What is a model?

A representation of a an object, a system, or an idea in some form other than the entity itself Types of Models: Physical scale models, prototypes, Mathematical Analytical Queuing, Simulation: descriptive technique that enables a decision maker to evaluate the behavior Simulation models complex situations Models are simple to use/ understand Can play what if Powerful tool to help a manager make a decision Allows problem solver to manipulate a process to observe reaction Simulation Process 1. Identify the Problem 2. Develop the simulation model 3. Test the model 4. Develop the experiments 5. Run the simulations and evaluate the results 6. Repeat 4 and 5 until results are satisfactory Monte Carlo Simulation: Probabilistic simulation technique used when a process has a random component Identify an probability distribution Obtain the random numbers Steps in Simulation and Model Building: 1. Define an achievable goal 2. Put together a complete mix of skills on the team 3. Involve the end-user 4. Choose the appropriate simulation tools 5. Model the appropriate level(s) of detail 6. Start early to collect the necessary input data 7. Provide adequate and on-going documentation 8. Develop a plan for adequate model verification 9. Develop a plan for model validation 10. Develop a plan for statistical output analysis

Involve the end user Modeling is a selling job! Does anyone believe the results Will anyone put the results into action? The End-User (your customer) can (and must) do all of the above BUT, first he must be convinced! The Real Cost of Simulation Many people think the cost of a simulation in terms of the software package price Purchase price of the software Programmer/ Analyst time Timeliness of results Terminology Clearly define System A group of objects that are joined together Entity And object interest in the system Data comes in two quantities o Too much! o Too little! *With too much data we need techniques for reducing it to a form usable in our model *With too little data, we need information which can be represented by statistical distributions Simulation provides something that no other technique does: Step by step teaching of the model execution This provides a very natural way of checking the internal consistency of the model Validation Doing the right thing or asking the right questions How do we know out model represents the system under investigation? Compare to existing system? Advantages of simulation Solves problems that are difficult or impossible to solve mathematically Allows experimentation (complex processes or events) without risk to actual system o what if o Sensitivity Compresses time to show long term effects Serves as training tool for decision makers

Limitations Does not produce optimum solution Model development may be difficult Computer run time may be substantial Monte Carlo simulations only applicable to random systems

Chapter 9 Project Management

The key for most organizations to remain competitive in a high-growth and fast-changing environment is 1. Strong delivery capability 2. Uniform and effective process structure 3. Discipline of planning an monitoring initiative that translate into reality Project: a temporary endeavor undertaken to create a unique product or service; a coordinated effort to achieve a goal within a fixed time period Project management: the application of knowledge skills tools and techniques PERT (Program evaluation ad review technique) chart- is a graphical network model that depicts a projects task and the relationships between those tasks Two primary diagrams used in project planning include o PERT o GANTT Project Mgmt. Goal a smooth completion of the project Project Deliverable any measurable, tangible, verifiable outcome, result, or item that is produced to complete a project or part of a project Project Milestone represents key dates when a certain group of activities must be performed Project Manager an individual who is an expert in project planning and management, defines and develops the project plan, and tracks the plan to ensure all key project milestones are completed on time. Project Management Role: - Time - Scope - Resources insourced and outsourced - Industry Changes - Communication - Exceptions

Quality Costs Methodologies and tools Organizational Changes SDLC Technological change

Project Scope defines the work that must be completed to deliver a product with the specified features and functions, and typically includes: Project product Objectives Deliverables Exclusions Project Plan- a formal, approved document that manages and controls project execution - A well-defined project plan should be o Easy to understand o Communicated to all key participants o Appropriate to the projects size, complexity and criticality o Prepared by the team, rather than by the individual project manager Change Management- a set of techniques that aid in evolution, composition, and policy management of the design and implementation of a system Change Management System a collection of procedures to document a change request and define the steps necessary to consider the change based on the expected impact of the change Change control board (CCB) responsible for approving or rejecting all change requests Project Risk an uncertain event or condition that, if it occurs, has a positive or negative effect Risk Management - The process of proactive and ongoing identifications, analysis, and response to risk factors Successful Project Management Strategies 1. Define project success criteria 2. Develop a solid project plan 3. Divide a solid project plan 4. Divide and conquer 5. Manage and plan for change 6. Manage project risk Project Planning and Scheduling - Projects consist of numerous separate jobs

Managers schedule/coordinate activities for on time completion of the project Interdependence of activities make this difficult Answer questions such as: o Total time to complete the project o Start and finish dates o Critical activities o Delay of noncritical activities before key activities become critical

