Model Formulation Process

The model formulation thought process is a way to simplify the real world problem you are trying to solve by eliminating all of the details that are irrelevant and focusing all energy on the major issues surrounding the problem. The approach considers four different aspects of a particular model which are decisions, outcomes, structure and data. The decision aspect of the model is where all possible choices and actions are considered that apply to the situation, outcomes are the consequences of those decisions, structure is what mathematically relates them, and the data is the variables that are uncontrollable(Powell & Baker, 2009). In an effort to give a broader understanding to myself and the readers of this blog I will provide an example below of each feature:

Problem:

An ice cream company wants to increase profits during the winter months.

Decisions

1) Increase market presence in warmer climate areas such as foreign markets

2) Add additional products that will sell in the winter

3) Change their marketing campaign to entice consumers to buy ice cream during the winter months

Outcomes

1) Increase market presence in warmer climate areas - may involve increased cost involved the logistics and taxes which could cancel out any increase in profit

2) Adding additional products will involve incurred development expenses which could be costly in the beginning but in the long run could increase profit

3) Changing the marketing strategy would most likely be the most inexpensive and quickest way to see results.

Structure

 We must calculate the cost of changing the way the company does business and subtract that from the expected outcome of each earning potential to determine if it is a feasible solution.

Data

For this model the empirical data suggests that to increase profit the company must make a change in either its product or the way the product is perceived by the consumer. We all know that ice cream is cold and generally great on a hot day but not so much on a cool one. Some of the uncontrollable variables in this scenario are the consumer's attitude towards ice cream in the winter, as well as taxes or laws that may impact profits in a foreign market, or marketing costs.

References:

Powell, S. G., & Baker, K. R. (2009). Management Science, The Art of Modeling with Spreadsheets. Hoboken, NJ: Elbe, Susan.