It’s A Good Thing…

…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?

  3 comments for “It’s A Good Thing…

  1. November 28, 2006 at 6:14 pm

    I like cheese.

  2. Wen
    November 28, 2006 at 6:28 pm

    Mmmmm. Cheese.

  3. November 29, 2006 at 8:03 am

    Ok you really need to work on that translation software because I think some of those words were missing vowels, and possibly some accents and umlas. But if you need some help with the display of new merchendise, or possibly branding, plese shoot me an email and I’ll get you and the boss over here and give you a tour of our place and make you spend money.

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