Part 2. MM4XL Tools > 1. Strategic Tools > Risk Analyst > 2. Simulation Never heard of it > Contributing Factor Diagram

Risk Analyst

Contributing Factor Diagram

All variables that contribute to the solution of a model can be arranged in a so-called Contributing Factor Diagram (CFD), with the aim of making clear the relevant elements of the model: idea, variables, and goal.

CFDs start from an idea and are constructed backwards. In the example below, for instance, while planning the launch of a new product (idea on the left) the management of a hypothetical company built a simulation model, and to evaluate the success of the project, chose a variable called Net Profit (the variable on the right, which Risk Analyst calls an Output variable).

 Monte Carlo Simulation Software: Management Process Risk Analysis

The next step in the process is to move backwards, asking what is the measure of success? In this example, Net Profit is found by subtracting Costs from Revenues, and we see two ovals labeled accordingly pointing their arrows directly to the (output) variable NP. In turn, the variable Costs is the sum of three sources of expense: Development, Testing, and Marketing costs. Four variables relate to Revenues, although one only directly: Market share.

Graphical representations of simulation models in CFD form can be a powerful tool for introducing complex and new models to an audience. CFDs are a simplified version of the more rigorous influence diagrams, but they are not flow diagrams. The latter follow a time pattern which is not shown in a CFD. Influence diagrams use utility functions and conditional probability to return expected monetary values. The same results can be obtained with Decision Tree, one of the tools of MM4XL software.

It is easy to detect poorly designed CFDs, as they look like indecipherable subway maps with lines crossing each other all over the plan. These are models built using many variables. Not all models, however, must be overcrowded. Building models made only of pertinent variables is becoming an art.

Contributing Factor Diagrams can be easily built in MS Excel using the drawing tools, which can then be grouped to a single picture that is easily transportable. When a project requires greater detail, we suggest using the tool Project (Mind) Map of MM4XL software to draw more effective CFDs. The mind map tool enables you to draw CFDs with links to documents, vocal messages, Internet addresses and much more. This can turn a flat CFD into a real repository of information for the whole model.

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