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?