A simplified representation of relationships among real world variables, entities, or events using statistical, financial, economic, mathematical, or scientific concepts and equations. Models are used to help explain a system, to study the effects of different parts of a system, and to derive estimates and guide decisions.
A model consists of three components: an information input component, which delivers assumptions, parameters and data to the model; a processing component, which transforms inputs into estimates; and an output component, which translates the estimates into useful business information. A model evolves through a life cycle as follows:
- a specification phase
- an implementation phase
- a production phase, that consists of one or more model runs.
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