Business Modelling for Decision Making - Analysis Report

This report provides a comprehensive analysis of business modelling techniques for decision-making. It begins with an examination of inventory management using the Economic Order Quantity (EOQ) model, calculating optimal order quantities and total variable costs for TV King Ltd. The report then delves into non-linear models, exploring profit maximization through demand, cost, and profitability analysis for London furniture makers and Liverpool models. Finally, it applies decision tree analysis to evaluate machine selection, considering different demand scenarios and potential returns. The report includes calculations, graphs, and sensitivity analyses, offering insights into various business strategies and their implications.

Business Modelling for
Decision Making

Contents
INTRODUCTION................................................................................................................................3
Part A – INVENTORY.........................................................................................................................3
(a). Finding EOQ for the A545 Plasma TV, using formula............................................................3
(b). Based on assessed EOQ above, how much deliveries are required of the plasma TVs every
year: .............................................................................................................................................3
(c). Find the total annual variable cost for TV King Ltd. TVC ......................................................4
(d).................................................................................................................................................4
(e).................................................................................................................................................4
Part B – NON-LINEAR/EXTREMUM..................................................................................................6
a) Finding the equation for London furniture makers’ profit......................................................6
b) Setting up demand, costs and profit table...............................................................................6
c) Using values from above stated table and drawing a demand, costs and profitability graph 7
d) Finding value of the ‘q’ that maximizes the profit...................................................................7
e) Finding value for the ‘X’ coefficients based on q (Liverpool):..................................................7
f. Strong and weak points in the London and Liverpool models:................................................8
Part C – DECISION TREE ..................................................................................................................8
SECTION 1.....................................................................................................................................8
i.....................................................................................................................................................8
ii. Decision Tree:.........................................................................................................................10
SECTION 2...................................................................................................................................10
CONCLUSION..................................................................................................................................11
REFERENCES...................................................................................................................................12

INTRODUCTION
The word business modelling relates to the corporation's revenue generation approach.
This identifies the goods or products which a business plans to provide, the targeted market
specified, and different expected costs. Business modelling are vital both for prospective and
current firms. They support fresh, evolving company financing, acquire skills, and motivating
workers and supervisors. Proven firms should update their strategic strategies annually or fail
to forecast new developments and barriers. Market tactics help consumers assess firms which
are of importance to them (Cosenz and Noto, 2018). The study report covers multiple aspects
of business modelling for the decision-making processes through different tasks like EOQ
model, Non-linear model, decision tree etc.
Part A – INVENTORY
(a). Finding EOQ for the A545 Plasma TV, using formula
d = 900 plasma TVs,
c = cost of placing an order = £120
h = cost of holding stock = £20
EOQ = √ [(2 x 900 x £120) / £20] = 104 Units
(b). Based on assessed EOQ above, how much deliveries are required of the plasma TVs every
year:
Number of deliveries = Annual Demand ÷ Order Quantity
900 ÷ 104= 8.65
9 deliveries per year
How frequently deliveries will take place?
Delivery Frequency =
Number of Days company Open ÷ No of Deliveries = 52 x (7 – 1) ÷ 9 = 34.67
Every 35 days = delivery frequency

(c). Find the total annual variable cost for TV King Ltd. TVC = Q/2 × h + d/Q × s
c = cost of placing an order = £120
d = demand = 900
h = cost of holding stock = £20
Qopt = 104
TVC = Q/2 × h + d/Q × s = (£120 x 900)/104 + (£20 x 104)/2 = 1,038.46 + 1,040 = £2,078.46
(d).
Taiwan model EOQ: √ [(2 x 900 x £108) / £25] = 88 Units
TVC: (£108 x 900)/88 + (£25 x 88)/2 = 1104.55 + 1100 = £2,204.55
TV King Limited is recommend to stick with their Japanese model since it is more
cheaper comparably as well as also regard other key factors like the reliability, size and
quality etc.
(e)
ABC Classification system: In view of how necessary they are to achieve market goals, Abc
Analysis is a rating system for identifying and filtering products.
The method requires that items be divided into three classifications:
A:-Extremely important
B:-Moderately important
C:-Relatively unimportant
ABC classifications is directly related to the 80/20 principle, a company metric that
recommends that 80% of outputs be calculated by 20% of inputs. The purpose of ABC
system classification is to establish a manner for an organisation to define important 20% such
that segment could be more carefully managed. Once A's, B's and C's have been established,
then each category will be treated in a separate manner, with more focus being paid to
Classification A, very little to B, but even lesser to C. ABC classification system is quite
commonly connected with inventory management, however the system may also be employed
to rate items including which consumers are most significant, which market divisions pose most
financial risks, which workers are most efficient, or which areas of the operation are most

