B6015: Decision Models

Professor Riccio

Fall 1999
Columbia Business School


Course Announcements

Solutions to sample final now available here!

All review sessions will be held in Room 141 Uris from 1:20 pm to 2:40 pm.

Final review session December 10th in Room 328 Uris from 1:00 pm.

Faculty Information

Professor Lucius J. Riccio
phone (212) 366-6200 x1224
Office hours: by appointment

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Teaching Assistant Information

TA Joern Meissner
Cubicle 4W
Office hours: Wed 4:00-6:00PM

Review Sessions


Recommended Problems
Oct 29
Basic Concepts - Modelling and Solution - Excel Review

Practice Problems

1, 3

141 Uris
Nov 5
Optimization Practice Problems


141 Uris
Nov 12
Optimization Practice Problems


141 Uris
Nov 20
Optimization Practice Problems


141 Uris
Simulation Practice Problems


141 Uris
Dec 3
Simulation Practice Problems


141 Uris

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Course Description

This course provides an introduction to computer-based models for decision making. The emphasis is on models that are widely used in diverse industries and functional areas, including finance, accounting, operations, and marketing. Applications will include production planning, supply chain management, foreign exchange and commodity trading, asset-liability management, portfolio optimization, corporate risk management, and yield management, among others.

The aim of the course is to help students become intelligent consumers of these methods. To this end, the course will cover the basic elements of modeling --- how to formulate a model and how to use and interpret the information a model produces. The course will attempt to instill a critical viewpoint towards decision models, recognizing that they are powerful but limited tools.

The applicability and usage of computer-based models have increased dramatically in recent years, due to the extraordinary improvements in computer, information and communication technologies, including not just hardware but also model-solution techniques and user interfaces. Twenty years ago working with a model meant using an expensive mainframe computer, learning a complex programming language, and struggling to compile data by hand; the entire process was clearly marked "experts only." The rise of personal computers, friendly interfaces (such as spreadsheets), and large data bases has made modeling far more accessible to managers. Information has come to be recognized as a critical resource, and models play a key role in deploying this resource, in organizing and structuring information so that it can be used productively.
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Winston and Albright, 1997, Practical Management Science: Spreadsheet Modeling and Applications, Duxbury Press, Belmont, CA. (W&A)

Crystal Ball: Forecasting & Risk Analysis for Spreadsheet Users (an add-in for Excel for creating simulations in a spreadsheet).

The textbook is available at the Columbia Bookstore. A readings book will also be handed out the first day of class, it contains a disk and copies of the manual for the Crystal Ball Software. The text is also on reserve in the business school library.
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Computer Software

We will use spreadsheets fairly extensively throughout the course. In the lectures we will refer to the Excel spreadsheet package for Windows 95. This spreadsheet has extensive optimization capabilities built in. Crystal Ball is an add-in for Excel which makes it much easier to run simulations in a spreadsheet.
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Course Work

There will be two computer homework assignments to be done individually and one main case to be done in groups. These will serve as a good way to stay on top of the material. The main case is Ontario Gateway. The case can be done in groups of five or less and it is due Friday, December 10th at 10:00am. In addition for many of the class sessions, you will be asked to prepare for discussion in class.

The readings book has a set of practice problems. Many of these practice problems were based on past midterm and final examination questions. Some spreadsheets (in Excel .XLS format) related to these problems can be downloaded. The TA will go over the solutions to selected problems during the Friday review sessions or during office hours. Additional practice problems can be found throughout the W&A text.
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There will be a midterm exam held in class. It will be open book and open notes. Notebook computers will be needed. Printing will not be allowed.

The final exam will be given on December 14th at 2:00pm. There will be four hours for the final exam, although most students should be able to finish in three hours or less. The exam will be open book and open notes. Notebook computers will be needed in the final exam. Think of the computer as a fancy calculator: Printing will not be allowed in the final exam. Any answers from the computer must be transcribed into the answer book.

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The course grade will be based on a weighted average of the homeworks, main case, and the final exam. The weights will be 20% for the homeworks, 20% for the main case, 20% for the midterm,and 40% for the final. All sections of the course will be graded on a common scale.
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Notebook PCs

Notebook PCs will be used in this course. It is recommended that students bring their notebook PCs to the Friday review sessions for software-related questions. Students should bring their notebook PCs to class on Lecture 8. Also, notebook computers will be needed for the midterm and final exam.
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Course Schedule


  Date Topic For next class Download
Lecture 1 Tue 10/26
  • Course overview
  • Introduction to decision models; scale and complexity 
  • Linear programming formulation 
  • Demonstration of the spreadsheet optimization method
  • Formulate and solve the "Shelby Shelving" case (in the readings book or on pp.68--69 in the W&A text).  Prepare to discuss the case in class, but do not write up a formal solution. 
  • Readings:  "An Introduction to Spreadsheet Optimization Using Excel" in the readings book. Also read Chapter 1, Chapter 2.1--2.4, 2.6, 2.8, and Chapter 4.1, 4.2 in the W&A text.
  • Optional readings: "OR Brews Success for San Miguel" and "Logistics Steps Onto Retail Battlefield" in the readings book.
  • Try Optimization Practice Problems #1 and #3 (in the readings book).
 Lecture 1 Notes



