1. The Modeling Process n Frame the problem n Diagram the problem Influence chartsInfluence charts n Build a model n Analyze for insights

2. Problem Framing n What’s included, what’s excluded? n What can we assume? n What do we know? n What are our objectives? n What are our decisions or options? n What are the constraints?

3. Example Problem 1 n Determine the price we should set for our product so as to generate the highest possible profit this coming year.

4. Influence Charts n Use to break through modeler’s block n Help organize the approach to modeling n Begin model documentation n Picture the connections between the exogenous variables and a performance measure without defining the math logic

5. To Create an Influence Diagram n Pick a performance measure n Decompose the performance measure variable into two or more intermediate variables n Decompose each intermediate variable into more intermediate variables until exogenous variables are defined

6. Model Building: Spreadsheet Design Guidelines n When organizing the data, common input variables should be presented together and labeled n Model results should be clearly labeled and emphasized n Physical results should be separated from the financial results n Units of measure should be documented where appropriate n Figure 3.16 of text

7. Model Documentation n Do not embed constants; Place at top of worksheets with appropriate labels and color shading n Attach cell notes n Use text boxes n Use range names

9. National Leasing: Your Assignment n Refer to the National Leasing, Inc. case posted in Blackboard’s Course Document section n Management at NLI would like to know how best to set residual values on automobile leases. n Can a modeling approach help?

10. National Leasing: Framing the problem n Model a portfolio of leases or a single lease? n How to model market share? n How to model consumer behavior at lease end? n Include uncertainty or not? n Optimize or simulate?