What is Modeling?

abstraction of a real-life system used to facilitate understanding and to aid in decision making. It has become a popular device in business. The model can be classified into three popular types: (1) physical model; (2) graphical model; and (3) mathematical model. Examples of physical models are childhood toys such as dolls and toy airplanes. Graphical models are abstractions of lines, symbols, shapes, or charts-for example, a break-even chart . Mathematical models are the ones that have stimulated most of the recent interest in models for decision making. Any mathematical formula or equation is a model. Mathematical models are used to solve planning and decision problems and to answer various what-if scenarios. Examples include the break-even model and Linear Programming (LP) .

Source: http://www.allbusiness.com/glossaries/model/4944881-1.html#ixzz1mJlt3HEv

What is WHAT-IF ANALYSIS?

Related Terms:simulation

attempt to represent a real-life system with a model to determine how a change in one or more variables affects the rest of the system, also called simulation . Simulation will not provide optimization except by trial and error. It will provide comparisons of alternative systems or how a particular system works under specified conditions. It is a technique used for what-if scenarios. The advantages of simulation are: (1) when a model has been constructed, it may be used over and over to analyze different kinds of situations; (2) it allows modeling of systems whose solutions are too complex to express by one or several mathematical relationships; (3) it requires a much lower level of mathematical skill than dooptimization model

Source: http://www.allbusiness.com/glossaries/what-analysis/4941923-1.html#ixzz1mJeZF8xn

What is Simulation?

attempt to represent a real-life system with a model to determine how a change in one or more variables affects the rest of the system, also called what-if analysis . Simulation will not provide optimization except by trial and error. It will provide comparisons of alternative systems or how a particular system works under specified conditions. It is a technique used for what-if scenarios. The advantages of simulation are: (1) when a model has been constructed, it may be used over and over to analyze different kinds of situations; (2) it allows modeling of systems whose solutions are too complex to express by one or several mathematical relationships; (3) it requires a much lower level of mathematical skill than do optimization model

Source: http://www.allbusiness.com/glossaries/simulation/4947447-1.html#ixzz1mJeC1GYV

What is Financial Planning Model?

Related Terms: financial model

functional branch of a general corporate planning model. It is used essentially to generate pro forma financial statements and financial ratios. A financial model is a mathematical model describing the interrelationships among financial variables of the firm. It is the basic tool for budgeting and budget planning. Also, it is used for risk analysis and what-if analysis experiments. Many financial models use spreadsheet programs such as excel and LOTUS 1-2-3

Source: http://www.allbusiness.com/glossaries/financial-planning-models/4951364-1.html#ixzz1mJdldrbr

What is Linear Programming?

mathematical approach to the problem of allocating limited resources among competing activities in an optimal manner. Specifically, it is a technique used to maximize revenue, Contribution Margin (CM) , or profit function or to minimize a cost function, subject to constraints. Linear programming consists of two important ingredients: (1) objective function and (2) constraints, both of which are linear. In formulating the LP problem, the first step is to define the decision variables that one is trying to solve. The next step is to formulate the objective function and constraints in terms of these decision variables. For example, assume a firm produces two products, A and B. Both products require time in two processing departments, assembly and finishing. Data on the two products are as follows:

Products
A B Available
Assembly (hours) 2 4 100
Finishing (hours) 3 2 90
CM/unit $25 $40
The firm wants to find the most profitable mix of these products. First, define the decision variables as follows:

A = the number of units of product A to be produced
B = the number of units of product B to be produced

Then, express the objective function, which is to maximize total contribution margin (TCM), as:

TCM = $25A + $40B

Formulate the constraints as inequalities:

2A + 4B < 100
3A + 2B < 90
and do not forget to add the non-negative constraints:

A > 0, B > 0


Source: http://www.allbusiness.com/glossaries/linear-programming-lp/4942501-1.html#ixzz1mJdRngMo

What is Regression Analysis?

statistical procedure for estimating the average relationship between the dependent variable (sales, for example) and one or more independent variables (price and advertising, for example). It is a popularly used method for estimating the cost-volume formula (y = a + bx). simple regression involves one independent variable, e.g., direct labor-hours or machine-hours alone, whereas multiple regression involves two or more independent variables. Assuming a linear relationship, the simple regression model indicates that the relationship is y = a + bx, where a, and b are unknown constants, called regression coefficients. The multiple regression model is y = a0 + a1x1 + a2x2 + ... + akxk, where a's are coefficients and x's represent the number of independent variables.

In estimating the cost-volume formula, regression analysis attempts to find a line of best fit. To find the line of best fit, a technique called the least-squares method is widely used.

Source: http://www.allbusiness.com/glossaries/regression-analysis/4954162-1.html#ixzz1mJauvICl

What is Decision Support System?

Branch of the broadly defined Management Information System (MIS) that provides answers to problems and that integrates the decision maker into the system as a component.

The system utilizes such quantitative techniques as regression analysis Linear Programming (LP) and financial planning models. DSS software furnishes support to the accountant in the decision-making process. It analyzes a specific situation and can be modified as the practitioner wishes. Models are constructed and decisions analyzed. Planning and forecasting are facilitated.

Source: http://www.allbusiness.com/glossaries/decision-support-system-dss/4952711-1.html#ixzz1mJaemyLl

What is Management Information System?

Computer-based or manual system that transforms data into information useful in the support of decision making. MIS can be classified as performing three functions:

1) To generate reports-for example, financial statements, inventory status reports, or performance reports needed for routine or nonroutine purposes.

2) To answer what-if questions asked by management. For example, questions such as "What would happen to cash flow if the company changes its credit term for its customers?" can be answered by MIS. This type of MIS can be called simulation .

3) To support decision making. This type of MIS is appropriately called Decision Support System (DSS) . DSS attempts to integrate the decision maker, the data base, and the quantitative models being used.

Source: http://www.allbusiness.com/glossaries/management-information-system-mis/4944371-1.html#ixzz1mJaHCRxH

What is Information System?

system of transforming raw data into useful information for a decision maker.

source: http://www.allbusiness.com/glossaries/information-system/4944024-1.html

What is System?

A system is a collection of elements or components that are organized for a common purpose.

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