Session-1:

Vivek Gupta,IT & Systems Group, IIM Lucknow

ph: 0522-6696610; 98391 30688

Email(s): vivekg.itc@gmail.com

vivekg@iiml.ac.in

Introduction to Problem Solving and Decision Making:

Concepts and Steps

An Exercise…A new community water tank is being planned for a village. Given the following:• An open-top, rectangular concrete tank to

hold 30 cubic meters (cbm) of water• Given the site constraints, the tank width will

be 2 meters• Building the tank costs

– $10 per square meter (sqm) for the base, and – $5 per square meter (sqm) for the sides

Course Objective(s)Emphasizes

• problem-solving, critical thinking, and analysis

to challenge students to find • efficient and effective solutions

to business situations using Excel

An opportunity to apply the skills that students learnImbibes students with skills to manage the inevitable "what if" scenarios that occur in business situationsSeveral business case problems (such as accounting, finance, marketing, and operations management) provide additional practice in a real-world context

Excel usage in other coursesProblem AreasCreating proforma income statements and balance sheet models

Accounting

Developing valuation and portfolio optimisation models

Finance

Analysing pricing issues, estimating customer lifetime or summarising market research survey

Marketing

Developing an aggregate planning model or analysing sales data to inventory strategy

Operations Management

Analysing employee performance or appraisal

HRM

……

Be able to automate Excel to maintain, organize, retrieve related data

Be able to use Excel to display, analyze, and manipulate numeric data to support decision making in business

Develop Appreciation of Excel Capabilities to solve Business Problems

Takeaway(s)

Introduction to Problem Solving and Decision Making:

Concepts and Steps

In any Problem-Solving Challenge, the Decision-maker must Balance…The usefulness of the solution • e.g., the power and credibility of insight,

with

The tractability of the approach • i.e., the analysis must be completed

within time and resource constraints

Modeling is the art of structuring and analyzing a decision problem within the given constraintsIts vitally important for Managers to arrive at compelling insights and recommendations that help build organizational commitment to action

The Fast Pace of Change Demands that Leaders make Quality Decisions despite a high degree of UncertaintyWell-constructed models facilitate these decisions by • capturing and clearly illustrating the

impact of the most critical factors, and• facilitating high-quality discussion

focused on the most important risks and tradeoffs

Improving Problem-solving Skills through Modeling Experience will Improve your Ability to Lead…An organization through a wide variety of decision-making challenges• from rapid-fire problems requiring ‘quick

and dirty’ analysis to • strategic conundrums requiring

extensive risk vs. return investigation

General Model of a Problem-Solving Approach

Recognize and identify the problem

Describe and analyze the problem

Analyzing the Problem

Analyzing the ProblemData gathering

• Consider credibility, reliability, and accuracy

Pre-processing• Manipulate data into

appropriate format

Cleansing• Identify and correct data

corruption

Filtering• Remove data that isn’t

useful or necessary

Problem StatementSome missing piece of

information is identified that is required to solve the

problem or make a decision

Analyzing the Solution

Understanding the ProblemWhat data is needed and what data or information is already known?

Is the data or information reliable and accurate?

What is the likely range of potential solutions?

What types of output are required? (e.g., single value, table, printed report, Web page)

Formulating a Solution PlanPlan how to use Excel by considering the steps you need to take to solve the problem• Numerical calculation• Determining if data meet

specific criteria• Organizing information or

results in a specific format• Combining several of

these steps

Place data in well-organized,easy to understand layouts

Implementing the SolutionInput data

Process data• Depends on the

problem and the proposed solution

Configure desired output

Implementing the Solution:What a Manager Must Know

Spreadsheets• How to correctly write formulas and functions and

use spreadsheet tools

Databases• What kind of information is stored in the database

and how it is organized

Business documents and presentations• How to organize and articulate the information so

that it meets the needs of your audience And …

Evaluating the SolutionCheck the results to ensure they are correct

Three Squirrels and a Pile of NutsThree squirrels gather a pile of nuts, and decide to

store the pile outside their house overnight.

Exactly the same thing happens to the second squirrel, who wakes up, eats one of the nuts, steals exactly one-third of the pile that's left, and goes back to bed.

Then precisely the same thing happens to the third squirrel: She eats one nut, hides away one-third of the pile, and goes back to bed.

In the morning, the three squirrels awake and apportion the pile. It divides exactly by three.

During the night, however, one of the squirrels wakes up hungry and decides to steal one-third of the pile (I'm only taking my fair share," he tells himself). But he has to eat one of the nuts in order to be able to take exactly one-third. He leaves two-thirds of the nuts behind and goes back to bed.