Elements of Project Planning - Define project objective(s) - Identify activities - Establish precedence relationships - Make time estimates - Determine project completion time - Compare project schedule objectives - Determine resource requirements to meet objective PERT/CPM Framework 1. Identify all significant activities and or tasks 2. Develop precedence relationships among activities 3. Create the project network connection all activities and assign time and cost estimates 4. Find the critical path of the network 5. Analyze the critical path and the resulting project schedule to help plan, schedule, monitor and control the project Monitoring & Gantt Charts Popular tool for project scheduling Graph with bar for representing the time for each task Provides visual display of project schedule o Shows both planned and competed activated against a time scale Shoes slack for activities o Amount of time activity can be delayed without delaying the project Critical Path: a path is a sequence of connected activities running the start to the end node in a network The critical path is the path with the longest duration in the network A project cannon be completed in less than the time of the critical path

 Early Start Times ES earliest time activity can start Forward pass starts at beginning of network to determine ES times EF = ES + activity time Late Start Times LS the latest time activity can start & not delay project Backward pass starts at end of network to determine LS times LF- latest time activity can be completed & not delay project Activity Slack Slack is the difference between the latest start time and the earliest start time Project Crashing Shorten durations of critical tasks by adding more resources($) or changing task scope Crashing refers to analyzing the tradeoff of compressing the duration of tasks versus cost to compress those tasks Managers use this technique to balance project time constraints with project budget constraints

Chapter 6 : Linear Regression

Forecasting Purpose of forecasting is to reduce the level of uncertainty Regression on of the most popular methods of forecasting Start Simple- eliminate relationships that dont work. Forecasting Models Often leading indicators can help to predict changes in future demand e.g. Housing starts and the economy Casual models establish a cause and effect relationship between independent variables A common tool of casual modeling is linear regression: Y = a + bx Additional related variables may require multiple regression modeling *(Pg 338 339) Resources for project

Population vs Sample Population: collection of all items or entire group Sample: subgroup representing the entire population o Less time o Less Costly o More Practical Sample Size Random Rule of Thumb: n >= to 10 times the number of independent variables Sample need to represent the true population collect more if needed Hypothesis Hypothesis: is a proposed explanation for an observable phenomenon. o Hypothesis is designed so that correct decision will be made Null hypothesis: is typically proposes a general or default position such as that there is no relationship between to measure phenomenon or that potential treatment has effect Simple Linear Regression One dependent and one independent variable Independent variable predicts the dependent variable Example: y = sales and x = selling price - Y = dependent variable - X = independent Variable Linear Regression analysis - Linear trend line - Least squares regression Linear Trend Linear regression takes on the form Y = a + bx Y = demand ; x = time Regression line can be calculated using the least Squares Regression line Why Linear Trend? Why do forecasters choose linear relationship? Simple representation Ease of use Ease of calculations Many relationships in the real world are linear Start simple and eliminate relationships that do not work

Multiple Regression A powerful extension of linear regression Multiple regression related a dependent variable to more than one independent variable (E.g.) New housing may be a function of several independent variables - Interest rate - Population - Existing housing prices - Income Multiple Regression Formula A multiple regression model has the following general form Y = 0 + 1x1 + 2x2 . nxn 0 represents the intercept Correlation A measure of strength of the relationship between the independent and the dependent variables i.e. How well does the right hand side of the equation explain the left side Measures the relative stretch of the linear relationship between two variables Unite-less Ranges -1 to1 Closer to -1the stronger the negative linear relationship The closer to 1 the stronger the positive Performance measures Determine if the model is good - R2 = coefficient of determination - Range between 0-1 should be close to 1 if model is good - Measure of goodness of fit - Not dependent of # of variable Multiple R- Strength of linear relationship between actual and estimated Adjusted R- takes into the account the number of variable. A T- statistic F- statistic: measures the significance of statistical joint relationships among independent variables P, T, and Standard Error The t-statistic: is the coefficient divided by its standard error (t-stat should be > 2) The standard error is an estimated of the standard deviation of the coefficient. The amount it varies across cases P-value- minimum level of significance

Multicollinearity Occurs when 2 or more variables are highly correlated If variables are highly correlated than the model is multicollinearity & results become very sensitive to changes in variable specification - Above .8 indicated mulitcollinearity taking place Testing - Check correlation between variables Solutions - Some say do nothing, if model is otherwise ok - Drop a collinear variable - Transform highly correlated variable into a ratio

Heteroscedasticity Exists when the residuals do not have a constant variance across an entire range of values *Forecasts Forecasts are never perfect Need to know how much we should rely on out chosen forecasting method Assumptions of Linear Regression Homoscedasticity Lack of correlation Lack of collinearity Pitfalls or Problems Heteracoscedacity Autocorrelation Multicollinearity