1 Introduction Mba

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Decision TechnologyDecision TechnologyModeling, Software andModeling, Software and

ApplicationsApplications

Matthew J. LiberatoreMatthew J. Liberatore

Robert L. NydickRobert L. Nydick

John Wiley & Sons, Inc.John Wiley & Sons, Inc.


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Chapter 1Chapter 1

IntroductionIntroduction


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DECISION TECHNOLOGY

What is Decision Technology and why should it beWhat is Decision Technology and why should it becovered in an MBA program?covered in an MBA program?

Decision TechnologyDecision Technology is the application of decisionis the application of decision

support modeling and computer software tosupport modeling and computer software to

problems in business, government, and other typesproblems in business, government, and other types

of organizations.of organizations.

It is a valueIt is a value--added activity dedicated to improving theadded activity dedicated to improving the

quality of the decision making process.quality of the decision making process.


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DECISION TECHNOLOGY

Decision Technology is closely related to, and hasDecision Technology is closely related to, and hasits origin in, the field ofits origin in, the field of management science,management science,

also calledalso called operations researchoperations research..

Management science is a scientific approach toManagement science is a scientific approach to

decision making that often usesdecision making that often uses mathematicalmathematical

modelsmodels..


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DECISION TECHNOLOGY

A mathematical model is a representation or anA mathematical model is a representation or anabstraction of a real situation or system.abstraction of a real situation or system.

Consider an example of how a simple model canConsider an example of how a simple model can

provide a counterintuitive solution to an interestingprovide a counterintuitive solution to an interesting

problem.problem.


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ANALYTICAL DECISION MAKING

VS. INTUITION

Assume that the earth is perfectly round and smooth,Assume that the earth is perfectly round and smooth,

and that a string has been placed completely aroundand that a string has been placed completely around

the equator. Suppose that someone cuts the string,the equator. Suppose that someone cuts the string,

adds 10 feet, and distributes the 10 feet such thatadds 10 feet, and distributes the 10 feet such thatthe string is equal distance from the earth.the string is equal distance from the earth.

Can a mouse crawl under the string?Can a mouse crawl under the string?


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VS. INTUITION

Assume that the earth is perfectly round and smooth,Assume that the earth is perfectly round and smooth,and that a string has been placed completely aroundand that a string has been placed completely around


adds 10 feet, and distributes the 10 feet such that theadds 10 feet, and distributes the 10 feet such that the

string is equal distance from the earth. Can a mousestring is equal distance from the earth. Can a mousecrawl under the string?crawl under the string?

C=circumference of earth, r=radius of earthC=circumference of earth, r=radius of earth

C= 2C= 244rr

rr ((EarthEarth


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VS. INTUITION






C= 2C= 244rr

C + 10 = 2C + 10 = 244 (r +(r + (())rr ((

EarthEarth


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VS. INTUITION






C= 2C= 244rr

C + 10 = 2C + 10 = 244 (r +(r + (())

C + 10 = 2C + 10 = 244r + 2r + 24(4(rr ((

EarthEarth


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VS. INTUITION






C= 2C= 244rr

C + 10 = 2C + 10 = 244 (r +(r + (())

C + 10 = 2C + 10 = 244r + 2r + 24(4(

10 = 210 = 24(4(

rr ((EarthEarth


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VS. INTUITION






C= 2C= 244rr

C + 10 = 2C + 10 = 244 (r +(r + (())

C + 10 = 2C + 10 = 244r + 2r + 24(4(

10 = 210 = 24(4(

(( =10/(2=10/(244= 10/6.28 = 1.59 ft = 19.10= 10/6.28 = 1.59 ft = 19.10

Most people can crawl under the string!Most people can crawl under the string!

rr ((EarthEarth


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MODELING TECHNIQUES

Management Science is often associated with a bodyManagement Science is often associated with a bodyof modeling techniques that find frequentof modeling techniques that find frequent

application.application.

This course addresses two of the most importantThis course addresses two of the most importantcategories of modeling techniques:categories of modeling techniques: decisiondecision

analysisanalysis, and, and simulationsimulation..

One module is devoted to each of these categories,One module is devoted to each of these categories,

and seeks to empower students to model a broadand seeks to empower students to model a broad

range of practical problems.range of practical problems.


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MODELING TECHNIQUES

DecisionDecision--makingmaking methods such as the Analyticmethods such as the AnalyticHierarchy Process (AHP) provide structure andHierarchy Process (AHP) provide structure and

guidance for thinking systematically aboutguidance for thinking systematically about

complex decisions.complex decisions.

SimulationSimulation allows the modeling and analysis ofallows the modeling and analysis of

complex, realcomplex, real--world systems, when one or moreworld systems, when one or more

variables or relationships are probabilistic.variables or relationships are probabilistic.


