Transcript Document

Chapter
1
The Art and Science of
Becoming a More
Effective and Efficient
Problem Solver
McGraw-Hill/Irwin
Copyright © 2008 by The McGraw-Hill Companies, Inc. All rights reserved.
What is Business Decision
Modeling?

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

“The application of scientific approach to solving
management problems in order to help managers
make better decisions” - Taylor
“...the application of quantitative analysis to
managerial decision making.” - Lee
“...operations research may be described as a
scientific approach to decision making.” - Hillier
and Lieberman
“Operations management is the study of decision
making in the operations function.” - Schroeder
1-2
QM, OR, OM?

Business Decision Modeling (BDM) can be
referred to as all of the above:
–
–
–
–


Management science
Operations research
Quantitative analysis
Operations management
However, it is actually a process for solving
problems
What type of problems? In what Industries?
1-3
BDM is Used Extensively In

Banking
– Loan portfolio
optimization
– Credit Card
Management

Manufacturing

Airline/Travel Industry
– Ticketing/Reservations
– Airplane Maintenance

Marketing
– Market Research
– Consumer Preferences
– Quality Control
 Computer Science
– Production Scheduling
– Software Development
 Entertainment
– Simulation
– Demand Forecasting
– Queuing/Crowd Control
1-4
Companies Using MS

SABRE Decision Technologies
– airline reservation systems

Signet Bank, GE Capital, Providian, Capital
One
– credit card and financial management

CSX and Union Pacific Railroad
– freight transportation

Ernst & Young, McKinsey, Accenture
Consultants
– business reengineering, forecasting, MIS
1-5
BDM Process
Identification of the Problem
 Definition of the Problem
 Modeling of the Problem
 Initial Model Solutions/Conclusions
 Review and Iteration
 Implementation
 Feedback

1-6
Break-Even Analysis

The break-even point occurs when
Sales
–
Variable
expenses
=
Fixed
expenses
Total revenues = Total costs
1-7
$(000)
Break-Even Graph
Breakeven
378
336
294
252
210
168
126
84
42
Fixed costs
0
0
1000
2000
3000
4000
5000
Units
1-8