OMIS 2010 Lecture Notes - Lecture 8: Variable Cost, Triangular Distribution, Standard Deviation

• School: WLU
• Department: Operations Management and Information System
• Course: OMIS 2010
• Professor: Linda Lakats

Document Summary

A random variable is any variable whose value cannot be predicted or set with certainty. Decisions made on the basis of uncertain information often involve risk. Best case - plug in the most optimistic values for each of the uncertain cells. Worst case - plug in the most pessimistic values for each of the uncertain cells. This is easy to do but tells us nothing about the distribution of possible outcomes within the best and worst-case limits. Plug in different values for the uncertain cells and see what happens. Problems: values may be chosen in a biased way, 100s/1000s of scenarios may be req"d to generate a representative distribution, does not supply the tangible evidence (facts and figures) needed to justify decisions to management. Values for uncertain cells are selected in an unbiased manner. The computer generates hundreds (or thousands) of scenarios. We analyze the results of these scenarios to better understand the behavior of the performance measure.