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DECISION TECHNOLOGY

Prior to the development of userPrior to the development of user--friendly software,friendly software,management science techniques were generallymanagement science techniques were generally

applied by specialists.applied by specialists.

For this reason, the goal of management science coursesFor this reason, the goal of management science courseswas to enable students to becomewas to enable students to become intelligentintelligent

consumersconsumers of management science.of management science.

Today, while being an intelligent consumer is stillToday, while being an intelligent consumer is still

important, the goal of Decision Technology is toimportant, the goal of Decision Technology is to

empower students to becomeempower students to become active modelersactive modelers..


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DECISION TECHNOLOGY

This goal is now possible, in part, due to the power,This goal is now possible, in part, due to the power,flexibility, and ease of use of modeling software.flexibility, and ease of use of modeling software.

In addition, the focus is now on the application ofIn addition, the focus is now on the application of

models andmodels and notnot on the mathematical detailson the mathematical detailsunderlying the models.underlying the models.

This does not mean that we can ignore theThis does not mean that we can ignore themathematical foundations underlying the techniquesmathematical foundations underlying the techniques

used.used.


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DECISION TECHNOLOGY

However, our goal is to have enough understanding ofHowever, our goal is to have enough understanding ofthe black box so we can make intelligent decisionsthe black box so we can make intelligent decisions

on how and when specific models and softwareon how and when specific models and software

packages are appropriate.packages are appropriate.

This results in a paradigm shift: the focus changes fromThis results in a paradigm shift: the focus changes from

whatwhat could and wouldcould and would be done with managementbe done with management

science to whatscience to what can and willcan and will be done with Decisionbe done with Decision

Technology.Technology.

TheThe can and willcan and will comes about through a group project.comes about through a group project.


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DECISION TECHNOLOGY

The goal of the project is to apply AHP, and/orThe goal of the project is to apply AHP, and/orsimulation to a problem faced by one of the groupsimulation to a problem faced by one of the group

members.members.

In some cases students conduct pilot studies usingIn some cases students conduct pilot studies usingreal company data. In others, they completelyreal company data. In others, they completely

model the actual situation.model the actual situation.


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DECISION TECHNOLOGY

Many of the projects arise in serviceMany of the projects arise in service--basedbasedorganizations and address problems in finance andorganizations and address problems in finance and

marketing as well as operations.marketing as well as operations.

A successful implementation occurs if the project:A successful implementation occurs if the project:

genuinely causes a positive change; orgenuinely causes a positive change; or

demonstrates relevance through positive feedbackdemonstrates relevance through positive feedback

from management.from management.


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DECISION TECHNOLOGY

The project grade is based on the quality of theThe project grade is based on the quality of thewritten report which emphasizes the clarity ofwritten report which emphasizes the clarity of

modeling and implementation issues.modeling and implementation issues.

Students are strongly encouraged to obtain lettersStudents are strongly encouraged to obtain lettersfrom company representatives commenting on thefrom company representatives commenting on the

value of the completed projects. These lettersvalue of the completed projects. These letters

provide some indication of the implementationprovide some indication of the implementation

impact.impact.


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AHPAHP1.1. Selection of an investment bank by a financialSelection of an investment bank by a financial

services organization so that securities beingservices organization so that securities being

structured to support small businesses can bestructured to support small businesses can be

underwritten.underwritten.

I was intrigued from the outset in the I was intrigued from the outset in the

recommendations that the group was proposing. itrecommendations that the group was proposing. it

is my intention to run this model parallel with ouris my intention to run this model parallel with our

current selections process to test the validity of thecurrent selections process to test the validity of the

results, and if superior results are obtained, toresults, and if superior results are obtained, to

implement this model.implement this model.

PROJECT EXAMPLES


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AHPAHP2.2. Evaluation and ranking of new projects to supportEvaluation and ranking of new projects to support

food service marketing for a major food productsfood service marketing for a major food products

corporation:corporation:

the tool is both convenient and quick to use I the tool is both convenient and quick to use I

have asked [student] to explore next steps have asked [student] to explore next steps

dependant on this review and further evaluation dependant on this review and further evaluation

[model name] may warrant further action.[model name] may warrant further action.

