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Symbolic World
Analysis
Model Results
Interpretation
Abstraction
Management Decisions
Situation Intuition
Real World
Decision Models
• Inputs
– Decisions which are controllable
– Parameters which are uncontrollable
• Outputs
– Performance variables, or objective functions, that
measure the degree of goal attainment
– Consequence variables that display other consequences
so results can be better interpreted
Structure of Mathematical Models
for Decision Support
Uncontrollable
Variables
Intermediate
Variables
Examples - Components of Models
Deterministic –vs- Probabilistic Models
• In deterministic models, all of the relevant data
(parameter values) are assumed to be known with
certainty.
• a.k.a. Optimization
Common Optimization Problems
KeyCorp
NYNEX
• Decisions
• Constraints
• Objectives
Characteristics of Optimization Problems
• Optimization problems:
– Can be used to support and improve managerial
decision making
– Maximize or minimize some function, called
the objective function, and have a set of
restrictions known as constraints
– Can be linear or nonlinear
Characteristics of Optimization Problems
• Linear programming:
– A problem-solving approach developed to help
managers make better decisions
– Numerous applications in today’s competitive
business environment
– For instance, GE Capital uses linear
programming to help determine optimal lease
structuring
Linear Programming