This is a first-year gateway course and is not available for second-year bidding. Second-years must wait until the add/drop process begins in January to add this class.

IMPORTANT NOTE:  This course will have a take-home final exam on Sunday, May 9, 11:00 AM – 5:00 PM.  If you are unable to take the exam both on this date and at this time, do NOT enroll in this course.  Although you must take the exam on May 9, the exam will be distributed and returned electronically, so you may take the exam from anywhere in the world from which you can access either e-mail or bSpace.

COURSE NUMBER:  MBA 240.1B

COURSE TITLE:  Risk Management via Optimization and Simulation

UNITS OF CREDIT:  1

INSTRUCTOR:  Andrew Shogan

E-MAIL ADDRESS: andy@haas.berkeley.edu

CLASS WEB PAGE LOCATION: http://bspace.berkeley.edu

MEETING DAY(S)/TIME:  Wednesday, 4:00 – 6:00 PM -- beginning on March 17, and ending on May 5.

PREREQUISITE(S):  Core courses from Fall A & B and Spring A (or consent of instructor)

CLASS FORMAT:  This is a lecture-based course.

REQUIRED READINGS:  There is a textbook.

BASIS FOR FINAL GRADE:  4 Personal Problem Sets (10%), 2 Team Assignments (40%), Take-home Final Exam (50%)

FACULTY VIDEO  Note: this video refers to the weekend version of this course.  The daytime version will be substantially similar. 

[TO LOG IN TO THE VIDEO SERVER: Username: haas\haas login.   This is your Haas e-mail address, up to, but not including, the "@" sign. You must type "haas\" before your log-in name. Example: someone with an e-mail account videoplease@haas.berkeley.edu would log-in with: "haas\videoplease".]

ABSTRACT OF COURSE'S CONTENT AND OBJECTIVES:  This 1-unit 14-hour elective course (1 2-hour lecture per week for 7 weeks) will take place during Spring B.  Haas policy prohibits your dropping an elective after the 2-rd week of classes.  Unfortunately, this course does not begin until the 9-th week of classes. Thus, you will need to bear some risk and enroll in the course before its first meeting without the opportunity to drop the course after its first meeting.  To mitigate this risk and have confidence that this is a course you want to take, you can do one or more of the following:

1.  Read the course description below.

2.  Talk with me. (Send e-mail to andy@haas.berkeley.edu  to arrange an in-person or phone meeting.)

3.  Talk with some of the second-year MBAs who took this elective in Spring 2009.

Doing one or more of the above will enable you to obtain a better idea about whether you want to take the course before the end of the 2-rd week of classes, when you will need to make an irrevocable decision.

This course surveys how to formulate, solve, and interpret mathematical models that assist a manager in his/her decision making.  I use the word assist because a model does not make a decision for a manager.  Before making a final decision, a manager must combine his/her own experience and instincts with the information and insights provided by a model.  I emphasize decision models that are widely used in diverse businesses and industries, models with which all successful managers should be familiar. The courses primary goals are twofold: to make all students intelligent consumers of decision models developed by others, and to motivate many students to be suppliers of decision models to their colleagues at work.  Until recently, decision models were for experts only. However, given the past decades advances in computer hardware/software and in data collection/storage/retrieval, today’s managers can quickly and inexpensively perform on their desktops what once required significant investments of time, space, and dollars.  Therefore, an important aspect of this course is the association with each major topic of a piece of software that you own, learn, and apply during the course (and hopefully afterwards!).

Below is a summary of the courses two major topics and the associated software.

OPTIMIZATION USING EXCEL's SOLVER.

The topics covered will include:

 - What is a Linear Program, and what is an Integer Linear Program?

 - Applications of linear programming and integer linear programming to production and operations management and to financial management.

 - How to use Excel’s built-in Solver to solve a linear program or an integer linear program. (That is, although spreadsheet software such as Excel was designed initially to answer the question “What if?”, Solver allows us to answer the question “What's best?”.)

SIMULATION & RISK MANAGEMENT USING CRYSTAL BALL.

The topics covered will include:

 - Why managers should confront uncertainties instead of ignoring them.

 - How a manager can get into trouble by not understanding the Flaw of Averages. (That is, the mean of a function of random variables does not in general equal the function of the means of the random variables.)

 - The world is not always Normal! (That is, in addition to the Normal Probability Distribution, there are other probability distributions with which a manager should be familiar.)

 - What is a Simulation?

 - How Crystal Ball, an add-in to Excel, can be used to conduct a simulation within a spreadsheet.

 - What is risk, and how can it be measured and managed?

 - The trade-off between return and risk. (For example, the best decision might not be the decision that maximizes profit but instead might be a decision that has a lower-than-maximum profit but a significantly lower downside risk.)

 - Applications of simulation to production management, developing a "business plan" for a new product, obtaining portfolio insurance via a put option, adding "leverage" to a portfolio via a call option, yield management in the airline and hotel industries, and Value-at-Risk.

BIOGRAPHICAL SKETCH:  ANDREW W. SHOGAN is on the faculty in the Haas School's Operations and Information Technology Group.  He joined the Haas School’s faculty in 1974 after receiving an A.B. in Mathematics from Princeton and a Ph.D. in Operations Research from Stanford.  Andy has twice received the Haas School’s Cheit Award for Teaching Excellence -- once from the MBA students and once from the EvMBA students -- and he has received the Distinguished Teaching Award from the University's faculty.  He has designed and taught a variety of executive education programs for companies in the United States, China, Thailand, Taiwan, Jamaica, Mexico, and Switzerland.