Optimization based on complexity and conflicts.
I couldnt get the concept. Maybe reason why couldnt get it is lack of understanding on the definition of conflicts.
the chart of Management Science by Prof. Nishant, Rotterdam School of Management
Why are decisions hard?
- complexity : multitude of interrelated factors
- Conflicts : Competing goals and objectives
- Uncertainty: Limited knowledge of the future
- Impact : Responsibility for fat-reaching consequences
- and more...
NPV = Net Present Value
In finance, the net present value (NPV) or net present worth (NPW)[1] of a time series of cash flows, both incoming and outgoing, is defined as the sum of the present values (PVs) of the individual cash flows. In the case when all future cash flows are incoming (such as coupons and principal of a bond) and the only outflow of cash is the purchase price, the NPV is simply the PV of future cash flows minus the purchase price (which is its own PV). NPV is a central tool in discounted cash flow (DCF) analysis, and is a standard method for using the time value of money to appraise long-term projects. Used for capital budgeting, and widely throughout economics, finance, and accounting, it measures the excess or shortfall of cash flows, in present value terms, once financing charges are met.
The NPV of a sequence of cash flows takes as input the cash flows and a discount rate or discount curve and outputting a price; the converse process in DCF analysis - taking a sequence of cash flows and a price as input and inferring as output a discount rate (the discount rate which would yield the given price as NPV) - is called the yield, and is more widely used in bond trading.
From Wikipedia, the free encyclopedia
As my understanding current value of money is always greater than future one of that. (Am I correct? God, I am not good at numbers...)
After the first class...
Management Sceince is better start with simple model, with basic factors, and then put other factors that you concern as significant factor. As I understood, you better know the limit of factors that you can use in your model, actually you decide it, because of uncertainty you model could be getting worst if you put to many factors.
More than gathering informations for factors, concentrating on analysis is better. Single-point forecasts is always wrong and decision based on them is dangerous. This is ignoring uncertainty. To use scenario, you can find range of results, and then to use sensitivity analysis, you can figure out which factors are significantly impact on the result, which mean the main uncertainty drivers. For this, methodologies are What-if analysis, one-way and Two-way sensitivity analysis and Tornado diagrams.
Note from the lecture of Management Science by Prof. Nishant, RSM MBA