MODEL FORMULATION PROCESS

Model Formulation Process causes us to work with 4 features of a model, which are: Decision, Outcome, Structure, and Data.  The first feature is, decision, which is he choices or actions that we might have to take.  The next feature is outcome and this tells what the consequences are going to be from the decisions we made.  Then we have structure, which is the logic or calculations that will link the elements of the model we are building.  Finally we have data which gives us the exact and specific information or assumptions that were made.  When we look at decision, outcome, structure and data we can best understand it by giving a specific real life situation in which we would use the process. 

Example:

You apply for a credit card at a department store, and since the company would have a risk if they were to make an immediate coin toss decision, they may use the model formulation process.  The data refers to your income and credit score, and then we have the structure, would be a calculation the bank would use to calculate whether you make enough money and if you are a risk to them.  Then we have outcome, and this is when they would review the results based on the data and structure, and final the last step of the process would be decision, and this would be whether or not you would receive a credit card and how much the limit would be.

2.3.2: AN INCOME STATEMENT AS AN INFLUENCE CHART

In section 2.3.2 we look at Income Statements as an influence chart, which is defined as a standard accounting framework used to report for performance of a company in the past.  When we look at an income statement we see the bottom line is the retained earnings are calculating the difference of revenue from costs, taxes, and dividends.  We must decompose total revenue into the quantity sold and price, therefore we would be express this on the chart by adding price as a decision enclosed in a square  and quantity sold enclosed in a circle as a variable all pointing to the total revenue, since that is what will be affected.  Then we must take it a step further and decompose Quantity sold in Price and Price Elasticity.  Price already reflects on the chart as a decision, but it must have an arrow pointing to quantity sold, since this will affect the price, and then we would add elasticity as an input parameter.  This would be enclosed in a triangle and also point towards quantity sold as a factor of the overall price and quantity sold.

SECTION 2.3.1: A FIRST EXAMPLE

Section 2.3.1  is an example of a pricing decision in which we must determine the price that should be set for a product in order to generate highest possible revenue this year.  We are determining profit as the outcome so profit will be enclosed on the influence chart within a hexagon.  After determining that profit is the outcome we must next decide on the major components or variable, which are Total Revenue and Total Cost and are enclosed in circles to the right and arrows pointing towards Profit.  We then need to decompose Total cost, which would be decomposed into Variable Cost and Fixed Cost.  Variable Cost would be enclosed with a circle and an arrow pointing towards total cost and then Fixed Cost which is an input parameter, enclosed in a triangle with arrows also pointing towards total cost.  In order to determine the Cost and profit we must determine the quantity sold which would build be pointing towards variable cost as another component enclosed in a circle.  Then we must determine the unit cost as another input parameter enclosed in a triangle pointing towards variable cost, and finally we would determine the fixed cost as an input parameter which would be enclosed in a triangle pointing towards total cost.

INVIVO DIAGNOSTICS INFLUENCE CHART

DERIVE A PROBLEM FROM A MESS

In order to derive a problem from a mess, the first step is to, identify the main problem in a mess, which can be done by using problem statement form.  In order to finding the problem statement form is to pay attention to the problem definition. The approach to solve the problem will depend on  whether the problem is simple or complex.  When going through the process you must determine whether the it is a well-structured or ill-structured problem.  When we are dealing with a well-structured problem we will see an the objectives are clear, an assumption is obvious, all data is available, and the logical structure is well understood.  An example of a well-structured problem is a math 2+2, and you must find what it equals.  Ill-structured problems are quiet the opposite and unclear, and example would be a community is growing and many not support new people, what should be done?  When looking at an ill-structured problem it will envolve exploring the problem and forming a hypothesis, and analyizing the data in great detail since it is very unclear.  Sometime the problem that is not obvious in the beginning, may be an open-ended process instead of a problem solving process.   While going through the problem solving process there are 2 different styles of thinking which are divergent and convergent.  When we go through divergent thinking we look at generating ideas over evaluating them, since the answer to the questions may have any answers such as taking a test involving and open-ended question, that will have more than one correct answer. When we go through convergent thinking we direct our thinking towards finding a goal, answer, result involving one single response, such as taking a multiple choice test where there is only one answer.

BUILDING AN INFLUENCE CHARTS

An influence chart is a simple diagram that shows what outcome variables the model will generate and how these outputs are numerical results or insights into which particular solutions are desirable.  These charts are very useful during the early stages of modeling and during the communication of modeling with clients.  Figure 1 below shows an example of a influence chart.

When creating an influence chart they are built from right to left and use a diagram that determine the role of different variable, which are shown below in Figure 2.

Influence charts also must follow a set of standard rules, which are listed below:

1.   Start with the outcome measure.

2.   Decompose the outcome measure into independent variables that measure directly.

3.   Repeat decomposition of each variable in turn.

4.   Identify input and decisions as they arise.

5.   Check to make sure a variable only appears once.

6.   Highlight special types of elements with consistent symbols.

THE SIX-STAGE PROBLEM-SOLVING PROCESS

The Six-Stage Problem-Solving Process is a process that starts out with an unorganized mess and ends with a implementing a solution.  This problem can be and has been used to find the solutions for just about any problem.  We will explore the six-stages using divergent and convergent thinking.  While the divergent thinking phase is most important and starts early in the process, convergent is most important later on, and each thinking phase has a part in each stage.

Stage 1:   Exploring the Mess:  In the 1^st stage we allow our self to look into the mess of issues challenges, problems, and opportunities to find an area on which we can focus by using the divergent and convergent phase of thinking.

During this stage we can ask ourselves questions such as:

·         What is keeping us from being successful?

·         What must we change for being successful?

·         What is in the way?

·         Where do we start?

·         Where is our showstopper?

·         How can we prioritize?

Stage 2:   Searching for Information:  In the 2^nd stage we explore known, unknown, issues, challenges, missing or needed information to expand understanding of the mess.  We collect data in order to find out more information in order to clarify more of the problem.

During this stage we can ask ourselves questions such as:

·         What is it we know or don’t know?

·         Where are the relationships?

·         What is in the way?

·         Where do we start?

Stage 3:  Identifying a Problem:   In the 3^rd stage we formulate a problem statement and the main part of the condition.

During this stage we can ask ourselves questions such as:

·         What are new ways to view and express challenges?

·         What is the most important problem?

Stage 4:  Searching for Solutions: During the 4^th stage we search for diverse ideas relating to the problem in order to address the problem statement.

During this stage we can ask ourselves questions such as:

·         What are the success factors?

·         How do we measure it?

·         What are ways to strengthen their potential?

Stage 5:  Evaluating Solutions: During the 5^th stage it can be considered the culmination of the process and is the stage in which the preferred solution starts.

During this stage we can ask ourselves questions such as:

·         What factors of the problem can be controlled

·         How and what does the solution impact?

Stage 6:  Implementing a Solution: During the 6^th stage we generate action steps to implement the solution.  The solution means nothing at all unless it can implemented.

During this stage we can ask ourselves questions such as:

·         What are the ingredients for action?

·         Who is doing what?

·         What resources are needed?