermarket is shown below:
Month Demand
1 25
2 24
3 28
4 25
5 29
6 28
Table 2
a. Using the average method, calculate the forecasting demand.

Figure 3.1
b. Using the moving (3-month) average method, calculate the forecast.

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 Figure 3.2
c. Using the last-value method, calculate the forecast.

Figure 3.3
d. Explain 3 methods of forecast. Which one is better and more accurate according to
you? You can explain however you want.
The below forecasting techniques are argued to result in as few forecasting errors as possible. As
a result, to analyze and evaluate the forecasting methods’ accuracy, the average of the
forecasting errors (mean absolute deviation – MAD) and the average of the square of its
forecasting errors (mean square error - MSE) are used to help to find out the most efficient
method.
- The average method: uses all the data points in the time series and simply averages these
points.
Formula: Forecast = Average of all data to date
The averaging forecasting method is effective in situations of high stability.
Nevertheless, it exhibits a slow responsiveness to changing conditions as it assigns equal weight
to all data points, regardless of the potential for older values to be less representative of current
conditions compared to the most recent observation.
- The moving average method: averages the data for only the most recent time periods.
Formula: Forecast = Average of last n values
while n = Number of recent periods to consider as relevant for forecasting

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The moving-average forecasting method is effective in situations where conditions remain
relatively stable over the considered time periods.
Nevertheless, similiar to the average method, the moving-average approach is sluggish in
adapting to dynamic changes. It assigns equal importance to each of the last n values, even
though older values may not accurately reflect current conditions as much as the most recently
observed value.
- The last-value method: ignores all data points in a time series except the last one.
Formula: Forecast = Last value
The last-value forecasting method is often deemed naive by statisticians who caution against
relying solely on a sample size of one when additional data is accessible.
Despite this caution, the method lacks consideration for trends, seasonality, or randomness in the
data. As a result, in situations where conditions are evolving swiftly, the last value might be the
sole pertinent data point.
In my opinion, each forecasting method has its own pros and cons.
Forecasting method Advantages Disadvantages
Average method - Simple and easy to calculate. - Not suitable for data with
- It provides a baseline forecast if significant trends or seasonal
no significant trends or seasonality patterns.
exist by considering the mean of - May not adapt well to sudden
all available data points. changes in the data.
- It provides limited insight into
the underlying data patterns.
Moving (3-month) - It reduces random fluctuations - It might not respond quickly to
average method andprovides a more stable abrupt changes in the data.
prediction over time. - It disregards older data points
- It considers the average of the outside the moving window,
most recent three months, offering potentially missing important
a balance between responsiveness historical patterns.
and stability.
Last-value method - Extremely easy as it requires no - It ignores all historical data.
calculations. - It does not reflect any underlying

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 - Unaffected by noise in the data, trends.
providing stable forecasts. - It provides no information about
future behavior, limiting its
practical application.
According to me, no method is perfect, hence, analysing the average MAD and MSE values
helps me to determine which forecasting method performed better. Lower values indicate better
accuracy. Because the result of MAD and MSE of the Moving (3-Month) Average Method is the
lowest, considering the scenario, I would choose the Moving (3-Month) Average Method.

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 REFERENCES
Dr. Nguyen Thi Hong Thu (2023) Lecture slides and collected textbook of Business Modeling
and Applications Subject.
1.10. Decision trees of scikit. Available at: http://scikit-learn.org/stable/modules/tree.html.

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