probable to trigger a bottleneck.
Buffer stock: It can be intended to compensate for uncertainties involved in the pace or pace
of supplies and demands between the two phases of operations. Buffer stock is quantity
needed to hedging against customer-induced fluctuations or demand surges. It's the same thing
as safety stock. It's also labelled the "Buffer Safety Stock." Although safety stock is amount
needed to guard against supply-induced fluctuations or supply gaps. Buffer stock are needed as
protection to shield consumers from storing of finished goods inventory. Making sure
entity measure their lead time right so that they do not have too limited inventory on hand
(Mishra, Wu and Sarkar, 2021).
Pipeline inventory: That's the stock used to cover for the loss of supply when the product is
shipped between phases. Pipeline inventory corresponds to inventory/stock items in shipping
network of the business that have not yet reached their ultimate destination. Such items are
deemed to be component of shipper's inventory throughout their transit before the receiver
has charged for items. Conversely, once a recipient payment for the goods – even
though recipient hasn't really physically received them pipeline inventory is included
in recipient lists. Stock goes to several different places before becoming end product for buying
by the customer. Things can come from several various countries – one component may arrive
from China, as well as another portion of product may arrive from Nepal, for example. The
product that is making its move from one place to another such as this is also considered
pipeline inventory since this remains in pipeline on the path to next destination. It might be
on way from a major dealer to a warehouse whereby it would be to processed into an end
product, or might be on route from factory to local retailer.
Inventory system: There is a collection of policies as well as controls which establish and track
the volume of inventories, when inventory must be replenished, as well as amount of
stock/inventory that really should be purchased. Inventory System relates to procedures
involved in buying, handling and profiting through goods passing through supply chain from
producer to consumer. That sounds basic, however there're many essential day-to-day
processes to manage an orderly and effective inventory. It is impossible to achieve balanced
equilibrium among all moving parts of storage system. Combating stats like this includes a well-

considered inventory system plan and system framework. Based on the business, the products
they contain, the laws they need to obey and the scale of their activity, several arrangements
and processes will be necessary to maintain things going.
Part B – NON-LINEAR/EXTREMUM
a) Finding the equation for London furniture makers’ profit
Demand: 200-15q
Revenue: 200q - 15q2(demand * q2)
Total cost: 120- 8q+12q2
Profit: 200q-15q2 – 120+ 8q-12q2
-27q2+208q-120
b) Setting up demand, costs and profit table

c) Using values from above stated table and drawing a demand, costs and profitability graph
The above graph shows that cost curve is uplining with increase in costs while on opposite side
demand curve is sloping towards down. Profit curve initially reported upward trend but after
q=5 curve move toward downward.
d) Finding value of the ‘q’ that maximizes the profit
-27q2+208q-120
0 = -54q+208
54q = 208
q = 3.9
e) Finding value for the ‘X’ coefficients based on q (Liverpool):
Demand = 200 – 5q
TC = -150 – 25q + 11q2
Profit = -5q2- 11q2+225q – 150
Profit = -16q2 + 225q – 150
(q = 0, 1, 2, 3, 4, 5, 6, 7)
TR – TC =(200q-5q2)-(150-25q+ 11q2)
=200q-5q2-150 + 25q - Xq2
TR – TC =(200q-5q2)-(150-25q+Xq2)

