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level. model.

cursory The econometric model will be described first, albeit at only a computer RelativelY more emPhasis will be placed on the explanation of the

2.

THE ECONOMETRIC

MODEL

The structure of the econometric model is based on a method described projected by Perdue (19?9). The model translates macroeconomic forecasts into unit)' income statements for each organizational unit (e.g., division, business lncome statement line items are described by equations expressing the historical and/or relationships between those micro line items (sales, costs) and their macro micro determinants. The coefficients of these equations are determined for each division by regression analYsis. The inputs to the model are as follows: 1. PRICE : price realization index; a &digit wholesale price index - 1.0, assigned by division' (WPI) indexed to 1986 2. MDI : market demand indicator; a weighted sum of the 12 final demand components of GNP (i.e., Consumer Durables, Business are Investment, etc.). The weights, specific to a- &digit sIC industry, They show the dollar input-output matrix. derived from a u.s. output from that induslry directly and indirectly required to support one dollar of each final demand. 3. MCI : material cost index; a weighted sum of wholesale price indexes for the industries supplying the major raw materials used by a given division. 4. CPEDX : index of compensation per employee; division-supplied total : 1'0' compensation divided by employment, indexed to 1986 The line item equations are of the following form: 1 . MARKET :

f(MDI, PRICE)

2 . SALES :

f(MARKET)

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PRICE would decrease both current- and constant-dollar MARKET.

3.

THE COMPUTER

MODEL

A major consideration in the design of the computer model was how to manage the rather large quantity of data. The current model covers Zg organizational units, representing roughly one-quarter of the corporation. In addition, we wanted to design a system that could easily be expanded to encomPass the remaining parts of Westinghouse. To compound the scope of the problem, we wanted to be able to concurrently consider up to four macroeconomic scenarios.

Our solution to the inherent bookkeeping and space problems was to modularize wherever possible. One way we did tbis was to develop two distinctly different types of worksheets. We created "operational" worksheets to house the macros and execute the calculations. These operational worksheets themselves create "data transfer" worksheets in order to pass data from one operational worksheet to another. These worksheets and the relationships between them are diagrammed in Figure 1 and described below. 3.I TIIE INPI]TS

WORI{SHEET

The Inputs worksheet processes macroeconomic data and other inputs. The worksheet allows for three supplied economic scenarios (typically the trend, optimistic, and pessimistic alternatives supplied by Data Resources, Inc.), plus a user-delined scenario. This last scenario is formed by adding user-supplied addfactors to one of the DRI forecasts. The macroeconomic data is used. to calculate MDIs, MCIs, and PRICEs for each division. Compensation and employment for each division are stored in the Inputs worksheet. The worksheet's macros give the user an opportunity to add-factor the

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index of compensation per employee (CPEDX), which is computed from the original inouts.

In operating mode, the macros direct the user to select an economic scenario and to add-factor its variables as desired. A special area towards the bottom of the worksheet is reserved for storing the MDIs and other inputs which are calculated from the selected scenario's variables. Tables and plots are created from named ranges in this area. Also, this entire reserved portion of the worksheet is File'Extracted and stored as a data transfer worksheet. Naming of this worksheet is taken care of by the macros. This input transfer worksheet can be File-Combined in its entirety by any of the Business Unit (BU) worksheets. The user is permitted to have up to four of these input transfer worksheets at a time, one for each economic scenario. 3.2 THE BUSINESS tIIIIT WORKSHEETS

The BU worksheets contain the econometric models for all of the divisions in that business unit. Each division's equations are physically located together, with an area for corresponding add-factors just to the right. (This layout was selected to simplify potential rearrangements due to re-organizations.) The macros in each BU worksheet will Fil*'Combine the input transfer worksheet for a selected scenario and place this information at the bottom of the BU worksheet. The macros then allow the user to add-factor the resulting forecasts of market, sales, and costs for each division. To print a table or plot the forecasts for one division, the macros copy that divisionts data to a cogunon range at the top of the worksheet. This common area has range names defined for ease in printing and plotting.

As for the Inputs worksheet, macros will File-Extract the forecasts for all divisions (and the BU) to be later File'Combined by other worksheets. The user can have up to sixteen of these BU transfer worksheets (four scenarios for each of four BUs).

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6.

REFERENCES

Perdue, R.K. (1979), "Construction of Econometric Planning Models for Business Units," Proceedings of the 1979 *inter Simulation Conference, H.J. Highland, M.G. Spiegel, and R.E. Shannon (Eds.), pp. 409-416.

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