Partial Budgets and Decision Analysis Flashcards

1
Q

Types of costs

A

-fixed costs
-variable costs
-opportunity costs

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

Fixed costs

A

-paid regardless of which choice is taken (eg. electric bill)
-with a short time horizon these can usually be ignored

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

Variable costs

A

-vary depending on which action is taken

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

Opportunity costs

A

-costs incurred by not making some other choice
*usually assume that we borrow needed funds

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

Partial budgets and benefit cost analysis

A

-An attempt to forecast financial events that follow a management decision
>only use variable costs
>areas irrelevant to decision ignored
>compare two or more options
>current program is baseline

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

Partial budget calculation

A

-calculate the total changes in revenues and the total change in expenses

Net revenue change- net expanse change= net profit

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

Beef herd partial budget example

A

One preg cow abort to IBR. One more cow will abort if herd is not vaccinated and if vaccinated the herd will suffer no more abortions

Cows that abort are culled= $600/cow ; replace= $1000, Cull- $400

Herd=100 cows, vaccine cost=0.50$ and takes 1 hr

**Costs of two interventions only mean something when compared together.
eg. Led to $510 benefit to vaccinate.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

Decision analysis

A

A systemic method evaluating:
-future events
-consequences of actions
-likelihood of upcoming occurrences
-value of various endpoints

**money not major part; major focus is probabilities and logic

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

Advantages of decision analysis

A

-explicit- forces you to formulate problem by its components
-quantitative- forces us to make precise statements about probabilities, costs, revenues
-prescriptive- helps us to choose a course of action
-what if game!- sensitivity analysis (change one factor and see if decision changes)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

Disadvantages of decision analysis

A

-simple view of complex biological systems
-decision analysis is an approx of reality
-forecasting is difficult
-can never create complete model of all aspects of a problem
-risk not considered
-best used for commonplace decisions that are made over and over

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

steps of decision analysis

A
  1. ID the problem and choices
    2.Structure the decision problem
  2. Characterize the information needed
  3. Choose a preferred course of action
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

Decision Tree

A

-A graphic arrangement of the flow of events
>branches from left to right
>prob of each outcome considered
>starts with a decision node

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

Decision/choice nodes

A

-indicates a clinical event over which the decision maker has control

-each node leads to one of three options:
1.another decision node
2.a chance node
3. A terminal branch or outcome

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

Exhaustive vs. exclusive decision nodes

A

Exhaustive: must include all possible choices to be considered

Exclusive: only one choice is possible at node

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

Chance nodes

A

The uncertain points in a decision tree
>probabilities are assigned to each branch
>probabilities of each branch add to 1

-can lead to decision node, chance node, or terminal branch

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

Path

A

Represents a stream of events over time
>bounded by a decision node and by a final outcome event; in between can have number of decision nodes and chance nodes

17
Q

Terminal branches

A

-Far right of decision tree
-each has a outcome specific to that chain of events in that branch
-outcome value is assigned to each terminal branch

18
Q

Outcome values

A

Various endpoints must be differentiated to be of use
-usually done by assigning cash value, or utilities

19
Q

Calculation of expected value

A

Expected value= value of branch X probability it occurs

**expected value at the node= sum of expected values of all branches at the node. Only get this from working all the way backwards

20
Q

Maximum profit

A

The best decision is the branch with the highest expected value