Question

Summarize the important knowledge that you need to successfully build good decision models.

Answer 1

Business decision making is almost always accompanied by conditions of uncertainty , the more information the decision making has ,the better decision making will be .

if you incorporate the following metrics into your decision framework you will minimize chances of making a bad decision

* perform a situation analysis

* Benefit /conduct a cost analysis

*assess the risk/Reward ratio

* make the decision

for Example we wish to create a model to compute the profit associated with production and sale of a product : the business principle is ;

profit = Revenue - cost

Revenue = unit price * Quality sold

cost = fixed cost + [unit cost * Quantity produced]

Quantity sold = min (Quantity produced , Demand)

therefore ,

profit = (unit price )[min(Quantity produced , Demand )] - [fixed cost + (unit cost) *(Quantity produced)]