business analysis- spreadsheet modelling

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DSC 3120 1 Slides 2b: How to create an Influence Diagram: start with a performance measure variable. Further decompose each of the intermediate variables into more related intermediate variables. Decompose this variable into two or more intermediate vari able s that combine ma thema tica lly to defi ne t he value of the performance measure. Continue this process until an exogenous varia ble is defined (i.e., until you define an input decision variable or a parameter).

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Page 1: Business Analysis- Spreadsheet Modelling

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Slides 2b: How to create an Influence Diagram:

start with a performance measure variable.

Further decompose each of the intermediate variables

into more related intermediate variables.

Decompose this variable into two or more intermediatevariables that combine mathematically to define thevalue of the performance measure.

Continue this process until an exogenous variable isdefined (i.e., until you define an input decision variableor a parameter).

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TVC

TFC

Unit VC

Revenue

Demand

Price

TotalCost 

Profit 

 Advertising

 An Example Inf luence Diagram

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performancemeasurevariable

ProfitStart here:

Decompose this variable into the intermediate variablesRevenue and Total Cost

Example: Simon Pie

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Profit

Revenue Total Cost

Now, further decompose each of these intermediatevariables into more related intermediate variables ...

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Model Construction

Based on the previous Influence Diagram, create theequations relating the variables to be specified in thespreadsheet.

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Profit

Revenue Total Cost

Profit = Revenue ± Total Cost

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Profit

Revenue

Pie Price

Pies Demanded

Revenue = Pie Price * Pies Demanded

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Fixed Cost

Processing

Cost

Ingredient

Cost

Profit

Total Cost

Total Cost =Processing Cost + Ingredients Cost + Fixed Cost

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Processing Cost =Pies Demanded *Unit Pie Processing Cost

Processing

Cost

Total Cost

Pies Demanded

Unit PieProcessing Cost

Profit

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Ingredients Cost =Qty Filling * Unit Cost Filling +

Qty Dough * Unit Cost Dough

Ingredient

Cost

Profit

Total Cost

Unit CostFilling

Unit CostDough

RequiredIngredientQuantities

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Profit

Revenue Total Cost

Pies Demanded

Pie PriceUnit Pie

Processing Cost Fixed Cost

Processing

Cost

Ingredient

Cost

Unit CostFilling

Unit CostDough

RequiredIngredientQuantities

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Simon·s Initial Model Input Values

Pie Price

Pies Demanded and sold

Unit Pie Processing Cost ($ per pie)

Unit Cost, Fruit Filling ($ per pie)

Unit Cost, Dough ($ per pie)

Fixed Cost ($000¶s per week)

$8.00

16

$2.05

$3.48

$0.30

$12

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To represent this model in an Excel Spreadsheet,you should adhere to the following recommendations:

Present input variables together and label them.

Clearly label the model results.

Give the units of measure where appropriate.

Store parameters in separate cells as data and referto them in formulas by cell references.

Use bold fonts, cell indentations, cell underlines andother Excel formatting options to facilitate

interpretation.

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Initial Simon Pie Weekly ProfitM

odel

(Click on spreadsheet to open Excel)

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´What if?µ ProjectionAllows you to determine what would happen if you usedalternative inputs.

For example, what would the resulting Profit be if theProfit for Pie Price and Pies Demanded changed to$7.00 and 20,000 or $9.00 and 12,000, respectively.

Simply change the values of these parameters in the

spreadsheet to view the resulting Profit.

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What if we change thevalues of two parameters?

What effect will that have

on Total Cost and Profit?