The seven-step modeling process

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The seven-step modeling process

Data analysis in the real world is mostly driven by the desire to solve problem(s). In your initial post, share a real-life problem where you have applied (or would like to apply) the seven-step modeling process.

Is this problem structured, semi-structured, or unstructured? Explain your decision-making process.

Expert Partial Solution 

Applying the Seven-Step Modeling Process

In this post, I would like to share a real-life experience where I applied the seven-step modeling process to solve a semi-structured problem for our family business.

The Problem: After analyzing the business’s accounting statements for the fiscal years 2016, 2017, and 2018 I noted that the net profits had been decreasing by an average of 15%. Normally, the company’s profit increases marginally year after a year but this time round I noted a problem that called for urgent intervention.

Collecting and Summarizing Data: The problem prompted me to gather relevant data from various financial statements like income statements, balance sheets, and cash flow statements. From these statements, I sourced key statistics and information that could help me note the cause of the profit declines.  Data for this exercise is summarized below:

Model: From the above summary, I generated a graphical model detailing the trends of the examined metrics namely, sales expenses, profit, cash inflows, and cash outflows.

Model Verification: The above model was an accurate representation of reality. From it, it was evident that sales we decreasing while at the same time expenses were increasing. Net profit for the three years was also noted to be decreasing at an almost equal margin…read more

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The seven-step modeling process