chapter 2 introduction influence diagrams basic profit model
TRANSCRIPT
![Page 1: Chapter 2 Introduction Influence Diagrams BASIC PROFIT MODEL](https://reader036.vdocuments.net/reader036/viewer/2022062301/56649eb75503460f94bc10dc/html5/thumbnails/1.jpg)
Chapter 2
IntroductionInfluence Diagrams
BASIC PROFIT MODELBASIC PROFIT MODEL
![Page 2: Chapter 2 Introduction Influence Diagrams BASIC PROFIT MODEL](https://reader036.vdocuments.net/reader036/viewer/2022062301/56649eb75503460f94bc10dc/html5/thumbnails/2.jpg)
Introduction
![Page 3: Chapter 2 Introduction Influence Diagrams BASIC PROFIT MODEL](https://reader036.vdocuments.net/reader036/viewer/2022062301/56649eb75503460f94bc10dc/html5/thumbnails/3.jpg)
In building spreadsheets for deterministic models, we will look at:
ways to translate the black box representation into a spreadsheet model.
recommendations for good spreadsheet model design and layout
suggestions for documenting your models
useful features of Excel for modeling and
analysis
![Page 4: Chapter 2 Introduction Influence Diagrams BASIC PROFIT MODEL](https://reader036.vdocuments.net/reader036/viewer/2022062301/56649eb75503460f94bc10dc/html5/thumbnails/4.jpg)
Price Revenue received from selling units
Total Revenue
Fixed Cost
Variable Costs
Overhead Costs
Sunk Costs
Total Costs
![Page 5: Chapter 2 Introduction Influence Diagrams BASIC PROFIT MODEL](https://reader036.vdocuments.net/reader036/viewer/2022062301/56649eb75503460f94bc10dc/html5/thumbnails/5.jpg)
Profit
Breakeven Point
Crossover Point
![Page 6: Chapter 2 Introduction Influence Diagrams BASIC PROFIT MODEL](https://reader036.vdocuments.net/reader036/viewer/2022062301/56649eb75503460f94bc10dc/html5/thumbnails/6.jpg)
Examples
![Page 7: Chapter 2 Introduction Influence Diagrams BASIC PROFIT MODEL](https://reader036.vdocuments.net/reader036/viewer/2022062301/56649eb75503460f94bc10dc/html5/thumbnails/7.jpg)
Step 1: Study the Environment and Frame the Situation
The Pies are then processed and sold to local grocery stores in order to generate a profit.
Follow the three steps of model building.
Example 1: Simon Pie
Critical Decision: Setting the wholesale pie price
Decision Variable: Price of the apple pies (this plus cost parameters will determine profits)
Two ingredients combine to make Apple Pies: Fruit and frozen dough
![Page 8: Chapter 2 Introduction Influence Diagrams BASIC PROFIT MODEL](https://reader036.vdocuments.net/reader036/viewer/2022062301/56649eb75503460f94bc10dc/html5/thumbnails/8.jpg)
Step 2: Formulation
Model
Using “Black Box” diagram, specify cost parameters
The next step is to develop the logic inside the black box.
A good way to approach this is to create an Influence Diagram.
Pie PriceUnit Cost, FillingUnit Cost, Dough
Unit Pie Processing CostFixed Cost
An Influence Diagram pictures the connections between the model’s exogenous variables and a performance measure (e.g., profit).
Exogenous Variables
Profit
![Page 9: Chapter 2 Introduction Influence Diagrams BASIC PROFIT MODEL](https://reader036.vdocuments.net/reader036/viewer/2022062301/56649eb75503460f94bc10dc/html5/thumbnails/9.jpg)
Black Box View of Simon Pie Model
MODEL
Unit Cost, Filling
Pie Price
Unit Cost, Dough
Fixed CostUnit Pie Processing Cost
Profit
![Page 10: Chapter 2 Introduction Influence Diagrams BASIC PROFIT MODEL](https://reader036.vdocuments.net/reader036/viewer/2022062301/56649eb75503460f94bc10dc/html5/thumbnails/10.jpg)
Influence Diagram
![Page 11: Chapter 2 Introduction Influence Diagrams BASIC PROFIT MODEL](https://reader036.vdocuments.net/reader036/viewer/2022062301/56649eb75503460f94bc10dc/html5/thumbnails/11.jpg)
To create an Influence Diagram:start with a performance measure variable.
