Dynamic Strategic Planning
March, 2006
Casablanca, Morocco

(local MIB materials)
Course Overview:
Dynamic Strategic Planning will provide insight into decision making techniques which can be used when there is a considerable amount of uncertainty surrounding the options.  It will draw on several well established methods used in the field of decision analysis and will apply these methods to a typical business case.  The business case will involve the launch of a new venture for which decisions must be made about the business size and product prices.  The purpose of the case will be to demonstrate some real world applications for decision analysis and cost estimation techniques.

In particular, the course will cover three major topics; (1) cost estimation techniques, (2) decision analysis and (3) utility analysis.  Cost estimation will focus on the use of a technique called technical cost modeling.  These are process based cost analyses that track the individual elements of cost that arise as a result of the physical requirements of a manufacturing process.  Decision analysis will primarily be addressed through the use of decision trees and will include related topics such as probability assessment (bayes theorem & likelihood ratios) and the value of information.  Additional topics such as utility and value functions and multi-attribute utility analysis will also be addressed.

Classes will generally be divided into three segments; lectures, problem sessions and working sessions.  The lectures are designed to introduce topics in cost assessment and decision analysis as well as to provide the students with the theoretical background needed to evaluate their business case.  Problem sessions will involve of these techniques in order to reinforce the student's understanding of the most relevant concepts and to ensure they are able to apply the theories to practical situations.  The working sessions will be primarily aimed at developing the business case, and will include time spent developing cost estimation tools and determining the most important parameters for the decision analysis problem.

Pre-course Assignments:

There are two distinct assignments for all students to complete BEFORE the beginning of the first class.  One assignment concerns decision analysis and the other concerns cost estimation and the business case.

  • Decision Analysis Assignment:
    • Review textbook chapter 16 (Applied Systems Dynamics by Richard de Neufville, see links below)

  • Business Case/Cost Estimation Assignment:
    • Read Process Based Cost Modeling: Understanding the Economics of Technical Decisions paper.
    • Prepare basic information for business case. Investigate some preliminary options for new business ventures to be explored in the case assignment. Gather data on how the manufacturing process used to produce the product, the costs of the main elements of its production and some basic market information including the prices of competing products.

      *Hint: the main decisions to be made in the case assignment will involve the size of the manufacturing facility and the price to be charged for the product. In order for this particular analysis to fit with your business case, your product should have the following features: (1) there should be manufacturing economies of scale (relatively high fixed costs) and (2) the market should be price sensitive.

Course Schedule:
Date Lectures Problem Session Working Session
Mon. March. 20: Course Introduction
Technical Cost Modeling
General Model Development & Examples Student Cost Models
Discussion of Business Case Assignment
Tues. March 21: Decision Analysis/Decision Trees Review of Pre-Assignment/
Decision Tree Problems
Cost Model Development
Wed. March 22: Probability Assessment/Bayes Theorem Decision Tree
Bayes Theorem Problems
Market Analysis & Decision Variables for Business Case Assignment
Thurs. March 23: Value of Information 
(Perfect & Sample Information)
Information Problems Business Case Decision Tree
Decision Analysis for Period One
Fri. March 24: Utility Analysis Review of Case Studies Decision Analysis for Period Two
Sat. March 25: Presentation of Business Cases

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