Transcript Influence Diagram

Slides 2b: How to create an Influence Diagram:
start with a performance measure variable.
Decompose this variable into two or more intermediate
variables that combine mathematically to define the
value of the performance measure.
Further decompose each of the intermediate variables
into more related intermediate variables.
Continue this process until an exogenous variable is
defined (i.e., until you define an input decision variable
or a parameter).
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Profit
Revenue
An Example Influence Diagram
Total
Cost
TVC
Demand
TFC
Unit VC
Price
Advertising
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Example: Simon Pie
Start here:
Profit
performance
measure
variable
Decompose this variable into the intermediate variables
Revenue and Total Cost
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Profit
Total Cost
Revenue
Now, further decompose each of these intermediate
variables into more related intermediate variables ...
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Model Construction
Based on the previous Influence Diagram, create the
equations relating the variables to be specified in the
spreadsheet.
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Profit
Total Cost
Revenue
Profit = Revenue – Total Cost
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Profit
Revenue
Revenue = Pie Price * Pies Demanded
Pies Demanded
Pie Price
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Profit
Total Cost
Processing
Cost
Ingredient
Cost
Total Cost =
Processing Cost + Ingredients Cost + Fixed Cost
Fixed Cost
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Profit
Total Cost
Processing
Cost
Pies Demanded
Processing Cost =
Pies Demanded *
Unit Pie Processing Cost
Unit Pie
Processing Cost
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Profit
Total Cost
Ingredients Cost =
Qty Filling * Unit Cost Filling +
Qty Dough * Unit Cost Dough
Ingredient
Cost
Required
Ingredient
Quantities
Unit Cost
Filling
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Unit Cost
Dough
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Profit
Total Cost
Revenue
Processing
Cost
Ingredient
Cost
Required
Ingredient
Quantities
Pies Demanded
Pie Price
Unit Pie
Processing Cost
Unit Cost
Filling
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Unit Cost
Dough
Fixed Cost
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Simon’s Initial Model Input Values
Pie Price
$8.00
Pies Demanded and sold
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Unit Pie Processing Cost ($ per pie)
$2.05
Unit Cost, Fruit Filling ($ per pie)
$3.48
Unit Cost, Dough ($ per pie)
$0.30
Fixed Cost ($000’s per week)
$12
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To represent this model in an Excel Spreadsheet,
you should adhere to the following recommendations:
Present input variables together and label them.
Clearly label the model results.
Give the units of measure where appropriate.
Store parameters in separate cells as data and refer
to them in formulas by cell references.
Use bold fonts, cell indentations, cell underlines and
other Excel formatting options to facilitate
interpretation.
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Initial Simon Pie Weekly Profit Model
(Click on spreadsheet to open Excel)
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“What if?” Projection
Allows you to determine what would happen if you used
alternative inputs.
For example, what would the resulting Profit be if the
Profit for Pie Price and Pies Demanded changed to
$7.00 and 20,000 or $9.00 and 12,000, respectively.
Simply change the values of these parameters in the
spreadsheet to view the resulting Profit.
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What if we change the
values of two parameters?
What effect will that have
on Total Cost and Profit? DSC 3120
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