Lecture 2 Thr 10/28
  • Two Formulation Examples
  • Shelby Shelving case
Read and think about the case "Petromor: The Morombian State Oil Company."  (Prepare to discuss the case in class, but do not write up a formal solution.) Read Chapter 4.4 in the W&A text. Optional reading: "Graphical Analysis" in the readings book. Load the SolverTable macros into your Excel. (You need to have Solver installed before attempting to load SolverTable. They are separate programs.) Instructions are here.  
 Lecture 2 Notes








Lecture 3 Thr 11/04
  • Sensitivity analysis (on Shelby)
  • Bidding / Assignment models
  • Read Chapter 2.9 and 3.7 in the W&A text. 
  • Try Optimization Practice Problems #2 and #5 (in the readings book).
 Lecture 3 Notes

petromor0.xls  petromor.xls 

Lecture 4 Tue 11/09
  • Multiperiod planning
  • Cash Flow Matching LP, Project funding example
  • Read Chapter 5.1 and 5.5 in the W&A text.
  • Read and think about the "Foreign Currency Trading" case, p.146 in the W&A text. (You are not expected to solve this case before the next class.)
  • Optional reading: "Improving Gasoline Blending at Texaco" in the readings book. 
 Lecture 4 Notes






Lecture 5 Thr 11/11
  • Foreign Currency Trading
  • Integer Programming: plant location example 


  • Read Chapter 6.11 in the W&A text. 
  • Optional readings: "Exploring the New Efficient Frontier'' and "Asset Allocation in a Downside-Risk Framework" in the readings book. 
  • Try Optimization Practice Problems #7, #8 and #9 (in the readings book).
 Lecture 5 Notes
Lecture 6 Tue 11/16
  • Portfolio Optimization -- I
  • Solve the "GMS Stock Hedging" case, pp.330--331 in the W&A text.  (Prepare to discuss the case in class, but do not write up a formal solution.) 
  • Read Chapter 6, pp.310--313 and Chapter 7.3 in the W&A text. 
 Lecture 6 Notes






Thr 11/18
Lecture 7 Tue 11/23
  • Portfolio Optimization -- II
  • GMS Stock Hedging
  • Introduction to Retailer Simulation
  • Read the case "Retailer: A Retail Pricing Simulation Exercise" on pp.529--534 in the W&A text.  Download the Retailer files.  (Please put all of the Retailer-related files into the same directory on your computer.) 
  • Please remember to bring your notebook computer to the next class. 
  • Optional readings: "His Goal: No Room at the Inns," "Computers as Price Setters Complicate Travelers' Lives," "Making Supply Meet Demand in an Uncertain World," and "Yield Management at American Airlines" in the readings book.
  • Try Optimization Practice Problems #11, #13 and #14 (in the readings book).
 Lecture 7 Notes





Lecture 8 Thr 11/30
  • Retailer case
  • Retailer analysis
  • Read Chapter 12, pp.581--594 in the W&A text.
  • Install Crystal Ball on your computer.
 Lecture 8 Notes  ret_lp0.xls  ret_lp.xls
Lecture 9 Thr 12/02
  • Introduction to simulation
  • Introduction to Crystal Ball
  • Risk management simulation example
  • Optional reading: Chapter 12.5--12.12 and Chapter 13 in the W&A text.
  • Try Simulation Practice Problems #1 and #2 (in the readings book).
 Lecture 9 Notes asianoil0.xls  
Lecture 10 Tue 12/07
  • Ski Jacket case
  • Read "Identifying, Measuring, and Hedging Currency Risk at Merck," "Merck's 1995 Annual Report," and "Managing Risk" in the readings book. 
  • At this point we have covered enough material on simulation for you to begin the "Morombian Airlines" case.  Even though the case isn't due until Friday the 13th, it is a good idea to start this case now! .
 Lecture 10 Notes
ski.xls  ski2.xls 
Lecture 11 Thr 12/09
  • Risk Management at Merck
  • Using Simulation for Foreign Currency Risk Management
  • Introduction to Value at Risk
  • Bond Applications
  • Course review and wrap-up
  • Try Simulation Practice Problem #3 (in the readings book).
 Lecture 11 Notes merck_u0.xls  merck_u.xls 

 Lecture 12 Notes putnam.xls 

Final Exam 12/14
2pm-6pm, Open Book, Open Notes, Bring your computer!

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Download Files


 # Name Excel Files
 1 ABC Manufacturing abc.xls
 2 B. Hall Real Estate Investment hall_inv.xls
 3 Joe's Delicatessen deli.xls and deli2.xls
 4 Bland Brewery Graphical Solution bland2.xls 
 5 Advertising Mix advr.xls 
 6 Power Plant pplant.xls
 7 Police Scheduling sched.xls and sched_b.xls 
10 Tax Planning taxlp.xls 
13 Veggie Soup veggie.xls 
14 Calico Cassette ccc.xls and ccc_b.xls
15 Dale Distribution System dale.xls 
16 Hackensack Blended Whiskey whiskey.xls 



# Name Excel Files
1 Express Mail Staffing mail.xls
2 Bakery Department Simulation bakery.xls