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09/03/2014

Learning Objectives

Chapter 1

After completing this chapter, students will be able to:

Introduction to
Quantitative Analysis
Q
y

1. list down several fields where quantitative


techniques can be used
2. explain
p
the term q
quantitative analysis
y
3. Understand steps involved in applying
decision analysis
4. Give some simple examples where
quantitative analysis is applied

To accompany
Quantitative Analysis for Management, Eleventh Edition, Global Edition
by Render, Stair, and Hanna
Power Point slides created by Brian Peterson

Copyright 2012 Pearson Education

What is Quantitative Analysis?

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The Quantitative Analysis Approach

Quantitative analysis is a scientific approach to

Defining the Problem

managerial decision making in which raw data are


processed and manipulated to produce meaningful
information.

Developing a Model

Quantitative analysis involves the application of

Acquiring
q
g Input
p Data

mathematical method to develop a model and then to


develop a solution.

Developing a Solution

Quantitative analysis also referred to as operations

Testing the Solution

research, quantitative method, management science


and decision science.

Analyzing the Results

Raw Data

Quantitative
Analysis

Meaningful
Information

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Implementing the Results


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Figure 1.1

Defining the Problem

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Developing a Model

This may be the most important and difficult step.

Model is a representation of a situation.

It is essential to go beyond symptoms and identify

Models may be: physical, logical, scale, schematic

or mathematical.

true causes.

Models contain variables (controllable or

It may be necessary to concentrate on only a few of

uncontrollable) and parameters.


parameters

the problems selecting the right problems is very


important

Controllable variables are called decision

variables.

Specific and measurable objectives may have to be

Models should be solvable, realistic, easy to

developed.

understand and easy to modify.


A QA model is an abstract representation of an

existing problem in the form of graph or chart but


most frequently in mathematical relationships.
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Acquiring Input Data

Developing a Solution
Manipulating the model to arrive at the best

Obtain the data that are used in the model

(optimal) solution to the problem. In some


cases, this requires that a mathematical
equation be solved for the best decision. In
other cases
cases, you can use a trial and error
method (simulation), trying various
approaches and picking the one that results
in the best decision.

(input data).
Obtaining accurate data for the model is

p
essential;; even if the model is a perfect
representation of reality, improper data will
result in misleading results.
Data may come from: company reports,

company documents, interviews, on-site


direct measurement, and statistical sampling.

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Analyzing the Results

Testing the Solution

Analyzing the results starts with determining the

Before a solution can be analyzed and

implications of the solution.

implemented, it needs to be tested completely.


Because the solution depends on the input data
and the model, both require testing.

Sensitivity analysis determines how the solutions will

change with a different model or input data.

Determine
D t
i accuracy and
d completeness
l t
off iinputt

data: collect data from a different source and


compare.

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Implementing the Results

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Common Quantitative Models


Methods

Implement the results.

solution into the company.

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Explanation

Decision
Analysis

There are 3 decision environments:


(1) Decision making under certainty
(2) Decision making under uncertainty
(3) Decision making under risk
Appropriate model needs to be chosen depending on
the data available

Linear
Programmming
Model

To maximize profit under the various resource


constraints
To minimize cost under various requirements of the
situations

Transportation

Deals with the problem of distributing goods from


various supply sources to a number of demand
destinations.
To minimize total transportation cost

This is the process of incorporating the

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Common Quantitative Models


Methods
Assignment
Model

Inventory
Control Model
Project
Management
Model

Common Quantitative Models

Explanation
Useful when one is required to assign some jobs to
some individuals.
The model enables one to assign the jobs to the
individuals in such a way that the total cost is the
minimum for the various jobs to be completed
completed.
Consist of economic order quantity model (EOQ),
quantity discount model, and production run model.
Depending on the situations, an appropriate inventory
model can be usedto minimize total inventory cost.

Explanation

Simulation
Modelling

Widely used by companies.


It simulates the features, appearance, and
characteristic of a real situation using computer
software
ft
and
d creates
t various
i
possible
ibl solutions
l ti
tto
the problem.
The best decision can be chosen from the results
simulated.

Two common QA techniques used for project


management are PERT and CPM:
The techniques help managers to plan, schedule,
monitor, and control projects. Corrective actions can
betaken to improve profitability of the company.

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Most solutions obtained are optimal solution


solution.

Save time if the problem is repetitious.

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Defining the problem

Problem is solved using scientific method,


there is a logical and systematic approach
to solving problem.

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Possible Problems in the


Quantitative Analysis Approach

Advantages of Using QA in Problem


Solving

Methods

Problems may not be easily identified.


There may be conflicting viewpoints
There may be an impact on other departments.
Beginning assumptions may lead to a particular

conclusion.
The solution may be outdated.

Developing a model
Managers perception may not fit a textbook

model.
There is a trade-off between complexity and ease

of understanding.
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Possible Problems in the


Quantitative Analysis Approach
Acquiring accurate input data
Accounting data may not be collected for quantitative

problems.
The validity
y of the data mayy be suspect.
p

Developing an appropriate solution


The mathematics may be hard to understand.
Having only one answer may be limiting.

Testing the solution for validity


Analyzing the results in terms of the whole
organization
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