Heredity Determines Personality

Topics: Decision theory, Decision engineering, Decision tree Pages: 12 (3115 words) Published: December 22, 2012
President of the Sun Company is confronted with pricing and investment decisions for the next five years in the umbrella product line. He is concerned with the effect of these decisions on net after taxes and rate of return results.

President knows that by increasing investment in plant and equipments he can obtain a lower unit cost, but is uncertain of the effects on net after taxes and rate of return, because of the increased depreciation costs derived from new investments. He also knows that by increasing price he can obtain a higher margin, but is uncertain of the effects on results, because higher prices will decrease the sales volume. He figures that by manipulating these two variables he can find a combination that maximizes the product line results.

President decided to determine the effects of the sales price on volume, and investments on unit cost in a more precise way. He assigned to his assistant manager the task of identifying these relations. Asst. Manager conducted a field test of price sensitivity by the umbrella customers, discussed the relationship of new machinery to unit prices with the manufacturing management and arrived to the following formulas:

VOLUME = 15,000 - 6,666 * SALES PRICE
UNIT COST = 1.3 - .00009 * INVESTMENT
Asst. Manager also pointed out that to estimate volume a market growth factor should be added to the formula, to account for the growth in the overall target population.

President decided to continue his analysis by trying to figure out the values of net after taxes and rate of return. He discovered that he needed ways to estimate manufacturing overhead and administrative expenses in order to finalize his model. Again Asst. Manager was assigned the task to look for these data. Analyzing the existing historical data Asst. Manager found that, in average, manufacturing overhead and administrative expenses were, respectively, 10% and 4% of net sales.

At this point President started to realize that figuring out by hand the net effect of sales price and investment in the results would be a very time consuming and repetitive task, if he decided to try various price and investment alternatives. He finally ordered Asst. Manager to buy a PC, Excel, and develop a DSS to support the analysis of the problem.

MTIS (Management through Information Systems Approach)

The MTIS approach broadens the traditional definition of management from "obtaining results through people" to "obtaining results through information systems", recognizing that managers, in all functional areas, are facing the challenge of combining people and computers to achieve the best results possible.

The MTIS approach proposes different methodologies for systems development, according to the kind of managerial activity they are meant to support. According to this approach, Decision Support Systems are those that support the "steering activities," that is, all activities that change the existing ways of delivering goods and services in an organization, or that create new ones.

Steering activities can consist in a search for what the problem is, an analysis of possible alternatives to solve the problem, or a combination of both. Those three kinds of steering activities are supported, respectively, by three kinds of DSS: data-oriented (Data Analysis Models), model-oriented (If-Then Models) and both data and model oriented (Complex Models). This paper will exemplify the MTIS approach to the development of If-Then decision support systems. The purpose of If-Then DSS is to support iterative and interactive computation and comparison of alternatives.

In the model oriented steering activity the user/decision maker has three main tasks: (a) to build a model to structure the problem situation, (b) to identify, in this model, the factors and/or decisions he or she can manipulate to obtain a range of alternatives and (c)...
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