Sensitivity Analysis as a Managerial Decision Making Tool

Decision making is an integral part of operations management. It may be useful to a decision maker to have some indication of how sensitive an alternative choice might be to the changes in one or more of those values. Unfortunately, it is not possible to explore all the possible combinations of all the variables in a typical problem. In spite of this, there are some elements that a decision maker can use to assess the sensitivity of assumption probabilities. One of the tools useful for the analysis in some decision making problems is sensitivity analysis. It provides a range of feasibility over which the choice of alternative remains the same. Successful decision making consists of several steps, the first and most important being carefully defining the problem. Given that linear problems can be extensive and complex, they are solved by using sophisticated computer methods. This paper will present software solutions available for personal computers (Lindo, POM). For a manager taking the decision, however, a solution model is only part of the answer. Sensitivity analysis offers a better understanding of the problem, different effects of limitations and “what if“ questions. The insights obtained are frequently much more valuable that a specific numerical answer. One of the advantages of linear programming lies in the fact that it provides rich information on sensitivity analysis as a direct part of the solution.feasibility range, linear programming, Lindo, POM, optimum solution, optimum range, sensitivity analysis.

A numerical approach related to defect-type theories for some weakly random problems in homogenization

We present in this paper an approach for computing the homogenized behavior of a medium that is a small random perturbation of a periodic reference material. The random perturbation we consider is, in a sense made precise in our work, a rare event at the microscopic level. It however affects the macroscopic properties of the material, and we indeed provide a method to compute the first and second-order corrections. To this end, we formally establish an asymptotic expansion of the macroscopic properties. Our perturbative approach shares common features with a defect-type theory of solid state physics. The computational efficiency of the approach is demonstrated

Methodological Traffic Load Survey of the Road Sv. Leopolda Bogdana Mandica with a Queuing Model

The traffic in Osjecko–Baranjska County is strongly marked by the regional road named Sv. Leopolda Bogdana Mandica (so-called “Cepinska cesta”). With its high traffic density and specific significance, this road is negatively characterized by traffic jams, waiting, minor and major accidents. Statistical data for the Republic of Croatia indicate that this is one of the roads with the heaviest traffic load in the country. In an experimental study conducted using traffic, operational and statistical methods of measurement, the problem of Poisson queuing model with a single waiting point was recognized. High frequency of vehicles exceeds the expected and assumed number of clients in a queue, which increases the average waiting time in the queuing model. For this reason, stationary traffic counting is undertaken in order to establish the traffic load. These results, as well as those for waiting times, confirm it is necessary to propose a new traffic organization for this road, which would decrease avarage waiting times and eliminate unneccesary halts. This in turn would increase the flow rate and minimize negative traffic situations.traffic density, stationary traffic counting, peak periods, Poisson queuing model, rationalization, statistical analysis

The Optimal Concentration of Creditors

There are situations in which dispersed creditors (e.g., public creditors) have more difficulties and higher costs when collecting their claims in financial distress than concentrated creditors (e.g., banks). Under this assumption, our model predicts that measures of debt concentration relate [a] positively to creditors' chosen aggregate debt collection expenditures; [b] positively to management's chosen expenditures to avoid paying; [c] positively to total net litigation costs/waste in financial distress; and [d] positively to accomplished claim recovery by creditors (to which we present some preliminary favorable empirical evidence). Under additional assumptions, measures of debt concentration relate [e] positively to intrinsic firm quality; [f] positively to creditor monitoring and negatively to managerial waste; [g] positively to optimal continuation/discontinuation choices; [h] negatively to issuing marketing expenses. In a signaling model, when concentration alone is not a sufficient signal, firms choose the ultimately concentrated debt (i.e., a house bank) and have to pay a high interest.

The Optimal Concentration of Creditors

There are situations in which dispersed creditors (e.g., public creditors) have more difficulties and higher costs when collecting their claims in financial distress than concentrated creditors (e.g., banks). Under this assumption, our model predicts that measures of debt concentration relate [a] positively to creditors' chosen aggregate debt collection expenditures; [b] positively to management's chosen expenditures to avoid paying; [c] positively to total net litigation costs/waste in financial distress; and [d] positively to accomplished claim recovery by creditors (to which we present some preliminary favorable empirical evidence). Under additional assumptions, measures of debt concentration relate [e] positively to intrinsic firm quality; [f] positively to creditor monitoring and negatively to managerial waste; [g] positively to optimal continuation/discontinuation choices; [h] negatively to issuing marketing expenses. In a signaling model, when concentration alone is not a sufficient signal, firms choose the ultimately concentrated debt (i.e., a house bank) and have to pay a high interest.Banking, Capital Structure

Corporate Leverage and Currency Crises

This paper provides an explanation of currency crises based on an argument that bailing out financially distressed exporting firms through a currency depreciation is ex-post optimal. Exporting firms have profitable investment opportunities, but they will not invest because high leverage causes debt overhang problems. The government can make investments feasible by not defending a fixed exchange rate and letting the currency depreciate. Currency depreciation always increases the profitability of new investments when revenues are in a foreign currency and costs are at least partially in domestic. Interestingly, foreign borrowing by exporting firms doesn't change the qualitative results: if firms' debt is denominated in foreign currency, a larger depreciation is needed to restore incentives to invest. An important feature in our model is that in general exporting firms choose to finance investments with debt instead of equity. Currency depreciation is socially optimal if risky projects have a higher expected return than safe projects and if firms are forced to rely on debt financing because of underdeveloped equity markets. Although currency depreciation is always ex-post optimal, it can be harmful ex-ante. Exporting firms know that the government will let the currency depreciate, if their risky investments have failed. This leads to excessive investment in risky projects even if more valuable safe projects are available.Currency depreciation; debt overhang; emerging markets; efficient investment policy; excessive risk taking

Corporate Financial Policies and Performance Prior to Currency Crises

Using company level data from 17 countries that have suffered a currency crisis during the past decade, this paper documents that firms have increasing leverage and declining profitability prior to a crisis. After sorting companies into two groups based on their exchange rate beta, we show that companies that benefit from currency depreciations have higher leverage, lower earnings to revenue ratios and lower interest coverage ratios compared to firms that are harmed by currency depreciations. These results are consistent with the recent literature that puts the financial policies and performance of corporations as the central issue in currency crisis.http://deepblue.lib.umich.edu/bitstream/2027.42/39770/3/wp386.pd