All right, so if we take a look back at the exercise that we completed

in inventory planning which said, our average is 172.5 units of demand.

But if we take a look at our expected profit, turns out that if we're only able

to order in increments of 25 units, our best bet is to order only a 150 calendars.

And if I could order exactly a 173 calendars,

I've actually got a lower profit.

So, in this case, turns out I'm better off ordering fewer calendars.

And so what we're essentially saying is,

based on the business context that we're looking at,

because when I order calendars, if I don't sell them, I end up losing money.

I can return them for some of what it cost me, but

I end up losing money when I order too much.

Turns out we're better off ordering fewer calendars than our expected level

of demand.

And so we don't just want to calculate, what's my expected level of demand?

We need to take into account the cost structure in the business problems

that we're dealing with.

So, the approach that we're generally going to take, and

we'll do that in the exercise that we work through in this session,

is to specify the profit equation.

That's our evaluation model.

If I knew for example the level of demand that I'm getting,

let's write out our profit equation.

And then let's characterize the extent of uncertainty that we have using

the appropriate distributions.

And we're just going to conduct simulations that take into account how

likely are different levels of demand.

And what we may see is, in this, as we did in this inventory planning exercise,

I'm better of ordering fewer calendars under this particular cost structure.

There maybe other cases where I maybe better off actually ordering

more than the expected level of demand.

Or exactly equal to the expected level of demand.

So we don't just want to stop with calculating statistics.

What we want to do is incorporate those in to that evaluation model.

And then use that tool that we've developed

to identify what is the appropriate decision for us to make.