To Model or Not to Model, That is the Question

As a senior analyst for Business Development, I create models that closely resemble real problems. True to what they represent, models come in all shapes, sizes, and styles. Some models are intangible, some tangible. Ultimately, they’re human constructs used to better understand a real world construct.

No matter what kind of model you are building, here are the basic steps you need to follow:

1) Define the business problem. Communication is the biggest business problem today. Einstein is quoted saying that if he had one hour to save the world he would spend “fifty-five minutes defining the problem and only five minutes finding the solution.” This quote illustrates that before jumping into solving, one should fully understand the problem. Not clearly understanding the business problem will result in several model revisions or a useless model.

2) Clearly define the time period. Business models typically vary over time. For example, a retail sales model should likely show higher sales during holiday periods. A new inside sales team sales model will generally require rep ramp time. A partner recruitment model will generally require partner ramp time. Therefore, time periods must be considered in model to accurately reflect the real world.

3) Determine the output variables. Lewis Carroll, author of “Alice in Wonderland,” wrote “If you don’t know where you are going, any road will get you there.” This saying applies to modeling. If you do not know what you want your model to show, there is no reason to build it.

4) Determine the input variables. Inputs are the variables being manipulated or changed. One of the greatest challenging of modeling is determining the important input variables. Too many inputs can create an unmanageable model. Too few inputs can create an unrealistic model. From a modeling perspective, incorporating only the important variables into a model provides a simpler, more useful, and more reliable model; the model will also be more practical to apply because fewer variables need to be measured.

5) Test the model. There are many instances when you do not know if the model outputs are realistic. To validate the model, do some research on similar proven models and determine if your model is providing similar results.

When you’ve got the process down, onsider the following questions models are designed to answer:

• What marketing campaign will generate optimal revenue?
• Where geographical areas should I market to?
• How many reps do I need to achieve optimal coverage?
• What stores should I market to?
• What is my return on investment?
• What is my cost of sale?

Please stay tuned for my upcoming posts. I’ll be sharing more examples of models we’ve used at MarketStar to solve real business problems. How do you use models? Feel free to share in the comments.

About Phil Rogers

Phil Rogers is a veteran statistician , with more than 15 years' experience as Lead Analyst for several company contract teams managed by MarketStar Corporation. He configures databases to capture the necessary information for reporting, database managing, and creating views using Microsoft SQL. He develops weekly, monthly, and quarterly standard reports, creating reports using various tools Microsoft Excel, Microsoft PowerPoint, Microsoft Word, Qlikview, Microsoft Access, SAS, JMP, Statistical forecasting models and Statistical ROI models. Rogers teaches business statistics and calculus as an adjunct faculty at Weber State University.

13 thoughts on “To Model or Not to Model, That is the Question

  1. i agree with your steps, especially step 3. “If you don’t know where you are going, any road will get you there.” Finding the output is what i find to be the most significant. Knowing the goal helps produce the wanted result. You did a great job on this article. Thanks for allowing me to read it.

  2. I found this blog very helpful in the basic review of business models and their importance. These models can be taken for granted but really are crucial elements to running a business.

  3. As a chemist I have always found it interesting to find parallels in other seemingly unrelated fields. The same 5 step outline that you have noted in your article has strikingly similar overtones to the scientific method or ways to think about approaching a problem. I also agree that defining the problem and searching for clarity on a subject is first the most important. It reminds me of a quote from a mathematician describing why it was that we didn’t see Penrose geometry in nature until it was first described by Penrose. He went on to suggest that “often times we can’t see what we don’t have the language to describe”. This was very interesting article about modeling, thank you for sharing it.

  4. I think when you are trying to model it is definitely important to research what the objective is doing and where you want to be when you are done with the model. In setting goals and objectives of what you would like to accomplish it is easier to see who you are marketing to. In establishing who you are marketing to you can see the geographical area and the revenue in which you can expect to achieve. I think the best way to start is by setting expectations and goals of what you would like to accomplish and branch out from that.

  5. I enjoyed reading this and find it is applicable to many aspects of life and work, it is important to spend time researching & finding solutions rather than creating useless “models”. I haven’t had much experience creating Models per say, but would definitely think back on your insights if I need to create one in the future.

  6. I had no idea what the exact steps for building a model were! After reading this now I know all of them and have a place to start should I ever have to build one! Loved the quotes! Thanks for the insight!

  7. I agree that is was a great article. The most significant part for me is define the buisness problem. In previous employment, I have seen that not defining the problem correctly before trying to solve it has only led to more problems. I also really enjoyed the quotes by Einstein and Carroll and how they can help in buisness models. Thank you.

  8. I think that the concepts you talk about in this article are applicable for many aspects of life. I am glad I could think about your insights on model building and if I ever need to, I will definitely keep this advice in mind.

  9. I agree with Chase, your method for building models is very similar to the scientific method. Understanding the problem, time period, and different variables makes sense. I look forward to hearing about the different models you have constructed, and which ones were successful and which ones were not, and your conclusions why

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