Model formulation process

Model formulation is the process of abstracting real world problems and moving those abstracted problems into the model world.  When abstracting real world problems, we leave out all of the details and complexities of the problems because they are simply not important at the initial stages in the process of modeling.  With models, we can make decisions and assumptions without causing any financial harm but in the real world you don’t get to play around with different ideas without costs. The model allows us be creative and to make changes and think outside the box.   In model formulation, you capture the essence of a situation and simplify it.  In the process of module formulation, we are confronted with four features of a model that are critical to the success of that specific outcome we’re seeking.  We must decide the course of action we might take and then measure the consequences of the outcome as a result of the decision we made.  Structure is another feature we are confronted with in the model formulation process.  Per the text, “Structure refers to the logic and the mathematics that link the elements of our model together.”  An example might be the equation Profit =Revenue –Cost (P=R-C).  Finally, in module formulation we are confronted with data.  Data refers to real world raw data which must be observed.  An example of the four model formulation steps are: