Art of Modeling

Modeling- process of creating simplified representation in reality and working with this representation in
order to understand some aspects of world.
Form or Types of Model
a. Mental Model- to understand the world and predict the outcomes of our actions.
b. Visual Model- include maps and organization chart because they represent reporting relationship and
reveal the authority. It suggests major responsibilities for personal decisions.
c. Physical Model- Architect, engineers use physical model to show how a proposed building fits within
the surroundings.
d. Mathematical Model- It consists of numbers and symbols like algebra, calculus and spreadsheet. The
real benefits using them is to make better decisions.
Why Study Modeling?
- It improves our thinking skills. Modeling is a discipline that provides structure of problem solving.
- Generate insight meaning improve understanding of the situation or problem at hand.
- Modeling improves quantitative reasoning skills.
- Discipline that provides structure from problem solving.
Fundamentals of Modeling
a. Parameter
b. Decision
c. Outcomes
- The above are useful concepts in problem solving.
- Modeling provides a clear and logical analysis and hep raise the level of others thinking.
Types of Business Model
1. One -Time Model- evaluate the profit impact of promotion campaign or help select a health insurance
provider.
2. Decision Support Model- more computer system that tie to get them model. Data analysis, tools and
presentation tools integrated package. This system is intended for repeated use by executives,
analytical staff and also in research and development planning and also used in pricing decision of oil
company.
3. Model use in Business Education- model use in academic world. Where business analyst is educated.
Use also in marketing course to analyze demand curve for pricing analysis of product.
4. In Operation Management- They use for inventory models, stock control, allocation for scheduling
production.
Benefits of Model
1. Modeling allows us to make inexpensive errors. Ex. Wind tunnel test in airplane.
2. Modeling can explore the impossible. Ex. Companies have policies, procedures or habits that prevent
from making choices, sometimes these habits that prevent them from discovering better ways of doing
business.
3. Modeling can improve business intuition. Ex. In Laboratory to professor experiment
 4. Modeling provides information in timely manner. Ex. Survey used to determine potential demand for a
product.
5. Modeling can reduce cost. Ex. Data collection is very expensive and time consuming. An effective
modeler may provide the same level of information at muck lower cost.
Role of Spreadsheet
a. Principal vehicle fir modeling in Business
b. Mathematics Model is also an accessible level vs. calculus and algebra
c. Correspond nicely to accurate statements
d. The swiss army type of business analysis
- Prior to 1980’s modeling was performed only by specialist using demanding software or expensive
hardware. Then came 1990’s spreadsheet changed. Specialized decision tools exist like the simulation
software and optimization model.
Some spreadsheet errors that have quantifiable impact on the organization/ risk of Spreadsheet
1. Sampling of errors with serious ramification.
Ex. Some candidates for police official job are told they passed the test when in fact they failed.
Reason: Improper sorting of spreadsheet
2. Careless naming of spreadsheet files
Ex. An energy company over charges, consumes between 200 million to 1 billion.
Reason: Careless naming of spreadsheet files
3. Copy and paste errors in spreadsheet
Ex. A think tank reports that only 11% of a local population had a least bachelors degree but the figure
is 20%.
Reason: A copy paste errors in spreadsheet
4. Erroneous numerical input in a spreadsheet
5. Shifting a spreadsheet so the wrong numbers appears in the wrong columns.
6. Incorrect references in a spreadsheet formula.
Why errors so common?
a. Traditional computer programming is carried out largely by trained professionals.
b. It uses elaborate and formalized development methods.
c. Very few corporations employ even the most basic design and inspection procedures.
Challenges for spreadsheet users:
a. End users are over confident about the quality of their spreadsheets.
b. Development process is insufficient.
c. Most productive methods for generating insights not employed.
End users’ insufficiencies
1. Lack of planning causes extensive works.
2. No prototyping.
3. Users rarely seeks review.
4. Do not use excels event the advance users.
Basic Knowledge for Spreadsheet Modeling
1. Basic Algebra Ex. Quadratic Exponent, Logarithmic Functions
2. Simple Logic Ex. Statement functions.
3. Basic probability with excel Ex. Entering and formatting text using functions.