1. MARKOV CHAIN EXAMPLE Personnel Modeling

2. DYNAMICS Grades N1..N4 Personnel exhibit one of the following behaviors: –get promoted –quit, causing a vacancy that is filled during the next promotion period –remain in grade –get demoted

3. STATE SPACE S = {N1, N2, N3, N4, V} V for Vacancy Every time period, the employee moves according to a probability

4. MODELED AS A MARKOV CHAIN Discrete time periods Stationarity –transitions stay constant over time –transitions do not depend on time in grade

5. TRANSITION DIAGRAM 1 2 3 4V 0.1 0.2 0.1 0.6 0.5 0.3 1.0 0.3 0.6 0.8

6. PROBABILITY TRANSITION MATRIX 1234V 10.10.6 0.3 20.10.50.3 0.1 3 0.60.20.1 4 0.80.1 V1 = P

7. MEASURES OF INTEREST Proportion of the workforce at each level Expected labor costs per year Expected annual cost of Entry-level training PDF of passage from N1 to N4

8. TRANSITION PROBABILITY CALCULATION Start with employee in N1 a0 = [1, 0, 0, 0, 0] a1 = a0 * P a1 = [0.1, 0.6, 0, 0, 0.3] a2 = a1 * P

9. STEADY STATE PROBABILITIES a0 * P * P * P * P *.... P is singular (rank 4) P is stochastic –rows sum to 1   is the stationary probability distribution   N1 is the proportion of the time spent in state N1

10. COMPUTATION STRATEGY  P  N1  N2   N3   N4   V Substitute stochastic equation for first component of  P Solve Linear System via Gaussian Elimination

11. ...more COMPUTATION STRATEGY Start with arbitrary a0 calculate a1, a2, a3,... will converge to   

12. CONVERGENCE TO 

13. CONVERGENCE IS QUICK

14. FOR GRINS Changed P N4,V to 0.0  = [0.09, 0.16, 0.23, 0.46, 0.06]

15. ENTRY-LEVEL TRAINING 12% of the time we are in state V Cost of ELT = –12% –times the Workforce size –times the cost of training

16. LABOR COSTS Salaries –C N1 = $12,000 –C N2 = $21,000 –C N3 = $25,000 –C N4 = $31,000 Total Workforce = 180,000 Cost = 180K * (C *  ) = $3.7B

17. EXCURSION Promotion probabilities unchanged Allow attrition to reduce workforce –P V,N1 = 0.6 results in workforce of 108,000 How much $ saved? How fast does it happen?

18. LABOR COSTS

19. CONVERGENCE TO 75% WORKFORCE (135K)

20. CONVERGENCE TO 60% WORKFORCE (108K)

21. BUILDING AN N4 FROM AN N1 CUMULATIVE

22. BUILDING AN N4 FROM AN N1 MARGINAL