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.