MSIS 3223 Final Exam Oklahoma State

Total Cost

=Fixed Cost + Variable Cost * Quantity Produced

Influence Diagram

A visual representation of a descriptive model that shows how the elements of the model influence, or relate to, others.

Revenue

= Price * Quantity Sold

Gross Profit

= Sales - Cost of Goods Sold

Operating Expenses

= Admin Expenses + Selling Expenses + Depreciation Expenses

Net Operating Income

= Gross Profit - Operating Expenses

Earnings Before Taxes

= Net Operating Income - Interest Expense

Net Income

= Earnings Before Taxes - Taxes

Spreadsheet Engineering

The process of building spreadsheet models

Verification

The process of ensuring that a model is accurate and free from logical errors.

Data Validation

An Excel tool that allows you to define acceptable input values in a spreadsheet and provides and error alert if an invalid entry is made

-Data > Data Tools

-Select the cell range, click Data Validation

-Specify the criteria that Excel will use to flag invalid data.

Single-Period Purchase Decisions

One-Time purchase decisions often must be made in the face of uncertain demand.

Predictive Models

Theses kind of models focus on understanding the future.

Cash Budgeting

The process of projecting and summarizing a company's cash inflows and outflows expected during a planning horizon, usually 6 to 12 months.

Project Management

Concerned with scheduling the activities of a project involving interrelated activities.

Critical Path

The longest path through the network defines the minimum project completion time is called the...

Optimization Models

Predictive models are often called ____________ .

-Specifies a set of decision variables, numerical quantities that represent the decision options from which to choose.

-Specifies an objective function and constraints.

What-If Analysis

Spreadsheet models that allow you to easily evaluate what-if questions by changing input values and recalculating model outputs.

Data Tables

_______ _________ summarize the impact of one or two inputs on a specified output.

One-Way Data Table

Evaluates an output variable over a range of values for a single input variable.

Two-Way Data Tables

Evaluate an output variable over a range of values for two different input variables.

Scenario Manager

Allows the creation of scenarios. Sets of values that are saved and can be substituted in worksheets.

Optimization

The process of selecting values of decision variables that minimize or maximize some quantity of interest.

What are the 2 basic properties of Linear Optimization Models?

1. The objective function and all constraints are linear functions of the decision variables.

2. All variables are continuous.

Integer Linear Optimization Model

Some of or all the variables are restricted to being whole numbers.

- A special type of integer problem is one in which variables can be only 0 or 1.

-More difficult to solve, but have important applications in scheduling and supply chains.

Nonlinear Optimization Model

Whenever either the objective function or a constraint is not linear.

Examples of Linear Optimization Models

-Product Mix

-Process Selection

-Blending

-Portfolio Selection

-Transportation

-Multiperiod Production Report

Decision Variables

The unknown values that the model seeks to determine.

Objective Function

The quantity we seek to minimize or maximize.

Constraints

Limitations, requirements, or all other restrictions that are imposed on any solution, either from practical or technological considerations or by management policy.

How are Decision Variables Represented?

Descriptive names, abbreviations, or subscripted letters. (X1, X2, etc.)

What does <= mean?

Cannot Exceed

What does >= mean?

At Least

What does = mean?

Must contain exactly.

How are constraints expressed?

As algebraic inequalities or equations, with all variables on the left side and constant terms on the right.

Constraint Function

The left-hand side of a constraint.

Simple Bounds

Constrain the value of a single variable.

Limitations

Involve the allocation of scarce resources.

Requirements

Specification of minimum levels of performance.

Proportional Relationships

Often found in problems involving mixtures or blends of materials or strategies.

Balance Constraints

Input = Output

What excel functions should be avoided in linear optimization?

-ABS

-IF

-MIN and MAX

-INT

-ROUND

-COUNT

Feasible Solution

Any solution that satisfies all of the constraints.

Optimal Solution

The best of all feasible solutions.

How do you determine optimal solutions using excel?

Data>Analysis>Solver

Binding Constraint

Is on for which the Cell Value is equal to the right-hand side of the value constraint.

Slack

Refers to the difference between the left- and right-hand sides of the constraints for the optimal solution.

Corner Points

The points at which the constraint lines intersect along the feasible region are called _________ ________.

Unique Optimal Solution

There is exactly one solution that will result in the maximum (or minimum) objective.

Alternative (Multiple) Optimal Solutions

The objective is maximized (or minimized) by more than one combination of decision variables, all of which have the same objective function value.

Unbounded Solution

The objective can be increased of decreased without bound (i.e., to infinity for a maximization problem or negative infinity for a minimization problem).

Infeasibility

No feasible solution exists.

Blending Problems

Problems involve mixing several raw materials that have different characteristics to make a product that meets certain specifications.

-Dietary planning, gas and oil refining, coal and fertilizer production, etc.

General Integer Variables

Decision variable that we force to be integers are called ______ _______ ________.

What are Binary variables used for?

Yes-or-no decisions.

Quadratic Equation

An equation of the second degree, meaning it contains at least one term that is squared. The standard form is ax^2+bx+c.

Quadratic Optimization Model

A model that has a quadratic objective and all linear constraints.

How are Quadratic Optimization Models Solved?

Standard L P/Quadratic method in Solver on Excel

Markowitz Portfolio Model

The classic quadratic optimization model in finance that seeks to minimize risk of an investment portfolio.

Variance

The spread of data set around its mean value.

Covariance

The measure of the directional relationship between two random variables.

What Excel Functions lead to non-smooth models?

IF, ABS, MAX, MIN.