Partial Budgets and Decision Analysis Flashcards
Types of costs
-fixed costs
-variable costs
-opportunity costs
Fixed costs
-paid regardless of which choice is taken (eg. electric bill)
-with a short time horizon these can usually be ignored
Variable costs
-vary depending on which action is taken
Opportunity costs
-costs incurred by not making some other choice
*usually assume that we borrow needed funds
Partial budgets and benefit cost analysis
-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
Partial budget calculation
-calculate the total changes in revenues and the total change in expenses
Net revenue change- net expanse change= net profit
Beef herd partial budget example
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.
Decision analysis
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
Advantages of decision analysis
-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)
Disadvantages of decision analysis
-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
steps of decision analysis
- ID the problem and choices
2.Structure the decision problem - Characterize the information needed
- Choose a preferred course of action
Decision Tree
-A graphic arrangement of the flow of events
>branches from left to right
>prob of each outcome considered
>starts with a decision node
Decision/choice nodes
-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
Exhaustive vs. exclusive decision nodes
Exhaustive: must include all possible choices to be considered
Exclusive: only one choice is possible at node
Chance nodes
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