How many nuts were in the original pile?

Three Squirrels and a Pile of Nuts

Decision Making: Essence to Problem Solving

Simon Identify and define potential problems or opportunitiesInvestigate resource and environmental conatraints

Develop alternate solutions and evaluate their feasibility

Intelligence

Design

Choice

DecisionMaking

Huber

Intelligence

Design

Choice

Implementation

Monitoring

DecisionMaking

ProblemSolving

3 Types of DecisionsStructured• Involve

situations where the procedures to be followed can be specified in advance

– operational

Semistructured• Some decision

procedures can be specified in advance, but not enough to lead to a definite recommended decision

– tactical

Unstructured• Involve

situations where it is not possible to specify most of the decision procedures in advance

– strategic

Programmed vs. Non ProgrammedMade using a rule, procedure, or quantitative method• easy to computerize

Deal with unusual or exceptional situations• difficult to quantify• Rules/ relationships

are not well defined.

• inventory should be ordered when inventory levels drop to 100 units

» determining the appropriate training program for a new employee,

» deciding whether to start a new type of product line

What is Business Analytics?Analytics• “the extensive use of data, statistical and

quantitative analysis, explanatory and predictive models, and fact-based management to drive decisions and actions”

Business Intelligence (BI):• “a set of technologies and processes that

use data to understand and analyze business performance ”– includes both data access and reporting, and

analytics”

–(Davenport and Harris, Competing on Analytics, 2007)

We can achieve BA by Decision Support Systems

Data Warehousing

Data Mining

Knowledge Management Systems

30

Characteristics of a DSSProvides• rapid access to information• report and presentation flexibility

Handles• large amounts of data from different sources

Supports• drill-down analysis

Performs• complex, sophisticated analysis and comparisons

using advanced software packages

Supports• optimization, satisficing, and heuristic approaches

Using Decision Support Systems is an Interactive Modeling ProcessFour types of analytical modeling• What-if analysis• Sensitivity analysis• Goal-seeking analysis• Optimization analysis

What-If AnalysisEnd user makes changes to variables, or

relationships among variables, and

observes the resulting changes in the values of other variables

Sensitivity Analysis A special case of what-if analysis

The value of only one variable is changed repeatedly, and the resulting changes on other variables are observed• Typically used when there is uncertainty

about the assumptions made in estimating the value of certain key variables

Goal-Seeking AnalysisInstead of observing how changes in a variable affect other variables, goal-seeking sets a target value (a goal) for a variable, then repeatedly changes other variables until the target value is achieved

Optimization AnalysisA more complex extension of goal-seeking

The goal is to find the optimum value for one or more target variables, given certain constraints

Understanding Spreadsheet Terminology

Cell: intersection of each row and columnHas a unique name (e.g., A1)

Can contain:• Number• Text• Formula, which is a math equation (=B1+B2)

– Always begin with an = sign, and can include math operators (such as + or -), references to cells, and numbers

• Function, which is a named equation that shortcuts an otherwise complex operation– e.g., the AVERAGE function

Ribbon:• multi-tabbed toolbar system

containing buttons and other controls for issuing commands

Microsoft Office Button:• Opens the only real "menu" in

Excel 2007 -- the Office menu --which contains commands for saving, opening, and printing files.

Tabs: • Two meanings for this word. A tab

is an individual page of the Ribbon; however, it's also the word you click to display that page.

Quick Access Toolbar: • A highly customizable portion of

the interface; place shortcuts to your favorite buttons and commands here.

Insert Function button: • You can click this button to get

help creating functions.Formula bar:

• This is where the contents of a cell appear and where you can type or edit those contents.

Column headers:• Each column's letter is a header

for that column. You can click the column letter to select the entire column.

Microsoft Office Excel Help button:• Opens the Excel Help system

Scroll bars: • Use these to scroll within the

active worksheet.Zoom controls:

• Control the magnification at which you view the active worksheet.

Insert Worksheet tab: • Click this tab to insert another

worksheet.Worksheet tabs:

• Click one of these tabs to switch between worksheets.

Row headers: • Each row's number is a header

for that row. You can click the row number to select the entire row

The Ribbon replaces the menu system

Each Ribbon tab has named sections, called groups.• e.g., Home tab contains groups including Clipboard, Font,

Alignment, Number, Styles, Cells, and Editing.

Some of the groups have icons in their lower-right corners. These are dialog box launchers.

• They open dialog boxes containing more options for the settings in that group than the Ribbon provides.

The End

Or

The Beginning…