Dynamic Strategic Planning
March, 2008
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. There will be a short set of questions to guide the groups through each working session. These should be handed in to the instructor at the end of each day and will be graded.

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. 24: Course Introduction  (ppt)
Process-Based Cost Modeling (ppt)
Business Case Requirements
Group Business Case Selection
Tues. March 25: Process-Based Cost Modeling (continued) (ppt)
Review of Business Case Requirements Cost Model Development for Business Case
Wed. March 25: Dynamic Strategic Planning/ Decision Trees (ppt)
Decision Tree Problems Market Analysis for Business Case Assignment
Thurs. March 26: Probability Assessment/ Bayes Theorem (ppt)
Bayes Theorem and Multi-period Decision Problems
Plant Sizes & Prices for Business Case Asssignment
Fri. March 27: Value of Information
Perfect and Sample Information
Review of Case Studies Finalize Business Case Analysis
Sat. March 28: Presentation of Business Cases

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