Monetary objective

What is a Monetary objective?

When you have an objective to maximize or minimize a monetary payoff (i.e. salary, cost, profit, etc) your objective can be called a monetary objective. For a monetary objective, a utility function is used to map the real world value to a level of satisfaction that is expressed within a number between 0 to 100 (or 0 to 1) based on your preference. The monetary objective is very similar to the numerical type objective. The difference is that when you have a monetary objective, you can optionally choose to specify an interest rate and future date of payoff so that a Net Present Value (NPV) can be calculated. All calculates are done based on Net presented value.

The user interface for a monetary objective

Same like numerical type objective, after you have created a monetary objective, if you choose to use Interest rate for calculating the Net present value when you will set a payoff for a decision tree node, you will be presented with a number input box. Once you focus/ click on that number box, a slider will show up to help you speed up the input process.

monetary-input

Probability Distribution Modeling

The monetary objective can take a probability distribution for an uncertain payoff. Please check the numerical type objective for learning details about this feature. Both the monetary and numerical objective offers same user interface feature fore probability distribution modeling.

Table based entry

You may have a list of items sum up when you think about a payoff. No, you do not need to open the Excel software for doing the sum operation. You can do it right inside the payoff window of the Decision Tree Maker & Analyzer software.

table-entry-button

Once you click the table entry button, you will see the table entry user interface as shown below.

table-based-entry

Modeling a monetary type objective

When the start the objective creation wizard, you will see the following screen. In order to model a numerical type objective, choose either Maximize or Minimize from the drop down as shown below.

maximize-and-minimize

Say, you have entered the following criterion in the objective start screen as shown below.

maximize-salary-objective

Then when you click the 'Proceed' button, you will see the following question screen:

objective-type-question

In the above screen, click the button "Money Type". Then you will be asked if you want to use interest rate based present value calculation.

calculate-pv-question

If you answer "No", then the decision tree software will treat this objective as if it is a regular Numerical type objective. There is no difference in the user interface when you have Monetary type objective but you are not using interest rate based present value calculation. Therefore, for simple decision context, when you do not care about interest rate and future date of monetary payoff, it is recommended to use the Numerical type objective. In the Numerical type objective, you can use a unit for your currency and apparently the objective will be a monetary objective.

Anyway, once you click "Yes" or "No", you will be asked to enter a unit (optional), minimum possible value and maximum possible value.

monetary-type-min-max-unit

Editing the objective

We have already explained how to invoke the objective editor. Once you create a monetary type objective and open the objective editor for the numerical type, you will see the following view.

money-type-editor

The rest of the user interface things in this editor are same as the Numerical type objective editor. So, you can check the numerical type objective editor related page to learn more about the rest of the user interfaces.

Last updated on 12 October 2018, Friday, 8:06:18 PM
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