12.1 Learn How to Apply Qualitative Methods To Business Flashcards
Combination of mathematical equations, formulas, models, and statistics with computer programs
Decision Sciences
a measure of dispersion in the data. This measure is the average of the absolute values of all the forecast errors
Mean absolute deviation (MAD)
measures the average distance from each number to the mean. We need to square each deviation and then take the average of all the squared deviations.
Variance
square root of the variance
Standard deviation
Assuming normal distribution, what percent of the data will be within one standard deviation of the mean?
68%, 34 on either side
Assuming normal distribution, what percent of the data will be within two standard deviation of the mean?
95%
Assuming normal distribution, what percent of the data will be within three standard deviation of the mean?
99%
Tells us whether the dispersion is large or small relative to the average. It is computed by dividing the standard deviation by the mean.
coefficient of variation
measures the average of the sum of the squared differences between the actual time series data and the forecasted data
Mean squared error (MSE)
assigns probabilities based on the assumption that experimental outcomes are equally likely.
Classical Method of Assigning Probability
assigns probabilities based on experimentation or historical data.
Relative Frequency Method of Assigning Probability
assigns probabilities based on the judgment of the person assigning the probabilities.
Subjective Method of Assigning Probability
expression that defines the quantity to be maximized or minimized in a linear programming model.
Objective Function
an equation or inequality that rules out certain combinations of decision variables as feasible solutions.
Constraint
Controllable input for a linear programming model.
Decision Variable
a technique for solving multicriteria decision problems by relaxing the assumption of a single objective
Goal Programming
concerned with shipping goods from a variety of origins to a variety of destinations with the goal of minimizing route miles, shipping costs, and delivery delays
Transportation Model
an extension of the transportation model to product distribution problems involving transfer points and possible shipments between any pair of nodes
Transshipment Model
a network flow problem that often involves the assignment of agents to tasks; it can be formulated as a linear program and is a special case of the transportation model.
Assignment Model
Order Quantity that minimizes the total cost (e.g., order costs and holding costs)
economic order quantity (EOQ)
reorder point (RP) Calculation
Reorder Point = Lead-Time × Usage Rate or RP = LT × UR
shows the relationships among decisions, chance events, and
consequences for a decision problem (nodes)
Influence Diagram
shows the financial consequences (payoffs) in terms of the alternative decisions (e.g., manufacture domestic, buy abroad, and buy domestic) that can be made and the alternative states of nature that might result (e.g., low, medium, or high volume).
Payoff Table
a diagram showing the logical progression that occurs over time in terms of decisions and outcomes and is particularly useful in sequential decision problems—where a series of decisions need to be made with each in part depending on earlier decisions and outcomes.
Decision Tree
5 Methods of Decision Making under Certainty
(1) dominance, (2) lexicographic, (3) additive weighing, (4) effectiveness index, and (5) satisficing
Four strategies for making decisions under uncertainty are:
(1) the minimax strategy, (2) the maximax strategy, (3) the Hurwicz strategy, and (4) and the minimax regret strategy
a very conservative, pessimistic strategy that assumes that whatever action we choose, nature is against us and will cause the worst possible outcome (worst payoff). The values of the worst outcomes are the row minima. This strategy calls for choosing the action that gives us the best (largest) of these minima. That is, it chooses the action whose worst possible outcomes are not as bad as the worst possible outcomes of the other actions.
minimax strategy
For a maximization problem, the conservative approach is referred to as the ________, which is maximizing the minimum profits.
maximin criterion
For a minimization problem, the conservative approach is referred to as the _________, which is minimizing the maximum losses.
minimax criterion
an optimistic strategy that assumes that nature will cooperate with us to provide the best possible outcome for the action we choose—the row maxima. This strategy chooses
the action yielding the best of the possible outcomes (best payoff).
maximax strategy
For a maximization problem, the optimistic approach is referred to as the ___________, which is maximizing the maximum profits.
maximax criterion
For a minimization problem, the optimistic approach is referred to as the _________, which is minimizing the minimum losses or maximum profits (not worth pursuing).
minimin criterion
a compromise between the very pessimistic minimax strategy and the very optimistic maximax strategy. A value between 0 and 1 is chosen for the coefficient of optimism, A, keeping in mind that low values of A are an indication of pessimism and high values of A are an indication of optimism. The goal is to find both the row minima and the row maxima and choose the activity
that yields the maximum of the computed quantities.
Hurwicz strategy
minimizing the maximum regret value or opportunity loss. good for situations where the expected values concept fails. (e.g. when averages of values do not make sense because they are very far apart)
minimax regret strategy
Decision making under conflict or competition
Game Theory
When one opponent gains at the loss of the other, involving complete conflict of interest
Zero-Sum Game
the gains of one competitor are not completely at the expense of the other competitors., less-than-complete conflict of Interest
Non-Zero-Sum Game
Prisoner ’s dilemma
a type of business game situation where one firm is concerned about the actions of its rivals; a classic conflict-of-interest situation.
a decision that gives the best result for either party regardless of the action taken by the other.
Dominant Strategy
a decision that guarantees the best possible outcome given the worst possible scenario.
secure strategy (also called the maximum strategy)
a set of decision strategies where no firm can improve its own payoff by unilaterally changing its own strategy
Nash equilibrium
a statistical technique that can be used to develop a mathematical equation showing how variables are related. Causal Forecasting Method
Regression Analysis
useful in studying the evolution of certain systems over repeated trials as it shows the probability of moving from a current state to any future state.
Markov-process analysis
a set of observations measured at successive points in time or over successive periods of time.
seasonalized time-series
a set of observations that has had the effect of season removed. calculated by dividing original time-series data by corresponding seasonal index values. The monthly or quarterly forecast is obtained by multiplying the trend forecast by seasonal index values.
deseasonalized time-series
an evaluation of how certain changes in inputs result in what changes in outputs of a model or system.
Sensitivity ANalysis
Money received today has a different value in the future, and money to be received in the future has a different value today due to
Time Value of Money
the process of determining the future value of present cash flows, which is equal to the beginning principal plus the interest earned.
Compounding
the process of finding the present value of future cash flows, which is the reciprocal of compounding.
Discounting
a cost allocation in the form of an expense for using tangible fixed assets such as plant and equipment
Depreciation
a cost allocation for using tangible natural assets such as coal and iron ore resources.
Depletion
a cost allocation for using intangible assets such as patents and copyrights.
Amortization
establish a quantitative relationship between sales volumes and costs.
Profit Models
a statistical technique to identify groups of entities that have similar characteristics that can be applied to data mining and market research areas.
Cluster Analysis
