Decision Models Using Excel, Term Paper Example

Introduction

Many businesses measure their success by how well they accomplished their product or services.  Deficiencies in these operations based on client feedback.  As the business world, increasing complexity and becomes a more globalized environment.  More companies are turning to the assistance of business models.

The business model will help define how the business will create value for the client; particularly the return on investment for stakeholders and shareholders.  In addition it can also help the manager or executive with defining the competitive advantage.  And as such, the distinction between the rivals.  Examples of the business models have included such firms as:

• Dell Computing – Developed a Direct Business Model “on the premise that the most efficient path to the consumer is through a direct relationship, with no intermediaries to add complexity and cost” (Directory, 2007);
• Procter and Gamble – Developed a connect and develop model. Aimed towards enhancing existing networks of scientists for innovation in product development
• E-Bay – Developed an online auctioning business model that brought together both buyers and sellers in an online environment over the internet.

This can be an expensive proposition for the bigger organizations as they need to bring together business experts ( human resources), complete the required business research ( more human resources) and devote the time to both developing and running the business models on computer systems.  For the smaller to medium business such decision making tools have become much more readily accessible using spreadsheet applications like that of Microsoft Excel and IBM’s Lotus products.  For this paper we explore the development of decision making software techniques using the Microsoft Excel Spreadsheet and the software application Precision Tree[1] V5.5.1. An interface application to Excel.

The software approach

The software application under review has 100% compatibility with the spreadsheet application from Microsoft called Excel. It provides a seamless integration whereby all of the calculations are performed in the Excel environment.  The precision tree software.  Performs data analysis in Excel with a view towards graphical representation of decision trees and influence diagrams.  It is the capability of performing complex and multilayered decisions within a spreadsheet environment.  It visually guides you to identify possible alternatives and select the most logical decision.  Decision trees or a structured application that enables decisions and events to be changing sequence, from left to right, be connected by those branches.  Figure 1 provides a typical illustration. The end result “depicts the root on the left and various pay-offs on the right” (Pallisade, 2010).  As such you can determine the pay off and track the possibility path through the tree structure.

Applications of software

The decision tree software has been used on a variety of business applications and an example of the use is as follows:-

• Defence Sector – War and Engagement Modelling
• Government – Budget Planning and Capital Projects
• Oil & Gas – Exploration and Production
• Pharmacy/Health – Medical diagnosis,  Vaccination and treatment planning,
  New product analysis

Using precision tree

Within precision tree you have the capability to add functions to any cell within the spreadsheet. This enables you to add cell references and expressions, as such providing a great amount of flexibility in the modelling process. You can complete a number of different models and these are examined further below:

Cumulative risk profile graph

Fig 2 illustrates the approach to this. Here the Excel tables enable you to translate the data into a series of sensitivity models. This is achieved by modelling the values of the variables and then recording the changes of the values to the decision tree. You can then extrapolate different views that include such items as: “sensitivity, Tornado, Spider and Strategy Region graphs” (Pallisade, 2010).

2 way sensitivity graph

Essentially a reduced or scaled down version of the decision tree that optimizes the decisions in the model. This approach includes a ‘policy decision Table’ where each decision within the model shows the probability for arriving at that decision. Fig 3 illustrates reproduction of the graph from the Excel Tables.

Policy suggestion report

This is the optimized decision making model from the Policy Decision Table. It illustrates how you have arrived at your decision and the benefits derived from making the correct choice.

Strategy region graph

These are used to display “ the expected variables for each decision over the range of variables” (Pallisade, 2010).

Benefits obtained

The benefits of modelling decision support systems are that it enables  you to analyse and interrogate a range of data in a logical, structured and systematic manner.  This provides a more scientific base for decision making and enables you to study a range of alternatives, looking at the pro’s and con’s before reaching a decision on the most viable option to address the problem statement.  This may be expressed in terms of a simple SWOT Analysis ( Strengths, Weaknesses, Opportunities and Threats).

Conclusions

Decision Models offer numerous business benefits. Amongst these are the ability to help and predict differing market situations and problem analysis. The graphical representations enable a clearer understanding of what the data represents over time. The results also have strategic importance in helping you to visualise how you are approaching and achieving your business goals. The resulting influence diagrams are useful in order to show relationships between different events. The graphical capability of Excel/Precision Tree  enables different views and modeling of the same subset of data.

The future of decision making tools is for the technology to move in the direction of Artificial Intelligence and that of Expert Systems.  We are likely to see a lot more use of simulation systems and in addition to analysing decisions see simulations showing cause and effect of making or implementing the decision.  This being business scenario based.  This being particularly useful when looking at marketing strategy decisions and taking competitive advantage. In addition, looking at decisions that impact mergers and acquisitions, hence seeing what the impact might be from different decision scenarios and fine tuning this for the most appropriate strategic move.  The Medical profession particularly will become more reliant upon these type of systems “The trend for the future shows increased dependence on clinical decision support systems by physicians.  Constant contact with such systems will ensure that the most optimal level of care is provided utilizing both physician judgment and technological innovativeness” (Farukhi, 2010).

Works Cited

Directory. (2007). The importance of business models. Retrieved 8 20, 2010, from Directory: http://articles.directorym.com/Importance_of_Business_Models-a1132082.html

Farukhi, F. (2010). Clinical decision support systems. Retrieved 8 20, 2010, from clinical decision support systems: http://www.cwru.edu/med/epidbio/mphp439/Clinical_Decision.htm

Pallisade. (2010). Precision Tree. Retrieved 8 20, 2010, from Pallisade: http://www.palisade.com/precisiontree/

[1] Precision Tree Software® Ithaca, NY Decision Making software for Microsoft Excel