# 4. Diagram the Problem - Part 2

Overview

In this lesson, we will design and build the complete influence diagram for our Zippy Airways case study.

Summary

1. Understanding the Influence Diagram (00:03)

Based on the problem statement, the outcome of our model should be the increased profit Zippy Airways would have had in the last three months with an overbooking model. To diagram this problem, we can consider the additional revenue they would have gained for each flight, and the additional costs they would have incurred for each flight.

The additional revenue for a flight is the number of additional bookings multiplied by the price per additional booking. The price per booking is a parameter, as the problem statement specifies we should keep pricing constant. The number of additional bookings is an intermediate variable, that depends on the plane’s capacity, which is a parameter, and the number of bookings, which is an intermediate variable. Finally, the number of bookings depends on demand, which is a parameter, and the booking limit we impose, which is a decision variable.

In an influence diagram like this, we model the variables that have relationships, but we don’t specify formulas or other details of those relationships. This keeps the diagram simple at this early stage of the modeling process.

The additional costs of overbooking depend on the number of customers “bumped” or moved to another flight, and the cost of bumping a customer. The bumping cost is a parameter, while the number of bumped customers is an intermediate variable. The number of bumped customers depends on the number of no shows, which is a parameter, and the number of extra bookings, from our revenue model.

Once we have established the additional revenue and costs for a flight, we use these as intermediate variables to determine the output, which is the additional profit for a single flight from implementing an overbooking policy.

An influence diagram like this doesn’t always capture all the complexity of certain variables, like demand. This is acceptable at an early stage, as additional complexity can always be added at a later stage.

Transcript

Contents

02:54

03:06

03:56

02:29

03:11

04:59

04:02

02:31

05:56

05:33

04:13

03:23

05:33

04:40

04:44

06:51

03:33

#### 18. Limitations of the Model

02:03

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