Survey
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
Spreadsheet Models - DSS Basic Profit Models What-if, Sensitivity Analysis Lecture Objectives You should be able to : 1. Analyze a business situation and draw an influence diagram. 2. Build basic profitability models on a spreadsheet. 3. Perform what-if, sensitivity analyses. Breakeven Analysis Consider a relatively simple situation: Sally owns a motel with a hundred rooms. Fixed daily cost is $1000 (includes mortgage, staff salaries, maintenance). Variable cost per room is $10 per day (includes extra utility cost, room cleanup, etc). At a fixed room price of $50 per day, what is the breakeven point? Draw an influence diagram leading up to your profit. Compute the breakeven point. Influence Diagram Profit Revenue Price/Room Number of Rooms Rented Cost Variable Cost The boxes that cannot be split any further (for this simple example) are the basic inputs for the analysis. How is Number of Rooms Rented different from the rest of the inputs? Are there any other dependencies that are not shown above? Fixed Cost VC/Room Breakeven Analysis Price FC 50 1000 VC/unit 10 Rooms 5 10 15 20 25 30 35 40 45 50 Rev 250 500 750 1000 1250 1500 1750 2000 2250 2500 FC 1000 1000 1000 1000 1000 1000 1000 1000 1000 1000 VC 50 100 150 200 250 300 350 400 450 500 Tot Cost 1050 1100 1150 1200 1250 1300 1350 1400 1450 1500 Profit -800 -600 -400 -200 0 200 400 600 800 1000 Breakeven Point Breakeven Analysis Dollars 3000 2500 Revenue 2000 Tot Cost 1500 1000 500 0 0 5 10 15 20 25 30 35 Number of Rooms Rented 40 45 50 Crossover Point You have the option of subcontracting to improve room quality and the surroundings, but that would increase fixed costs to $1800, with no change to variable costs. You will, however, be able to charge $70 per room per day. At what point will you be indifferent between your current mode of operation and the new option? Crossover Analysis – Point of Indifference Case 1 Price FC VC/unit Case 2 50 70 1000 1800 10 10 Case 1 Rooms 20 40 60 80 100 Rev 1000 2000 3000 4000 5000 FC 1000 1000 1000 1000 1000 VC 200 400 600 800 1000 Tot Cost 1200 1400 1600 1800 2000 Profit -200 600 1400 2200 3000 20 40 60 80 100 Rev 1400 2800 4200 5600 7000 FC 1800 1800 1800 1800 1800 VC 200 400 600 800 1000 Tot Cost 2000 2200 2400 2600 2800 Profit -600 600 1800 3000 4200 Case 2 Rooms Crossover Analysis Crossover Analysis 5000 4000 $ Profit 3000 2000 Profit 1 1000 Profit 2 0 -1000 0 10 20 30 40 50 60 -2000 -3000 # Rooms 70 80 90 100 Pricing Analysis – Demand Function If the demand for rooms depends on the price as follows: Quantity Demanded = 200 - 3*price, what price should Sally charge for a room? Assume Fixed Cost is still $1000 per day and Variable cost is $10 per day per room. 1. Determine the Goal. 2. How would Sally get such a demand equation for her business? 3. Determine the best price to help her reach her goal. Price and Profit What is the best price? Pricing Strategy Example Max Rooms FC VC/unit Price 100 1000 Demand = 200 - 3*p 10 Intercept Slope 200 3 0 10 20 30 40 50 60 70 80 Rooms Demanded 200 170 140 110 80 50 20 -10 -40 Rooms Rented 100 100 100 100 80 50 20 0 0 0 1000 2000 3000 3200 2500 1200 0 0 FC 1000 1000 1000 1000 1000 1000 1000 1000 1000 VC 1000 1000 1000 1000 800 500 200 0 0 Tot Cost 2000 2000 2000 2000 1800 1500 1200 1000 1000 -2000 -1000 0 1000 1400 1000 0 -1000 -1000 Rev profit Profit Vs. Price Motel Pricing Analysis 2000 Profit/Day ($) 1500 1000 500 0 -500 0 10 20 30 40 50 -1000 -1500 -2000 -2500 Price/Room ($) 60 70 80 Sensitivity Analysis Pricing Strategy Example Price FC If the estimate of Variable Costs ($10 per room per day) is inaccurate, how does it affect the solution? 50 1000 VC/unit 10 Rooms 50 Rev 2500 FC 1000 VC 500 The table below shows profits at different prices and variable costs Tot Cost 1500 profit 1000 30 35 40 45 50 55 60 7 1300 1660 1640 1470 1150 680 60 8 1200 1565 1560 1405 1100 645 40 9 1100 1470 1480 1340 1050 610 20 10 1000 1375 1400 1275 1000 575 0 11 900 1280 1320 1210 950 540 -20 12 800 1185 1240 1145 900 505 -40 13 700 1090 1160 1080 850 470 -60 VC Prices per room Sensitivity to Variable Costs Sensitivity Analysis 2000 1500 VC = 7 Profit $ VC = 8 1000 VC = 9 VC = 10 500 VC = 11 VC = 12 VC = 13 0 20 24 28 32 36 40 -500 Price/Room 44 48 52 Extend the Analysis How would this entire analysis change if you were analyzing a larger hotel like the Marriott instead of a motel?