Decision Support includes methodologies and processes that leverage information to help analyze issues and to construct robust solutions for decision-makers to execute. The general steps in decision support include:
- identify and analyze the issue
- develop and evaluate possible solutions
- propose and adopt a decision
- implement and evaluate the decision
One of the many tools that may be applied in the decision support process are dynamic models. A common example of dynamic modeling is a monthly profit & loss report created in an Excel spreadsheet (right).
Unlike static, printed reports, the use of modeling tools enable interaction with historical data and projection into the future based on different scenarios.
Excel spreadsheets offer the benefits that they are widely used by managers, are generally understood in the business world, and are shareable with anyone using Excel. Spreadsheets, however, can quickly become challenging to understand and modify as complexity increases and relationships become unclear.
An alternative to spreadsheets is a visual model (right). Note that the visual model includes all the elements in the spreadsheet above such as revenues and expenses, and that the visual model generates the same kind of time graph.
Visual modeling tools offer the benefit of explicitly showing the relationships of the variables and results; for example, how Revenues and Cost-of-Goods-Sold relate to Gross Profit.
The benefits of visual modeling tools become apparent when a need exists to explore more complex issues. Visual models enable managers to see how changes in assumptions affect outcomes, to compare a forecast against actual results, and to make better informed decisions. Visual models can also be used to explore a wide variety of questions such as staffing requirements and competitive market forces.
Excel Model Examples
The simple models below were created by Ringbolt and are freely distributed for use.* Intended as examples only, these models may be used to “ballpark” generic cases. Specific projects may benefit from more advanced approaches such as visual modeling. To discuss specific model needs click here.
Simple Forecast of One Product
An MS Excel file that generates a 24 month forecast for one product. Permits input of total market in units, % market share in units for the product, seasonality, General & Administrative and Other expenses. An integrated, customizable table relates average sale price (ASP) to unit sales and cost of goods sold (COGS), and assumes simple elasticity such that as ASP decreases, unit sales increase and COGS decrease.
The template checks for and reports several input errors, and updates a monthly and running total graph of Units, Revenues and Profit.
Phase In/Out Forecast
An MS Excel file that extends the simple model above, generating a 24 month forecast for two products: an original product and a replacement product.
The model behavior reflects an adjustable “S-curve” where the initial take-up of the replacement product is modest, followed by an accelerated period and finishing with another moderate sales rate period.
At the end of the 24 month period the original product is essentially replaced and the replacement product is at a stable market share in units.
Visual Model Example
Click on the image below to view a brief video that explains visual dynamic models with a very simple example.
*Ringbolt makes no warranty or representation, expressed or implied, concerning the models or the fitness for any purpose and shall not be liable for special, indirect, consequential or punitive damages of any kind, and assumes no risk whatsoever as to the result of the use of these models.