B6015: Decision Models 
Summer 2000
Columbia Business School 

Course Announcements

Download more sample questions for the final with solutions More Sample Finals Solutions to new sample final

Download solution to Homework 2: download homework2sol.dochomework2sol.xls

Review Session Schedule for the exam: Monday Aug 7, 10AM, Room 142 Uris (Joern), download review06.pdf, Wednesday Aug 9, 10AM, Room 142 Uris (Joern), download review07.pdf, Friday Aug 11, 10AM, Room 142 Uris (Joern and Sebastian), Tuesday Aug 15, 6PM , Room 301 Uris (Sebastian).

The main case is due Aug. 11

Problem for the review session, you should try it before friday review04.pdf

Problem for the review session, you should try it before friday review03.pdf

Need help with Excel's Solver: Check out this page: SolverFAQ

Crystal Ball Software: As described in the syllabus, the course will use a piece of software called Crystal Ball version 2000.  The software will be distributed to the students in class. We will start using it in class in Lecture 9.  If you go to the bookstore you might see Crystal Ball Version 4.0 (an earlier version that does not work with Office 2000).  That version is there for students of a different course (Exec MBA - B7015). Do not buy Version 4.0 from the bookstore!

Didn't get a readings book?  There should be extra copies in 208 Warren.

Getting started with Solver: To get started using solver, simply go to Excel and then choose Tools|Solver.  If Solver is not there, then you will need to go to Tools|AddIns and check off "Solver Add In".  Then click OK and go back to the Tools menu.  Now solver should be there. Check the SolverFAQ file for additional help.

Article from WSJ on decision models in the airline industry: wsj-article.pdf

SolverTable can be downloaded here.  NOTE: If you cannot get SolverTable to work on your computer, then you will have to resolve the problems as we usually do (go to solver, hit solve).  It is not absolutely essential that you get SolverTable working.

Adobe Acrobat Reader: All lecture notes on this web page are saved in PDF format. They can be viewed and printed using Adobe Acrobat Reader (To download click here and follow the instructions.)

Solution to Homework 1 Homework1 solution (pdf) Homework1 solution (excel) (Available after 5pm Wednesday)

Faculty Information
Professor Sebastian Ceria  Professor Lou Riccio 
sc244@columbia.edu ljr@urbitran.com
417 Uris / 854-5685 3rd Floor Uris / 212-366-6200 x1224
Office Hours: Wednesdays 12-2pm Office Hours: Tues & Thurs 2-3pm


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Teaching Assistant Information
TA Joern Meissner  TA Ben Wang 
jm531@columbia.edu bw148@columbia.edu
Cubicle 4W Cubicle 5R
Office Hours: Wed 4:00-6:00pm Office Hours: Tues. 10am -12pm
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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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Texts Winston and Albright, 1997, Practical Management Science: Spreadsheet Modeling and Applications, Duxbury Press, Belmont, CA. (W&A)

Crystal Ball 2000 Standard Edition: 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 with a Crystal Ball disk.  The manual for Crystal Ball is available on that disk. 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 97 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 homework assignments that will be assigned during the course. The homeworks are individual assignments, and are designed as practice for the final exam. The main case case can be done in groups of five or less and is due Friday, August 11. In addition for many of the class sessions, you will be asked to prepare a case 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 at the bottom of this page. 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 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. A common final exam will be used for all sections of the course. Notebook computers will be needed in the final exam. Think of the computer as a fancy calculator: it is useful for checking one's work and for some questions the computer will be needed to get final answers. However, the majority of the points on the exam will be given for correct methods and analysis; correct numbers will only count for a small portion of the points. 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, 30% for the main case, and 50% for the final.
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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 final exam.
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Review Sessions

There will be weekly review sessions for the course.  They will be held in Fridays from 1:20-2:40pm, Room TBA.  The TA will go over practice problems and answer any computer related questions.  It is recommended that students bring their notebook PCs to the Friday review sessions for software-related questions.
In the following table, we list the practice problems that will be covered (if time permits) in the review sessions.  These problems can be found in your readings book.  Solutions to these problems can also be found in the readings book.  The Excel files can be found at the bottom of this page.
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Course Schedule

  Date Topic For next class Download
Lecture 1 Mon 6/26
  • 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 Wed 6/28
  • Two Formulation Examples
  • Shelby Shelving case
  • Homework 1 is assigned homework1.pdf
  • Read and try question (a) of "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 Mon 7/10
  • 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
Lecture 4 Wed 7/12
  • Multiperiod planning
  • Cash Flow Matching LP, Project funding example
  • Read Chapter 5.1 and 5.5 in the W&A text.
  • Optional reading: "Improving Gasoline Blending at Texaco" in the readings book. 
  • Read pp. 310-313 and Section 6.11 in the W&A text. 
 Lecture 4 Notes
Lecture 5 Fri 7/14
  • Integer Programming: plant location example 
  • Portfolio Optimization - I
  • 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 Mon 7/17 
  • Portfolio Optimization - II
  • Homework #1 is due!  
  • Read Section 7.3 of the W&A text.
  • 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.)  
  • Homework 2 is assigned. Download it! homework2.doc
 Lecture 6 Notes
Lecture 7 Wed 7/19
  • GMS Stock Hedging
  • Introduction to Retailer Simulation
  • Crystal Ball software will be handed out in class!
  • 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.) 
  • 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 Mon 7/24
  • Retailer case (bring computer)
  • Retailer analysis
  • Read Chapter 12, pp.581--594 in the W&A text.
  • Install Crystal Ball on your computer.
 Lecture 8 Notes
Lecture 9 Wed 7/26
  • 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
Lecture 10 Mon 7/31
  • Ski Jacket case
  • Homework #2 is due!  
  • 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 Final case. Download the case here: ontario.pdf. Even though the case isn't due until August 11th, it is a good idea to start this case now! 
 Lecture 10 Notes
Lecture 11 Wed 8/2
  • Risk Management at Merck
  • Using Simulation for Foreign Currency Risk Management
  • Try Simulation Practice Problem #3 (in the readings book).
 Lecture 11 Notes
Lecture 12 Thu 8/3
  • Introduction to Value at Risk
  • Bond Applications
  • Course review and wrap-up
 Lecture 12 Notes
Final Exam 8/17: 9am-1pm 
Open Book, Open Notes, Bring your computer! 

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Download Files
 # Name Excel Files
ZIP All Optimization Practice Problem Files (Zipped) optprobs.zip
 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
 8 Ajax Shoe Company ajax.xls
 9 Pension Problem pension.xls
10 Tax Planning taxlp.xls
 11 Devcor Corporation devcor.xls and devcor_b.xls
 12 Options Problem option_a.xls, option_c.xls and option_d.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
ZIP All Simulation Practice Problem Files (Zipped) simprobs.zip
1 Express Mail Staffing mail.xls
2 Bakery Department bakery.xls
3 Bond Return bond.xls