Spreadsheet Modeling and Decision Making

BAN230
Chapter 1
Introduction to Modeling and Decision
Analysis

Yi-Chin Lin
YiChin.Lin@hofstra.edu
Outline
• Class Logistics
• Introduction to Spreadsheets Modeling and Decision Making
• Excel Basics
Class Communication
• Hours
• Office hours: Tuesdays 1-4pm via Zoom
• Lectures: Thursdays 6:30-8:20pm via Zoom
• Zoom link for all meetings:
https://hofstra.zoom.us/j/8458754967?pwd=Wmc2MGhDQW1LR0s4YlpMMHhJVElvZz09
• Contact
• Phone: (516) 463-4269
• E-mail: YiChin.Lin@hofstra.edu
• Class material and course update
• Blackboard
• E-mail
• Include the course code and section (BAN230) in your subject
Zoom Link for All Meetings
• https://hofstra.zoom.us/j/84587
54967?pwd=Wmc2MGhDQW1L
R0s4YlpMMHhJVElvZz09
• Meeting ID: 845 875 4967
• Passcode: 8847
• One tap mobile
• +16465588656,,8458754967#,,,,*8
847# US (New York)
• +13126266799,,8458754967#,,,,*8
847# US (Chicago)
• Dial by your location
• +1 646 558 8656 US (New York)
• +1 312 626 6799 US (Chicago)
• +1 301 715 8592 US (Washington DC)
• +1 253 215 8782 US (Tacoma)
• +1 346 248 7799 US (Houston)
• +1 669 900 6833 US (San Jose)
• Meeting ID: 845 875 4967
• Passcode: 8847
• Find your local number:
https://hofstra.zoom.us/u/acp1dYsJZE
Blackboard
• Announcements • Course Documents
• Syllabus • Slides
• Solutions to class examples
• Faculty Information
• Assignments
• Problems
• Solutions
Required Textbook
• Cliff T. Ragsdale, Spreadsheet Modeling and Decision Analysis, A
Practical Introduction to Business Analytics, 8th ed.
• Cengage Learning, 2018, ISBN 978-1-305-94741-2
Students’ Participation
• Assignments (30%)
• Critical to the effectiveness of your
learning
• 6 individual assignments
• Submit to Blackboard
• Due @ 11:59pm on designated
dates
• Late but completed assignments
will not be graded and will only
receive 50% of the full credit
• Midterm exam (30%)
• March 25
• Final exam (30%)
• May 20 (6:15-8:15pm)
• Class participation (10%)
• This is evaluated by the frequency
of your meaningful participation in
class discussions
Grade Scale
A 94.0 – 100 C 72.0 – 75.9
A- 90.0 – 93.9 C- 68.0 – 71.9
B+ 87.0 – 89.9 D+ 64.0 – 67.9
B 84.0 – 86.9 D 60.0 – 63.9
B- 80.0 – 83.9 F Below 60.0
C+ 76.0 – 79.9
Required Software: Excel Add-Ins
• Solver
• Free add-in to all Excel users
• Analytic Solver Platform
• Use the code to download a 15-day free trial. Before it is expired, you can
purchase a 140-day version at $25
• We won’t use it until April 22, so the code and installation instruction will be
announced one week before then. Do not install the software now
• Can only be installed on a personally owned Windows computer
Required Computers
• It is highly recommended that you use a PC (or laptop) with Windows
Operating System
• For MAC-users
• After you receive the codes for this course, you can register and use the
cloud-based solution at www.AnalyticSolver.com/student
Course Covid-19 Plans
• All lectures will be recorded using Zoom and posted on Blackboard
• Students can join the classes synchronously (via Zoom) or
asynchronously (watching Zoom recordings)
• Per the Provost’s suggestion, we will start class 5 minutes later than
official class time and end 5 minutes earlier
Outline
• Class Logistics
• Introduction to Spreadsheets Modeling and Decision Making (Chapter
1 in our textbook)
• Excel Basics
The Modeling Approach to Decision Making
Decision: Mental model Visual model

• How to arrange the

furniture in your new
apartment?
Modeling approaches:
• Mental model Physical model (scale model) Mathematical model
• Visual model
• Scale model
• Mathematical model
Characteristics and Benefits of Modeling
• Although a model is often a simplified representation of reality, the
model is useful as long as it is valid
• A valid model is one that accurately represents the relevant characteristics of
the object or decision problem being studied
• It is often less expensive to analyze decision problems using a model
• Models often deliver needed information on a timelier basis
• Models allow us to gain insight and understanding about the object or
decision problem under investigation
The Modeling Approach to Decision Making
Decision: Mental model Visual model

