Types of business models
Besides simulation models for learning, businesses use models to help with budgeting, planning and operations research.
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Types of business modelsBesides simulation models for learning, businesses use models to help with budgeting, planning and operations research. |
Budgeting, planning and operations research models differ from the models used to provide business learning and here we explore each and how they differ. Simulation models can be classified thus:
These are the types of simulations that most people are familiar with and have built using spreadsheets. They are used to improve the effectiveness and efficiency of financial planning and budgetary control. Usually, for both budgeting and planning, only the accounting and operating flows are modeled. But these can be complex when the organisation has many products or markets and multistage value chains. Normally, both budgeting and planning models are deterministic rather than stochastic. (But, advanced planning models may be stochastic, where the forecasts have distributions of values.)
These models are used to investigate a business problem (such as scheduling logic) and as such are the heart of Management Science [1]. Here a model is developed that behaves as exactly as possible like the real system and “great care is taken to ensure that the simulation model is descriptive of the real system” [2]. Thus, Management Science/Operations Research simulations attempt to replicate the real-world situation as accurately as possible. As a consequence the model is likely to be very complex and include operational research and economic models. Further, in order to ensure photo-real accuracy these models are built from the bottom up.
A simulation model for business learning combines aspects of budgeting & planning models and management science models. Like budgeting and planning models, the simulation model will include accounting and operational flow models (White Box Models). Additionally, like management science/operational research models, a business model for learning will include operational research and economic models (Black Box Models). However, as the purpose is learning rather than management science, the operational research and economic models are generally simplified and stylised and should be designed top down from learning objectives and constraints.
[1] Beer, Stafford (1967) Management Science: The Business Use of Operations Research, Aldus Books Limited, London
[2] Anderson, David R., Dennis J. Sweeney and Thomas A. Williams (1994) An Introduction to Management Science, West Publishing Company, Minneapolis/St Paul
© 2010 Jeremy J. S. B. Hall
Most recent update: 15/04/12
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