Decisions depend on the parameters of the managerial situations. These parameters vary in terms of their variability. Some can be fairly certain, while others can take a range of possible values. What’s more, small changes in some parameters can lead to a completely different optimal decision, while large changes in others may be of very little concern. So, should we just simply report the best decision based on one specific set of parameters and call it a day? Definitely NO.
Instead, we should conduct sensitivity analysis on parameters of interest. In the following videos, we will discuss a few useful tools in Excel that can help us evaluate the effects of parameters. These include: 1) Goal seek, to find critical values to a parameter that corresponds to certain situation. 2) Data Table, to examine the outcome of a variety of values for a parameter.
I. Goal Seek
Please use the following file Profit.xlxs to work with the video.
Or Click here to view in full screenII. Data Table
First, we play with just one-parameter, say the Value of Oil for the wildcatter. Please use the wildcatter tab in Module 1 spreadsheet to follow along.
Click here to launch in full screenNext, we explore what would happen for two variables, namely, Value of Oil and Probability of Oil.
Click here to launch in full screenIII. Additional Example
Here is another example with newsboy.xlxs. The problem is a classic newsboy problem, in which a boy has to decide the optimal copy to print given the uncertain demand. Click here for details.
Click here to open in full screenNext, we play with two parameters at the same time.
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