Decision Models for Management

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Most of the models designed and constructed by LCA are “decision models.”  As the name implies, their primary function is to assist the user in making a decision, usually a decision based on something of value, most commonly, money.

Even though our decision models are built using detailed business data and information, they are effectively hypothetical in nature because they keep many variable business conditions that are not essential to the issue(s) being modeled, fixed.  This approach lets only the key parameters of the business situation fluctuate.  For example, in costing models for collective bargaining, we will keep most, if not all, of the terms and conditions of employment variable (such as wage rates, premiums, benefits, etc.), while fixing the population of the bargaining unit at a steady state, even though employee staffing is bound to fluctuate in a dynamic retail business environment.

LCA designs its decision models in this manner because staffing levels are rarely an issue in negotiations, but wage and benefit parameters surely are.  Thus, to serve the information needs of the negotiator, we build the costing model to reflect what variables the bargaining parties actually have control over.  This allows them to “what if” over a wide range of economic scenarios without complicating or contaminating results with unpredictable operational and financial changes not at issue in the negotiations and completely out of the control of the bargaining parties.

Designing and constructing our models in this manner offers many advantages, as follows: 

  • Models are built from the “bottom up,” calculating aggregated costs from many differing and detailed variable inputs (thus, complex wage structures can be fully modeled resulting in an overall cost); 
  • Models are designed to hold many, if not most, operational and financial assumptions constant, allowing the user to isolate and measure the impact of small changes in the detailed input (thus, for example, the user can quantify the marginal cost impact of an extra nickel near the end of a wage progression); 
  • Models are constructed for repeated use in the real-time, stressful, collective bargaining environment, permitting the user to expeditiously explore numerous possible negotiating solutions with relative ease and within time constraits; and, 
  • Models can provide results for a wide variety of scenarios, letting the user and the rest of the bargaining team decide the best solutions among a number of comprehensive, detailed and interrelated scenarios.

LCA’s decision models thus differ from other financial and operational models in that the user can “tweak” parameters at the lowest, most detailed, level (e.g., adding that extra nickel into the most obscure parameter of a wage structure).   Few, if any, financial and accounting models allow this sort of input variability.

To see a presentation on Labor Cost Modeling,” developed for an LCA client, that more fully explores these issues and features of decision models, please click on the link below.

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Labor Cost Modeling Presentation

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Click to view a presentation of LABOR COST MODELING

Click to view a presentation on "Labor Cost Modeling".

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