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Business Software Tools 200

Business Software Tools 200. Topic 2 Modelling. Why Model?. Why Model?. Focus on key aspects Perform “What if?” (sensitivity analysis) Make predictions Improve (shared) understanding Reduce uncertainty Solve problems…. Good models. Are parsimonious

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Business Software Tools 200

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  1. Business Software Tools 200 Topic 2 Modelling

  2. Why Model?

  3. Why Model? • Focus on key aspects • Perform “What if?” (sensitivity analysis) • Make predictions • Improve (shared) understanding • Reduce uncertainty • Solve problems…

  4. Good models • Are parsimonious • Have just enough variables to explain the variation • Too many variables create complexity and confusion and may mislead (model is overfitted) • Too few variables don’t explain (model is underfitted)

  5. Good models ctd. • Provide explanation • Give accurate predictions • Correlate with the “real world” • Have face validity • Are scalable, extensible • Understandable by others • documentation

  6. Modelling • financial • forecasting • simulation/risk analysis • MCDM (multi criteria decision making) • goal seeking/optimisation/linear programming

  7. Excel Add-Ins • Analysis ToolPak • Solver

  8. Excel Add-Ins

  9. Financial models • “adjusting for the time value of money based on interest, depreciation, inflation rates” • NPV (net present value) • IRR (internal rate of return) • DCF (discounted cash flow) • Amortisation (loan repayments)

  10. Financial models • Software • Excel financial functions

  11. Forecasting • “predicting future values based on past patterns of a time series” • trend • regression • exponential smoothing • decomposition • Box Jenkins

  12. Forecasting • Software • Excel statistical functions

  13. Simulation/Risk Analysis • “either the modelling of a process or a form of sensitivity analysis where many “what ifs” are performed” • Systems Dynamics • dynamic • based on store/flow/control • difference equations

  14. Simulation/Risk Analysis • Monte Carlo • variation of given variables according to an assumed statistical pattern • static • Example software • @Risk by Palisade • Works with Excel • http://www.palisade.com.au/risk/

  15. Simulation/Risk Analysis • discrete • snapshot of model is triggered by an event • continuous • snapshot of model is triggered at regular time intervals • visual • interface • iconic • abstract .... real

  16. Regression • statistical model • dependent, independent variables • may be time based • software • See excel statistical functions and • Data analysis toolpack add-in

  17. Regression (Excel)

  18. MCDM (multi criteria decision making) • “exploration of the pain and gain associated with different alternatives” • alternatives • criteria • rating of alternatives • weighting of criteria • exploration

  19. MCDM ctd • Software • Hiview3 by Catalyze • http://www.catalyze.co.uk/resources/docs/pdf/Catalyze_Case_Study_Shampoo.pdf • See next slide copied from the above pdf

  20. Hiview3 – Criteria hierarchy

  21. Goal Seeking/Optimisation/Linear Programming • “either the search for the pattern of variables that will lead to a goal or the pattern of variables that will optimise a goal under given constraints” • Software • Goal seek (in Excel “What if Analysis”) • Excel Add In – Solver (optimisation under constraints)

  22. Goal seek – E.g. Find a Break even point New Perspectives on Microsoft Office Excel 2007

  23. Working with What-If Analysis and Goal Seek New Perspectives on Microsoft Office Excel 2007

  24. Solver (Excel)

  25. Sensitivity Analysis (“What if”) • “The performing of “what if” analysis in a given model through varying underlying variables” • fixed values • interval/increments • according to a statistical pattern

  26. Excel (What if Analysis)

  27. Excel (What if Analysis)

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