Decision Modeling With Microsoft Excel

Decision Modeling With Microsoft Excel

From the Inside FlapPREFACE TO THE STUDENT OF MANAGEMENT:The building of explicit models for analysis and managerial decision making has traditionally been called management science.Webster's New World Dictionary defines oxymoron as "a figure of speech in which opposite or contradictory ideas or terms are combined." Common examples include sweet sorrow, thunderous silence, jumbo shrimp, sport sedan, bureaucratic efficiency, proprietary standard-you can probably think of many more. And management science?The same dictionary says that management is "the act, art, or manner of managing, or handling, controlling, directing, etc. " If management is an art, is management science then an oxymoron-a contradiction in terms?Not to us!Science is the process of using observation and testing to establish principles and then using these principles to answer questions. Much of business is based on the same approach. Actuaries use statistical models to set insurance rates. Organizations use discounted cash flow models to make decisions on capital expenditures. Sales executives use models based on demand elasticity to determine prices, and managers use investment models to control their personal investment portfolios.This book is devoted to modeling concepts that may apply to a variety of different management situations. Indeed, many of the models we will study are generic models. Just as the model for discounting cash flows can be used for situations with different time periods, different interest rates, and different cash flows, so can the models and concepts studied in this textbook be used in widely different situations.As you work your way through this text, you will find that it is so full of specific example models as to appear to be a modeling cookbook. Our goal in writing this book, however, was not to produce good recipes but to produce good cooks. Thus, you should avoid becoming so immersed in the technical details of the models and their Excel representation that you lose track of the general skills that you must develop to be both a good modeler and a good manager. We believe that you will find this book useful to the extent that you focus upon (1) the real-world setting that motivated the creation of the spreadsheet model in the first place, and (2) actively engage in the model building and analysis. Doing one without the other is a common, and mistaken, approach employed by managers because it leads to inadequate comprehension needed for good decision making and learning.It is possible to do the assignments in this book, and not have the concepts affect you in your career. To avoid this, you must work to personally own these modeling concepts. To do this requires "hands-on" work with Excel modeling. The responsibility for maintaining this focus rests with you. Learning to be both a good modeler and a good manager is far more challenging than learning the mechanics of Excel modeling. We will help by focusing on both management and model, but you can achieve that same focus only with personal effort. TO THE INSTRUCTOR:As evident in our message above, Excel-based management science has a lot to offer your students. We believe a good textbook coupled with your teaching and enthusiasm can play a critical role in helping to shape the attitudes of tomorrow's managers towards the proper use of quantitative modeling in business. Certainly, spreadsheets have become the near-exclusive tool used by millions of managers in analyzing business problems. They now contain many powerful tools that can be used to analyze more sophisticated models and make better decisions. Given the pervasive use of spreadsheets in management, our task is to focus students upon developing their modeling skills-how to "paint" onto the blank canvas of the worksheet to develop helpful, practical business models-and not upon algorithms or mathematical puzzles.This textbook is designed for introductory courses in applying the Microsoft Excel spreadsheet to