…that I like math. My last couple of days has been loaded with it.
Last night I had 3 hours of lecture on MARIMA and transfer functions. I was forced to use SPSS (which I hate) instead of my beloved STATA. Forecast Pro blew up when I tried to run MARIMA on my data set, because my primary data set has a fairly drastic cycle to it.
Today at work I’ve been working on a pricing model for product licensing. My assignment was to come up with a pricing model that meets the following requirements:
- Achieves an agreed upon gross margin
- Is reasonable enough to be sellable (not ridiculously expensive to cover costs)
- Shows the customer only 2 variables on the price sheet
In other words, even though I have more than a dozen inputs to the model (affecting both profitability and marketability), I can only show the customer 2 of them. So… I have to be able to justify the pricing model with the customer using just two variables, while accounting for all 20+ variables in the back end of the model.
It’s a good thing I specialized in mathematical simulation and forecast modeling in college. (Especially considering this kind of project is NOT something typically in my job description.)
Anyhow, a model with this many inputs and so much variation in profitability from one step to the next needed a complex model. Much more complex than adding 2 cells together in Excel. So far, I’ve built a Monte Carlo simulation model with a neural network (so it can learn as it iterates) capable of 64,000 simulations at a time. Can anybody say “R^2 of .9953”? Who’s the man?!
I now have a model that meets the criteria. I can logically justify the variables I’ve chosen to use on the “customer price sheet” while at the same time insuring profitability for the company at the desired levels.
While I can’t say with absolute certainty that every license we sell will be profitable, I can say that on average, our profitability will be within a 8% range slightly biased above the target.
Now we just have to sell it.
Next week I get to begin working on the licensing agreement terms and conditions.
Don’t you wish you had my job?