Modeling involves creating a simplified representation of reality to understand a business problem. It provides timely information, saves costs compared to alternatives like surveys, and improves business intuition. The document outlines a 6-step process for modeling problems: 1) exploring the problem, 2) searching for information, 3) identifying the problem, 4) searching for solutions, 5) evaluating solutions, and 6) implementing a solution. Each step aims to answer key questions to further define and solve the problem.

2.  Creating a simplified version of reality
 Working with this simplified version to understand some
part of a business problem
• Benefits of Modeling:
 Provides timely information
 Saves costs
o Relative to alternatives (e.g., surveys)
o By avoiding expensive errors
 Results in improved business intuition

3. Real World Problem Modeling Problem
Problem Formulation Assumptions and
Statement Model Structures
Analysis
Solution Results and
Interpretation Conclusions

4. • Exploring the Mess Questions Answered:
1 o What problems or opportunities are
being faced?
• Searching for Information o Where does a gap exist between the
2 current situation and the desired one?
o What are the stated and unstated
• Identifying a Problem goals?
3
Result:
• Searching for Solutions o A description of the situation
4
o Identified (not gathered) key facts and
data
• Evaluating Solutions
5
• Implementing a Solution
6

5. • Exploring the Mess
1
• Searching for Information Questions Answered:
2 o What are the symptoms and causes?
o What measures of effectiveness seem
• Identifying a Problem appropriate?
3 o What actions are available?
• Searching for Solutions Result:
4
o Found and organized relevant data
o Made initial hypotheses about
• Evaluating Solutions problem causes and solutions
5
• Implementing a Solution
6

6. • Exploring the Mess
1
• Searching for Information
2
• Identifying a Problem Questions Answered:
3 o Which is the most important
problem?
• Searching for Solutions o Is this problem like others we have
4 dealt with?
o What are the consequences of a broad
• Evaluating Solutions versus narrow problem statement?
5
Result:
• Implementing a Solution o Working problem statement
6

7. • Exploring the Mess
1
• Searching for Information
2
• Identifying a Problem
3
• Searching for Solutions Questions Answered:
4 o What decisions are open to us?
o What solutions have been tried in
• Evaluating Solutions similar situations?
5 o How are the various candidate
solutions linked to outcomes of
• Implementing a Solution interest?
6
Result:
o List of potential solutions

8. • Exploring the Mess
1
• Searching for Information
2
• Identifying a Problem
3
• Searching for Solutions Questions Answered:
4 o How does this solution impact each of
the criteria?
• Evaluating Solutions o What factors within our control could
5 improve the outcomes?
o What factors outside our control could
• Implementing a Solution alter the outcomes?
6
Result:
o Recommended course of action

9. • Exploring the Mess
1
• Searching for Information
2
• Identifying a Problem
3
• Searching for Solutions Questions Answered:
4 o What are the barriers to successful
implementation?
• Evaluating Solutions o Where will there be support and
5 motivation, or resistance and conflict?
o Are the resources available for
• Implementing a Solution successful implementation?
6
Result:
o Implementation Plan

10.  Useful tool during the initial conceptual stage of
model building
 Depicts the relationship between the various input
variable available and the outcome which is being
found through the model
 Helps in taking an early decision on what
parameters to include or exclude

11. Start with the outcome measure
Decompose it into set of mutually exhaustive and
independent variables
Repeat the process of decomposition for each variable
Identify input data as it arises

12. Determine the price a company should set for its
product so as to generate the highest possible profit
Price
Total
Quantity Revenue
Sold
Variable Profit
Cost
Unit
Cost Total Cost
Fixed
Cost