• How to arrange the

furniture in your new
apartment?
Modeling approaches:
• Mental model Physical model (scale model) Mathematical model
• Visual model
• Scale model
• Mathematical model
Categories of Mathematical Models
• Predictive models (e.g., regressions)
• Predict Y when Xs take on specific values
• e.g., given consumers’ age, gender, and income, what their monthly expenditure
will be
• Prescriptive models (e.g., optimization)
• Determine the values of Xs that produce the best possible value for Y
• e.g., given the expected return and risk, what the best investment portfolio will be
• Descriptive models (e.g., simulation)
• Describe the outcome or behavior of a given operation system
• e.g., given the expected return and risk, what the chance of losing money will be
Mathematical Models vs. Spreadsheet
Models
Mathematical Relationships Spreadsheet Models
Profit = Revenue – Expense Independent variables = input cells
Profit = f(Revenue, Expense) Dependent variables = output cells

Dependent Independent
variable variables

Y = f( X1, X2)
Y = f(X1, X2,… , Xk)
Spreadsheet Modeling and Decision Making

Mathematical Spreadsheet Decision Business

Models Models Makers Decisions
Good Decisions vs. Good Outcomes
• Good decisions do not always result in good outcomes
• Good decision: you decided to leave your home without an umbrella according to the
weather forecast
• Bad outcome: you got soaked in an unexpected afternoon thundershower
Outcome Quality
Good Bad
Decision Good Deserved Success Bad Luck
Quality Bad Dumb Luck Poetic Justice*
* Poetic Justice – is when someone who deserves to be punished.

• Although cannot guarantee good outcomes, consistent use of modeling techniques

for making good decisions should produce good outcomes more frequently
Application: Yield Management
• Competitive market faced by American Airline (AA)
• How to compete with new cheap airlines that entered the market
• Linear programming (Optimization)
• Was used to propose how many seats to sell at a discounted price and how
many to hold for full fare
• Implementation result
• AA made $1 billion extra annually
• The model is commonly utilized such as by airlines, hotels, and rental car
companies
Application: Patient Scheduling
• Long waiting time experienced by patients in outpatient clinics
• Bad appointment scheduling policy (controllable)
• Unpredictable patient arrival (uncertainty)
• Unpredictable ways of care delivery (uncertainty)
• Simulation
• Was used to find the best scheduling policy (how long of an appointment
should be scheduled at different time in a day)
• Estimated result
• Patient waiting time can be reduced by 18%
Application: Boarding Strategies
• Prolonged boarding process at America West (now US Airways)
• Passengers: unsatisfied
• Airlines: increased cost
• Linear Programing (Optimization)
• Was used to find out that an outside-in (OI) strategy should be implemented
before implementing the back-to-front (BF) strategy
• Simulation
• Was used to depict the randomness of human behavior and verify the ILP model
• Implementation result
• Boarding time reduced by 39%
M.H.L. van den Briel, J.R. Villalobos, G.L. Hogg, T. Lindemann, and A. Mule. 2005. America West Develops Efficient Boarding Strategies.
Interfaces, Vol. 35, No. 3, pp. 191-201
Outline
• Class Logistics
• Introduction to Spreadsheets Modeling and Decision Making
• Excel Basics
• I assume that you are all familiar with the following basic Excel skills. If you
are not, please spend time to practice before our next lecture
Functions
• Function syntax
• FUNCTION(argument1, argument2,…)
• Example
• Average(3, 5, 7)
• Entering functions from
• Formula bar
• Insert function dialog box
• Nested functions
• Any of the arguments of a function is a function
• Example
• FUNCTION(argument1, FUNCTION(argument1, argument2,…),…)
• Average(3, MAX(3, 5), 7)
Cell Reference (Very Important!)
• Relative reference
• When a formula includes a relative cell reference, Excel interprets that cell reference as being located
relative to the position of the current cell
• Example: A5=A1; when the formula in A5 is copied to A6, the reference in A6 becomes A2
• Absolute reference
• When a formula includes an absolute cell reference, Excel will always refer to the same cell regardless of
the location of the current cell
• Example: A5=$A$1; when the formula in A5 is copied to A6, the reference in A6 remains A1
• Mixed reference
• Contains both relative and absolute references
• “Locks” one part of the cell reference while the other part can change
• Example
• A5=$A1; when the formula in A5 is copied to A6, the reference in A6 becomes A2
• A5=A$1; when the formula in A5 is copied to A6, the reference in A6 remains A1
• Use F4 to switch among different types of cell references
New Perspectives: Microsoft Excel 2013, Brief, Parsons, Oja, Ageloff, Carey, and DesJardins, Cengage Learning
Exercise
Given Output

Write ONE
formula in
B2 and use
AutoFill to fill
the rest of
the cells