3. Steps before the Solution
Analyse the past data
How much should you order
News Vendor Problem
Time’s Magazine Aprroach
Broader application to the problem
4. Forecasting
What is Forecasting?
Characteristics of Forecasts
Probablity Distributions in Forecasting
Model for future Demand
5. Making Best decisions with low
uncertainity
A resource allocation Example
Converting a verbal problem application into an algebraic model
Algebraic model to spreadsheet implementation
Matching demand and supply across space
6. Decision Variables
What are decision variables?
Optimizing Production
Build an Objective Function
Working around constraints
How to Identify Key Performance Indicators
7. Risk and Evaluation of Alternatives
Making Decisions in Low-Uncertainty vs. High-Uncertainty Settings
Connecting Random Inputs and Random Outputs
Modeling Random Variables using Scenarios
8. Decision Trees
What is a decision tree
Structure of a decision tree
Understanding a decision tree
9. Approach to Evaluate Options using
Decision Trees
“Maxi-min” strategy
Choose the actions that maximize the minimum outcome
Avoids bad outcomes…and…ignores the possibility of good outcomes
“Risk averse” strategy
“Maxi-max” strategy
Choose the actions that maximize the maximum outcome
Seeks good outcomes...and…ignores the possibility of bad outcomes
“Risk seeking” strategy
Maximize the expected value of the outcomes
Gives equal weight to good and bad outcomes
“Risk neutral” strategy
10. Decision Trees in Practice
IDEA is a small example designed to convey the essential ideas
In practice, decision trees are used to evaluate a wide range of complex
problems. You can find examples in articles published in Interfaces m R&D
licensing
Credit Scoring ,Polio Eradication
There exists software to help manage and analyze large decision trees m
core-feature, single user, products: e.g., Tree Plan (free trial) massive-
feature, enterprise-use products: Decision Tools, Logical Decisions