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Ifluence Diagram

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A NOTE ON CONSTRUCTING INFLUENCE DIAGRAMS

Influence diagrams were devised as a way to graphically depicting the relationship between several elements that can affect the results of a decision. The diagram can be used as a basis for creating computer-based models that describe a system or as descriptions of mental models managers use to assess the impact of their actions, see Senge (4 ). For more information on influence diagrams see Bodily et al (1) ; Bossel(2); or Plane(3). This note explains some of the basics of influence diagrams and how to construct one.

Elements of an Influence Diagram

A model is a representation of a system. An influence diagram tries to capture this representation in a form that can be communicated to others. For example, managers could construct an influence diagram to explain their understanding of the system to other managers or to people developing the system on the computer. The elements of the influence diagram are (note: the appropriate color when using color graphics is shown under the symbol):

Depicts an external influence (an exogenous variable) – these are variables whose values are not affected by the decision being made. For example, inflation rate is an external influence that can impact a company’s sales revenue.

Depicts a decision – these are decisions made by the management. Price charged by a company for a unit of a product could be a decision variable.

Depicts an intermediate variable (an endogenous variable) – these are variables whose values are computed as functions of decision, exogenous and other endogenous variables. For example, if revenue is computed as a function of unit volume and price per unit, revenue would be an intermediate variable.

Depict a results node – showing the result of the interaction of the various elements of

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