Further decompose each of the intermediate variables into more related intermediate variables.
Decompose this variable into two or more intermediate variables that combine mathematically to define the value of the performance measure.
Continue this process until an exogenous variable is defined (i.e., until you define an input decision variable or a parameter).
![Page 12: Chapter 2 Introduction Influence Diagrams BASIC PROFIT MODEL](https://reader036.vdocuments.net/reader036/viewer/2022062301/56649eb75503460f94bc10dc/html5/thumbnails/12.jpg)
performance measure variable
ProfitStart here:
Decompose this variable into the intermediate variables Revenue and Total Cost
![Page 13: Chapter 2 Introduction Influence Diagrams BASIC PROFIT MODEL](https://reader036.vdocuments.net/reader036/viewer/2022062301/56649eb75503460f94bc10dc/html5/thumbnails/13.jpg)
Profit
Revenue Total Cost
Now, further decompose each of these intermediate variables into more related
intermediate variables ...
![Page 14: Chapter 2 Introduction Influence Diagrams BASIC PROFIT MODEL](https://reader036.vdocuments.net/reader036/viewer/2022062301/56649eb75503460f94bc10dc/html5/thumbnails/14.jpg)
Profit
Revenue Total Cost
Pies Demanded
Pie PriceUnit Pie
Processing Cost Fixed Cost
ProcessingCost
IngredientCost
Unit CostFilling
Unit CostDough
RequiredIngredientQuantities
![Page 15: Chapter 2 Introduction Influence Diagrams BASIC PROFIT MODEL](https://reader036.vdocuments.net/reader036/viewer/2022062301/56649eb75503460f94bc10dc/html5/thumbnails/15.jpg)
Step 3: Model Construction
Based on the previous Influence Diagram, create the equations relating the variables to be specified in the spreadsheet.
![Page 16: Chapter 2 Introduction Influence Diagrams BASIC PROFIT MODEL](https://reader036.vdocuments.net/reader036/viewer/2022062301/56649eb75503460f94bc10dc/html5/thumbnails/16.jpg)
Profit
Revenue Total Cost
Profit = Revenue – Total Cost
![Page 17: Chapter 2 Introduction Influence Diagrams BASIC PROFIT MODEL](https://reader036.vdocuments.net/reader036/viewer/2022062301/56649eb75503460f94bc10dc/html5/thumbnails/17.jpg)
Profit
Revenue
Pie Price
Pies Demanded
Revenue = Pie Price * Pies Demanded
![Page 18: Chapter 2 Introduction Influence Diagrams BASIC PROFIT MODEL](https://reader036.vdocuments.net/reader036/viewer/2022062301/56649eb75503460f94bc10dc/html5/thumbnails/18.jpg)
Fixed Cost
ProcessingCost
IngredientCost
Profit
Total Cost
Total Cost = Processing Cost + Ingredients Cost + Fixed Cost
![Page 19: Chapter 2 Introduction Influence Diagrams BASIC PROFIT MODEL](https://reader036.vdocuments.net/reader036/viewer/2022062301/56649eb75503460f94bc10dc/html5/thumbnails/19.jpg)
Processing Cost = Pies Demanded * Unit Pie Processing Cost
ProcessingCost
Total Cost
Pies Demanded
Unit PieProcessing Cost
Profit
![Page 20: Chapter 2 Introduction Influence Diagrams BASIC PROFIT MODEL](https://reader036.vdocuments.net/reader036/viewer/2022062301/56649eb75503460f94bc10dc/html5/thumbnails/20.jpg)
Ingredients Cost = Qty Filling * Unit Cost Filling + Qty Dough * Unit Cost Dough
IngredientCost
Profit
Total Cost
Unit CostFilling
Unit CostDough
RequiredIngredientQuantities
![Page 21: Chapter 2 Introduction Influence Diagrams BASIC PROFIT MODEL](https://reader036.vdocuments.net/reader036/viewer/2022062301/56649eb75503460f94bc10dc/html5/thumbnails/21.jpg)
Examples