=200q-5q2-150 + 25q - Xq2
= -5q2-Xq2+225q – 150
DERIV: 0 =-10q-2Xq+225
0 =(-10* 5.9) - (2*X*5.9) +225
0 =166 - 11.8X
11.8X = 166
X = 14.1
f. Strong and weak points in the London and Liverpool models:
Based on above sensitivity analysis this has been analyzed that this model is efficient but
there are certain strong as well as weak points. A strong aspect here in this model is that even
when demand is lower, this model will generate profit. Also, increasing costs do not affect the
overall profits. While there is weak point of this model that as demand rises this this model
provide lower profits and even losses. Another weak point of this model is that as costs
decreases or optimize, profit will decline or there could be losses (Antunes and et.al., 2019).
Part C – DECISION TREE
SECTION 1
i.
A-Star Machine:
200 units 0.3
Between 201 and 300 0.55
Between 301 and 400 0.15
B-Star Machine:
180 units 0.45
Between 181 and 200 0.55
C-Star Machine:
180 units 0.45
Between 181 and 200 0.55
Decision Tree:

Machines
A Star Machine
B Star Machine
C Star Machine
0.3 200 units
.33
.33
.33
0.55 201 to 300 units
units
0.15 301 to 400 units
0.45
0.55
180 units
181 to 200 units
units
0.5
0.5
240 units
241 to 270 units
Path 1: Expected Return: 0.33 * .5 * 4 = 0.66
Path 2: Expected Return: 0.33 * .55 * 4 = 0.726
Path 3: Expected Return: 0.33 * .15 * 4 = 0.198
Path 4: Expected Return: 0.33 * .45 * 12 = 1.782
Path 5: Expected Return: 0.33 * .55 * 12 = 2.178
Path 6: Expected Return: 0.33 * .5 * 8 = 1.32
Path 7: Expected Return: 0.33 * .5 * 7 = 1.155

ii. Decision Tree:
Machines
A Star
Machine
B Star
Machine
C Star
Machine
0.3 200 units
.33
.33
.33
0.55 201 to 300 units
units
0.15 301 to 400 units
0.45
0.55
180 units
181 to 200 units
units
0.5
0.5
240 units
241 to 270 units
£4
£4
£6.4
£12
£12
£8
£7
£2.4
.7
.3
Path 1: Expected Return: 0.33 * .5 * 4 = 0.66
Path 2: Expected Return: 0.33 * .55 * 4 = 0.726
Path 3: Expected Return: 0.33 * .15 * 6.4 = 0.3168
Path 4: Expected Return: 0.33 * .15 * 2.4 = 0.1188
Path 5: Expected Return: 0.33 * .45 * 12 = 1.782
Path 6: Expected Return: 0.33 * .55 * 12 = 2.178
Path 7: Expected Return: 0.33 * .5 * 8 = 1.32
Path 8: Expected Return: 0.33 * .5 * 7 = 1.155
SECTION 2
Based on above decision tree and sensitivity analysis this has been analyzed that in
point (i) decision tree shows maximum expected profit in path 5 i.e. 2.178 per unit while lower
profit in path 3 is 0.198. While in case of point (ii), decision tree based on additional condition
as provided shows that there have been eight paths due to additional condition. Also, results
are same except in path 3 and 4.
CONCLUSION
Form above study this has been analyzed that Business modelling is high-level strategy
for the successful activity of business in specific industry. The value concept is primary

component of business model. This is review of the products or services which a business sells
including why they would be attractive for consumers or customers, preferably described in a
manner that separates product or services from its competitors.

REFERENCES
Books and Journals:
Cosenz, F. and Noto, G., 2018. A dynamic business modelling approach to design and
experiment new business venture strategies. Long Range Planning, 51(1), pp.127-140.
Mishra, U., Wu, J.Z. and Sarkar, B., 2021. Optimum sustainable inventory management with
backorder and deterioration under controllable carbon emissions. Journal of Cleaner
Production, 279, p.123699.
Antunes, T. and et.al., 2019, September. A Tool for Modelling Business Behaviour Using
Decision Tables. In 2019 19th International Symposium on Communications and
Information Technologies (ISCIT) (pp. 132-137). IEEE.