Business Modelling

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Business Modelling for Decision Making
Version 1.0

Flexible Learning
Helping you bring Learning to Life

Published by The University of Sunderland The publisher endeavours to ensure that all its materials are free from bias or discrimination on grounds of religious or political belief, gender, race or physical ability. These course materials are produced from paper derived from sustainable forests where the replacement rate exceeds consumption. The copying, storage in any retrieval system, transmission, reproduction in any form or resale of the course materials or any part thereof without the prior written permission of the University of Sunderland is an infringement of copyright and will result in legal proceedings. © University of Sunderland 2008 Every effort has been made to trace all copyright owners of material used in this module but if any have been inadvertently overlooked, the University of Sunderland will be please to make the necessary arrangement at the first opportunity. These materials have been produced by the University of Sunderland Business School in conjunction with Resource Development International.

Business Modelling for Decision Making

Contents
How to use this workbook Unit 1 Decision Tree Analysis
Introduction Basic probability Decision trees Summary Appendix 1 1 5 24 25

Unit 2 Discrete Simulation
Introduction The Simulation Process Summary Appendix – Pivot Tables 29 29 63 64

Unit 3 Linear Programming
Introduction Worked Example Summary 65 72 86

Unit 4 Optimisation
Introduction Linear Equations Non Linear Equations Summary 89 89 91 130

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Unit 5 Basic Forecasting Techniques
Introduction Summary 131 155

Unit 6 Inventory Control
Introduction Types of Stock Just-in-time (JIT) 157 157 181

Unit 7 Sampling Theory and Statistical Inference
Introduction Hypothesis Testing Two Tailed Tests Hypothesis Tests of the Population Proportion (p) Confidence Intervals Chi Squared Test Summary 193 193 201 207 214 225 232

Unit 8 Statistical Process Control and Financial Mathematics Introduction Deming’s 14 Points Process Capability Financial Maths Summary 233 233 241 246 270

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How to use this workbook
This workbook has been designed to provide you with the course material necessary to complete Business Modelling for Decision Making by distance learning. At various stages throughout the module you will encounter icons as outlined below which indicate what you are required to do to help you learn. This Activity icon refers to an activity where you are required to undertake a specific task. These could include reading, questioning, writing, research, analysing, evaluating, etc.

This Activity Feedback icon is used to provide you with the information required to confirm and reinforce the learning outcomes of the activity.

This icon shows where the Virtual Campus could be useful as a medium for discussion on the relevant topic.

It is important that you utilise these icons as together they will provide you with the underpinning knowledge required to understand concepts and theories and apply them to the business and management environment. Try to use your own background knowledge when completing the activities and draw the best ideas and solutions you can from your work experience. If possible, discuss your ideas with other students or your colleagues; this will make learning much more stimulating. Remember, if in doubt, or you need answers to any questions about this workbook or how to study, ask your tutor.

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Unit 1

Decision Tree Analysis
Introduction
Managing any business involves making decisions on a wide range of matters on a daily basis. Some of these decisions may be trivial or they may require little more than simple common sense to make. The solutions may be obvious. However, others will involve large sums of money and have a considerable risk element attached to them....
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