THE APPLICATION OF MODELS/SIMULATIONS IN BUSINESS

THE PLACE OF MODELS/SIMULATIONS IN BUSINESS

Models are replica or copies of problem areas in business. They are theories, laws or equations, stating things about a problem and helping by given better understanding of it as well as aiding managers in times of decision making.

A simulation involves trying to mimic what might happen in reality. It allows a business to test –ideas and make decisions without bearing the consequences of real action if things go wrong. Once a problem is noticed in business, a simulation can be carried out several times quickly and cheaply in order to test alternative decisions. Interestingly, there are no risks involved and resources are not wasted at this point in time.

              COMMON FEATURES OF MODELS

• They reflect the key characteristics or behaviors of an area of concern, thereby given the true pictures of issues concern.
• Problems are generally cumbersome, but an ideal model tends to be a simplified version of area of concern.
• They simulate the actions and processes that operate in the problem area.
• Models often make use of formulae to express concepts.
• They provide an aid to problem solving.’’ Etc.

          AREAS OF APPLICATION OF MODELS

Some models can be carried out using computer software. This allows decisions to be made quickly and many variables affecting decisions to be included. Management science and operation research are areas which often make use of decision making models.  In linear programming, models are also applicable.

In the area of marketing, models are used to consider the relationship between the strategic direction of the business and its marketing strategy.

                  TYPES OF MODELS

A typical model is either normative or positive in nature. And each is capable of producing different result.

                 THE NORMATIVE MODEL

A normative model describes how decisions should be made, rather than how they are made. It is a subjective proposal of how, ideally, decision should be made. A normative model provides a structured sequence of activities by which a business can identify and correct problems. However, the ability of the process to deliver the best decision depends on the activities in the process and the order/way in which they are carried out.

                     THE POSITIVE MODEL

The positive model deals with objective or value free explanations about how decisions are made. They attempt to show what is, rather than what should be. A positive model tries to solve some of the problems of the normative model in decision making. They are created using scientific method in the way as in real sciences. A theory is put forward with gathered evidence to support or refute…..