CHAPTER 14USING EVALUATION MODELSCollated By: Muhammad Kamal Khalid 1452-208032, EMBA(PM-IV)Steve Cooke and Nigel Slack, Making Management Decision, Oxford Center for Management Studies, 2003, London, p 373-394

This chapter will examine the way models can be used for predictive tasks within evaluation process with overview of predictive process

How models can be used to aid the evaluation process :-Establish ground rules to find out feasibility of use of modelsExamine closely the assumptions the model make about the circumstancesExamine the accumulated knowledge about use of such models

When Can Decision Models Help ?How long will it cost ?Making decision models is costlyHow long will it take ?It takes a lot of time to prepare a modelWhat extent could a model improve unaided judgment ?Cost should not over weigh advantagesIs the decision amenable to modeling ?Three features of decision situation which influence predictability of models:-Scale of resources at stakeComplexity of problemAdequacy of dataDimensions of Management Problems

Model less competentModel less economicalComplexity of ProblemAmount at StakeAdequacy of DataHighLowHighLowLowHighThree Dimensions of Management ProblemsABCODMax usefulness of model + Max difficulty in using them

Assumptions in ModelingAssumptions Simplification of RealityNecessary to understandModeling Assumptions:-Decision being modeled is reasonably discreteInformation built into the model is not contaminatedObjectives of the decision are close to those of the modelModel represent full range of alternatives open to decision maker

Stages in Use of Decision ModelsModel InstallationImplementationIntegration

Conditions for Successful ModelingSuccessful ?At least implementation stage is reachedFactors for successful modelingConcerned with organizational setting of the decisionConcerned with modeling processConcerning the final decision model

Concerned with organizational setting of the decisionExtent of top management supportMeaningful involvement of decision makerOrganizational position of the modeling functionExtent of power base which modeling function has in an organizationThe extent to which decision modeler work with individual decision makers as part of a decentralized teamReputation of the modelerMeaningful Involvement

Concerned with modeling processCompetence and experience of modelers and managersExtent of mutual understanding between modeler and decision makerCloseness of the manager during modeling : critical stages are :-Setting the initial objectivesValidation of the model

Factors Concerning the final decision modelModel should be simpleRobustEasy to controlAdaptiveCompleteEasy to communicate with

Open Modeling12 element outline of full explicationBack groundMotivation Necessity of model formation DiagnosisInterestObjective and decision criteriaFactual data on evaluation of alternativesBasis for choice or rankingQualitative procedureIdentification of the best or rankingTesting the choiceUnfinished business and misc

Role of Decision MakerJudgmentIntuitionAid to decision makerPronouncement of models

Using Predictive ModelsEvaluation is concerned with exploring and understanding the consequences of choosing a particular decision optionForecasting and predicting future events. Divided into two categoriesPrediction of internal events which are largely internal to the organization which the D/M have some influencePrediction of external events which are largely internal to the organization which the D/M have some influenceAlso classified as long term and short term predictions

Forecasting Models and TechniquesClassification of forecasting models and techniques:-Subjective and ObjectiveSubjective: Based on judgment and intuition unlikely to be explicitObjective: Specified and systematic procedures explicit resultsNon Casual and CasualNon Casual: Use past value of variables to predict future valuesCasual: Attempt to make prediction on casual relationship

Time SeriesExamine the pattern of past behavior of a phenomena over time and use the analysis to forecast the phenomenas future behaviorRegression ModelsStatistical techniques to determine the best fit expression which describes the relationship between the variable being forecasted and other variablesAnalysis for previous such problems apply corrections according to present conditions you will reach reasonably consistent results

Econometric ModelsSet of regression equations which describe complex cause-effect relationshipsThese equations are solved simultaneously which allows a more realistic representation of the relationship within decision

Individual Expert JudgmentSome matters can not be forecasted by qualitative objective methodsReliance on the opinion of experts having experience of such situations in the pastSubstitute for expensive methods

Delphi Group ForecastsMethods of structuring a group communication process so that the process is effective in allowing a group of individuals as a whole to deal with a complex problemAnonymous process of collective iterative feed backUse of interrogative questionnairesAveraging groups opinion

Performance of Forecasting ModelsRecord of forecasting by judgment and sophisticated mathematical methods is not so impressiveCertain techniques are better than othersShort term prediction is better than long term predictionEconometric methods offer more long range forecasts than do expert opinion or time series analysis

Individual Judgmente.g asking production manager to predict long term improvements in productivity as process technology is improvedRegressione.g examining length of pipe line with cost of constructionTime Serieseg using past sessional data to predict absentisim in a particular weekIndividual judgmente.g Manager predicting work force reaction to a new work methodEconometric Modelse.g forecasting demand as function of govt policyIndividual Judgment eg Manager assessing long term trends in companys market shareGroup Judgmente.g Delphi tech predicting potential of new technologyTime Seriese.g Predicting next months sale by analyzing trend and seasonality factors over recent monthLong Medium TermMedium - Short TermPredicting Internal EventsPredicting External Events