PROJECT EXAMPLES


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AHPAHP3.3. New hire selection process by a major financialNew hire selection process by a major financial

institution:institution:

I was intrigued with the ability to create aI was intrigued with the ability to create a

meaningful ranking system for candidates. I thinkmeaningful ranking system for candidates. I think

this would be an invaluable tool I will gladly helpthis would be an invaluable tool I will gladly help

in setting up a meeting with [name] to discuss thein setting up a meeting with [name] to discuss the

possibilities of implementing the model for futurepossibilities of implementing the model for future

use use

PROJECT EXAMPLES


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SimulationSimulation

1.1. Process simulation for a manufacturer of foam cups:Process simulation for a manufacturer of foam cups:

After reviewing the programming logic for the cupAfter reviewing the programming logic for the cup

molding process controllers we noted that they were, as youmolding process controllers we noted that they were, as you

stated, directing raw materials to a primary cup molder instated, directing raw materials to a primary cup molder in

the event of an equal length molding queue. I havethe event of an equal length molding queue. I have

instructed the engineers in the plant to reprogram theinstructed the engineers in the plant to reprogram the

process controllers to emulate a random material allocationprocess controllers to emulate a random material allocation

in the event of equal raw material storage in the cupin the event of equal raw material storage in the cupmolding staging area. I look forward to seeing you themolding staging area. I look forward to seeing you the

week of January 18week of January 18thth to review the possibility of simulatingto review the possibility of simulating

the [name omitted] facility.the [name omitted] facility.

PROJECT EXAMPLES


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SimulationSimulation2.2. Financial simulation analysis for the evaluation ofFinancial simulation analysis for the evaluation of

acquisition candidates by a health care provider ofacquisition candidates by a health care provider of

outpatient services:outpatient services:

model will provide valuable insight into the model will provide valuable insight into the

expected performance of acquisitions, therebyexpected performance of acquisitions, thereby

enabling [company] to make better purchaseenabling [company] to make better purchase

decisions.decisions.

PROJECT EXAMPLES


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I understand the work and personal sacrifices partI understand the work and personal sacrifices part--time students go through when pursuing a parttime students go through when pursuing a part--

time MBA, and it is encouraging to see students'time MBA, and it is encouraging to see students'

academic pursuits have an immediate impact onacademic pursuits have an immediate impact on

their productivity and contribution at work.their productivity and contribution at work.

It became clear very quickly that the courseworkIt became clear very quickly that the coursework

and resources offered to MBA students atand resources offered to MBA students at

Villanova, and specifically within this class, is notVillanova, and specifically within this class, is not

only thorough but is applicable to today's businessonly thorough but is applicable to today's business

environment.environment.

ORGANIZATIONAL FEEDBACK


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It is projects like this one that makes her time andIt is projects like this one that makes her time andeffort away from the office as well as our tuitioneffort away from the office as well as our tuition

reimbursement investment worthwhile andreimbursement investment worthwhile and

beneficial for Kristen, [company name], andbeneficial for Kristen, [company name], and

myself.myself.

I personally appreciate the efforts put forth as aI personally appreciate the efforts put forth as a

result of this class and feel [company name] hasresult of this class and feel [company name] has

made a beneficial investment.made a beneficial investment.

I appreciate this project and effort and am pleased to seeI appreciate this project and effort and am pleased to see

that Marty's MBA is paying off sooner rather than later.that Marty's MBA is paying off sooner rather than later.

ORGANIZATIONAL FEEDBACK


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This chapter provides an introduction to the field ofThis chapter provides an introduction to the field ofdecision technology.decision technology.

The purpose of decision technology is to improve theThe purpose of decision technology is to improve the

quality of decision making in organizations.quality of decision making in organizations.

In this course we focus on helping students to learn theIn this course we focus on helping students to learn the

essentials of decision technology so that they canessentials of decision technology so that they can

create and implement their own valuecreate and implement their own value--added models.added models.

SUMMARY


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COPYRIGHT

CopyrightCopyright Matthew J. Liberatore and Robert L. Nydick.Matthew J. Liberatore and Robert L. Nydick.All rights reserved. Reproduction or translation of this workAll rights reserved. Reproduction or translation of this work

beyond that named in Section 117 of the United Statesbeyond that named in Section 117 of the United StatesCopyright Act without the express written consent of theCopyright Act without the express written consent of thecopyright owners is unlawful. Requests for furthercopyright owners is unlawful. Requests for further

information should be addressed to Matthew J. Liberatore andinformation should be addressed to Matthew J. Liberatore andRobert L. Nydick. Adopters of the textbook are grantedRobert L. Nydick. Adopters of the textbook are grantedpermission to make backpermission to make back--up copies for their own use only, toup copies for their own use only, tomake copies for distribution to students of the course themake copies for distribution to students of the course thetextbook is used in, and to modify this material to best suittextbook is used in, and to modify this material to best suittheir instructional needs. Under no circumstances can copiestheir instructional needs. Under no circumstances can copies

be made for resale. Matthew J. Liberatore and Robert L.be made for resale. Matthew J. Liberatore and Robert L.Nydick assume no responsibility for errors, omissions, orNydick assume no responsibility for errors, omissions, ordamages, caused by the use of these programs or from the usedamages, caused by the use of these programs or from the useof the information contained herein.of the information contained herein.

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1 Introduction Mba