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Definition
| the basis for business plans. |
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| rely on mgmt. experience and intuition |
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| uses mathematical models and graphs |
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| casual relationship forecasting |
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| plotting organizational factors on the x-axis |
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| plotting time periods on the x-axis |
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| process of deriving the linear equation the describes the relationship between two variables |
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| simple regression & formula |
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Definition
one independent variable.
formula: y = a + bx, or dependent variable = y-intercept + slope of regression line*independent variable. Formula for straight line. |
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| multiple regression & formula |
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Definition
allows you to identify many factors (independent variables) and to weight each one according to its influence on the overall outcome.
formula: y = a + b1x1 + b2x2 + b3x3 + etc. |
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| What is regression analysis used for? |
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Definition
| budgeting and cost accounting- mixed cost function in which y-axis is fixed and x-axis is variable |
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| aspects of regression analysis (LAD) |
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Definition
Linear relationship between x and y is only valid across the relevant range.
Assumes that past relationships can be validly projected into the future.
Does not determine causality. |
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Definition
Generates a regression line by basing the equation on only the highest and lowest of series of observations.
High and low points may be abnormalities (outliers) and not representative of normal events. |
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| strength of linear (straight-line) relationship between two variables, expressed in terms of correlation coefficient (r). |
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Definition
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| correlation values (1, 0, -1) |
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Definition
1 = perfect direct relationship.
-1 = perfect inverse relationship
If r = 0, there may be a relationship, but it cannot be expressed as a linear equation. |
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Definition
| The more the scatter graph resembles a straight-line, the greater r's absolute value. |
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| coefficient of determination (r2) |
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Definition
| measure of goodness of fit between the independent and dependent variables; proportion of total variation in the independent variable that is accounted for by the dependent variable. |
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Definition
| The closer to 1, the more useful independent variable (x) is in explaining or predicting the dependent variable (y). |
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| measures how well the linear equation represents the data; vertical distance between data points in a scatter graph and the regression line; the closer these two are together, the lower the standard error. |
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Definition
| reflects the increased rate at which people perform tasks as they gain experience. |
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| What is learning curve analysis used for? How does the learning curve work? |
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Definition
Predicting unit labor costs.
Curve is usu. expressed as a % of reduced time to complete a task for each doubling of cumulative production. |
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Definition
| 80% learning curve indicates that doubling of production will reduce the cumulative average completion time by 20%. 80% curve is assumed because it is not always easy to know the shape of the learning curve or to use the information effectively. |
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| means of associating a dollar amount with each of the possible outcomes of a probability distribution |
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| Which expected value is the best? |
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Definition
| The outcome yielding the higher expected value (which may or may not be the most likely one) is the optimal alternative. |
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| uncontrollable future events that can affect the outcome of a decision are states of nature |
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| future event whose outcome the manager is attempting to predict |
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| financial result of the combination of the manager's decision and the actual state of nature |
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Definition
| The expected value of an event is calculated by multiplying the probability of each outcome by its payoff and summing the products. A probability distribution must be established to create a payoff table. |
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| What type of decision-maker is likely to use expected value? |
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Definition
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| reveals how sensitive expected value calculations are to the accuracy of initial estimates. Asks "What if?" |
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| When is expending additional resources to obtain better forecasts justifiable? |
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Definition
| If changing probabilities results in a large change of expected values (high sensitivity), additional resources are justified. |
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| simulation analysis and when it is justified |
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Definition
| computerized. Justified when project is exceptionally large and expensive. |
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Definition
used in simulation to generate individual values for a random variable.
If process is performed a large number of times, the distribution of results from the model will be obtained. |
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Definition
| Solicits opinions from experts, summarizes the opinions, and feeds the summaries back to the experts. The process is repeated until the opinions converge on an optimal solution. |
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| process of projecting future trends based on past experience. It is a regression model in which the independent variable is time. |
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