Business Model, Linear Programming

If you are a product manager you have to know
how to break down costs: fixed costs and variable
costs from the Product (platform and derivatives)
from the respective Bill of Materials (BOM). It is
a tricky as it all depends on sourcing, fluctuating
prices, and the way you compute (FIFO or LIFO).
And you have to forecast (lucky you, if you have
historic sales data to build your model). So in short,
as project manager reports to engineering manager
or product manager reports to marketing manager,
you need to know how to model.

In that sense, business models are used to forecast,
or performance benchmarking.

One business modeling tool is Linear Programming.
It is simple, suppose you run a pizza joint, you can
sell 250 Grilled Lamb Pizzas (serving at the tables)
or 600 Kebab Pita (take away) - you are limited by
tables, operating time, kilograms of meat, oven and
man power - you are to maximize your profits and
a pie of Pizza makes 40% profit, while a Kebab pita
brings 30% profit per unit. Now you have to allocate
your Grilled Lamb to make P number of Pizzas and
K number of Kebabs. You have 20 kg of grilled lamb,
to make a Pizza you need about .03 kg of meat and
for Kebab it will take about .01 kg of delicious meat.

You can see LP is all about finding an optimal solution
(for profits) under restrictions imposed on operation
(also by financial constraints too). Equations are :

Maximize .40P+.25K

K <= 600 P <= 250 .03P+.01K <= 20 But if you are limited by Dough to make pita bread and Pizza pie. So one more constraints will be there. How about minimizing cost, not maximizing profit? Please note that the benefit of Business Modeling is to avoid fatal mistakes for business - rotten meat, stale bread, leftover food are not good news for joint owner. There will be more equations in LP formulations if constraints or objectives changes. LP is so simple!