MBA7020_01.ppt/June 13, 2005/Page 1 Georgia State University - Confidential MBA 7020 Business Analysis Foundations Introduction - Why Business Analysis June 13, 2005

MBA7020_01.ppt/June 13, 2005/Page 2 Georgia State University - Confidential Agenda Business Analysis - Models The Modeling Process Introduction to Decision Sciences

MBA7020_01.ppt/June 13, 2005/Page 3 Georgia State University - Confidential Decision Sciences: Conceptualized! Information Technology Analytical Methods Decision Making

MBA7020_01.ppt/June 13, 2005/Page 4 Georgia State University - Confidential What is Decision Sciences Grocery Industry Kroger Travel Industry Delta SkyMiles Marriott Rewards Gambling Industry MGM Mirage Players Club The Mirage Treasure Island Bellagio New York New York MGM Grand Retail Business Best Buy Circuit City Macy

MBA7020_01.ppt/June 13, 2005/Page 5 Georgia State University - Confidential Agenda Business Analysis - Models The Modeling Process Introduction to Decision Sciences

MBA7020_01.ppt/June 13, 2005/Page 6 Georgia State University - Confidential MBA 7020 Business Analysis Foundations Course Overview

MBA7020_01.ppt/June 13, 2005/Page 7 Georgia State University - Confidential Deterministic Models vs. Probabilistic (Stochastic) Models Deterministic Models are models in which all relevant data are assumed to be known with certainty. can handle complex situations with many decisions and constraints are very useful when there are few uncontrolled model inputs that are uncertain. are useful for a variety of management problems. are easy to incorporate constraints on variables. software is available to optimize constrained models. allows for managerial interpretation of results. constrained optimization provides useful way to frame situations. will help develop your ability to formulate models in general.

MBA7020_01.ppt/June 13, 2005/Page 8 Georgia State University - Confidential Deterministic Models vs. Probabilistic (Stochastic) Models Probabilistic (Stochastic) Models are models in which some inputs to the model are not known with certainty. uncertainty is incorporated via probabilities on these “random” variables. very useful when there are only a few uncertain model inputs and few or no constraints. often used for strategic decision making involving an organization’s relationship to its environment.

MBA7020_01.ppt/June 13, 2005/Page 9 Georgia State University - Confidential Classification of Models By problem type Forecasting Decision Analysis Constrained Optimization Monte Carlo Simulation By data type Time series Exponential smoothing Moving average Cross sectional Multiple linear regression By causality Causal: causal variable Non-causal: surrogate variable Methodologies 1. Qualitative Delphi Methods 2. Quantitative - Non-statistical Using “comparables” 3. Quantitative - Statistical Time-series Regression

MBA7020_01.ppt/June 13, 2005/Page 10 Georgia State University - Confidential Analytical Methods Quantitative Methods Mathematical / Algebraic / Calculus Methods Statistical Modeling and Analysis Management Science / Operations Research Techniques Accounting / Financial Modeling Qualitative Methods Nominal Group Techniques Heuristic Based Methods Expert Systems / AI

MBA7020_01.ppt/June 13, 2005/Page 11 Georgia State University - Confidential UNCERTAINTY Facts not known Gather Information Fact Finding /.Analysis DATA BASED COMPLEXITY Too many facts Generate Information Simulation/Synthesis MODEL BASED EQUIVOCALITY Facts not Clear Interpret Information Application of Expertise KNOWLEDGE BASED Decision Environment

MBA7020_01.ppt/June 13, 2005/Page 12 Georgia State University - Confidential Decision Making Process INTELLIGENCE Fact Finding Problem/Opportunity Sensing Analysis/Exploration DESIGN Formulation of Solutions Generation of Alternatives Modeling/Simulation CHOICE Alternative Selection Goal Maximization Decision Making Implementation

MBA7020_01.ppt/June 13, 2005/Page 13 Georgia State University - Confidential Types and Levels of Decisions STRATEGIC TACTICAL OPERATIONAL UNSTRUCTURED STRUCTURED TRANSACTION PROCESSING MANAGEMENT INFORMATION DECISION SUPPORT

MBA7020_01.ppt/June 13, 2005/Page 14 Georgia State University - Confidential Applications of Information Technology Transaction Processing Systems Management Information Systems Decision Support Systems

MBA7020_01.ppt/June 13, 2005/Page 15 Georgia State University - Confidential Decision Support Systems Data Base Model Base Knowledge Base User Interface

MBA7020_01.ppt/June 13, 2005/Page 16 Georgia State University - Confidential Agenda Business Analysis - Models The Modeling Process Introduction to Decision Sciences

MBA7020_01.ppt/June 13, 2005/Page 17 Georgia State University - Confidential Managing Organizations Informed decision making as a prerequisite for success Action Vision Mission Organizational Context Policies, Goals, and Objectives Givens Values, Purpose, Structure, Politics, Environment, etc. What should be done ? Analytics, Decision Making When and how ?? Strategic Direction Decision Making Implementation Project Management

MBA7020_01.ppt/June 13, 2005/Page 18 Georgia State University - Confidential Managerial Decision Making Information Technology Solutions for Improving Effectiveness Complexity What does it add up to? Uncertainty What can happen? INTELLIGENCECHOICE DESIGN DATAMODELS Variables (Measures and Estimates) Probabilities and Estimates Structuring Relationships Problem Representation Generation of Alternatives Decision Analysis and Influence Diagrams for Visualizing Models and Choices Spreadsheet Models for managing complex relationships and detail

MBA7020_01.ppt/June 13, 2005/Page 19 Georgia State University - Confidential Modeling Decision Situations Process for Developing Meaningful and Robust Models Objective Hierarchies Variables and Measures Modeling Relationships Situation Structuring Testing and Validation Implementation and Use DSS Fundamental and Means Objectives (feasible?) Decision, Intermediate, and Outcome Variables Data, Probabilities, Distributions Communicate Influence Diagrams and Decision Trees Spreadsheet Modeling Statistical, OR, Financial, Acctg. Models Values, Goals, Strategies, etc Analyze & Synthesize

MBA7020_01.ppt/June 13, 2005/Page 20 Georgia State University - Confidential The Modeling Process Quantitative - Statistical Variables and Attributes Objective Hierarchies Influence Diagrams Mathematical Representation Testing and Validation Implementation and use Describe Problem / opportunity Identify Overall Objective Organize Sub-Objectives into a hierarchy Identify Model’s Objective Determine all variables and their attributes Decide on Measurement / Data Collection Graphically depict relationships among variables Distinguish between Decision and outcome variables Determine mathematical relationships among variables Develop mathematical model(s) Evaluate reliability and validity Understand limitations Implement models in DSSs Clarify assumptions, inputs, and outputs

MBA7020_01.ppt/June 13, 2005/Page 21 Georgia State University - Confidential The Decision Analysis Process Tools for Visualizing and Evaluating Alternatives Identify decision situation and understand objectives Identify alternatives Decompose and model problem structure uncertainty preferences Choose best alternative Sensitivity Analyses Implement Decision Model Representation Deterministic Analysis Probabilistic Analysis Evaluation of Alternatives Decision, Chance, and Consequence Variables Arcs and Relationship Formulas Tornado Diagrams N-way Sensitivity Uncertainty Assessment Risk Profiles EMV, NPV, etc.

MBA7020_01.ppt/June 13, 2005/Page 22 Georgia State University - Confidential The Modeling Process Quantitative – Non-Statistical Managerial Approach to Decision Making Manager analyzes situation (alternatives) Makes decision to resolve conflict Decisions are implemented Consequences of decision These steps Use Spreadsheet Modeling