You are on page 1of 10

SHASTRY ACADEMY,, shastrynotes@gmail.

Course Code : MS 08
Course Title : Quantitative Analysis for Managerial
Assignment No. : 08/TMA/SEM-II/2010
1.The manager should seek some balance between quantitative and
qualitative factors in decision making’. Elaborate the statement giving the
situations in which various statistical tools are used.
Quantitative and Qualitative Factors in Decision Making
THE Investment Appraisal.
Payback period
Provide a numerical basis for decision making – reduces decisions to looking at a
monetary value for the next 3 years
The cost of a series of redundancies against the longer term financial benefits to the firm of this
process But: such data provides only part of the story Other factors need to be taken into account,
particularly the effects of decisions on stakeholder groups and their response to such decisions,
e.g. placed on different choices, e.g.
Forecasted sales figures
The takeover of Manchester United CLUB by Malcolm Glazer might make financial sense but
the reaction of the supporters might make the move unworkable.

Qualitative factors look to take account of these other issues that may influence the outcome
of a decision Can be wide ranging and especially need to consider the impact on human resources
and their response to decisions
A decisions (for example, investment in a new production plant) could be considered not only in
financial terms but also to apply other techniques of decision making to look at wider issues:
A SWOT analysis might be part of this:

Might also need to factor in other external issues that might influence the decision making
process which can be summarized as:

Unauthorized Copying, Reselling & Distribution of the Content is Strictly Prohibited

SALES FORECAST FOR AN ORGANIZATION. etc? Such factors may make the difference between success and failure Human Resources Management Impact on a firm’s human resources is essential to consider.g. If the long term effect on the workforce for example was to reduce productivity or increase absence because of the impact on motivation and morale. ==================================== HERE IS ANOTHER EXAMPLE OF THE QUANTITATIVE AND QUALITATIVE FACTORS IN DECISION MAKING. shastryacademy@yahoo. They are the factors relevant to a decision that are difficult to measure in terms of money. In some decision-making situations. THE SALES MANAGER WOULD USE A COMBINATION OF THESE TOOLS TO ARRIVE AT THE FINAL noise pollution. therefore. the fact that a decision makes financial sense may be shelved! Qualitative by its nature. Qualitative factors may include: (1) effect on employee morale. in particular the effects on: Motivation Morale Recruitment and Retention May be difficulty to assess and measure May need to distinguish between short term effects and long term Stakeholder Analysis Wider impacts on stakeholder groups may also be necessary. QUANTITATIVE METHODS 2 Unauthorized Copying. schedules and other internal elements. SHASTRY ACADEMY. is very subjective considerations in decision making. and (4) long-term future effect on profitability. damage to eco-systems. (3) effect on present and future customers. e. such stakeholders include: -EMPLOYEES -SHAREHOLDERS -MANAGERS -ENVIRONMENT -LOCAL COMMUNITY -SUPPLIERS -GOVERNMENT -CONSUMERS DECISION MAKING Eventual decision may rest on the balance between the perceived effects of quantitative and qualitative. in addition to the quantitative or financial factors highlighted by incremental analysis .g. shastrynotes@gmail. qualitative aspects are more important than immediate financial benefit from a decision. the internal politics of a firm as well as the national and international political effect The decision to site a series of wind turbines in a coastal area might be justified on financial grounds but: What is the reaction of the local community? Does government policy support such planning developments? Are there social impacts – e. Reselling & Distribution of the Content is Strictly Prohibited .com WE PROVIDE GUIDANCE ON MBA PROJECT FOR ALL UNIVERSITIES Political could be in its widest sense. (2) relationships with and commitments to suppliers.

” is based on a rollup of individual forecasts. or “pipeline WE PROVIDE GUIDANCE ON MBA PROJECT FOR ALL UNIVERSITIES METHOD 1 • The field perspective. management can quickly recognize that the company is unlikely to meet its original forecast unless corrective action is taken immediately. Taking all three perspectives into account. 3. ============================================ METHOD 3 • The historical perspective. YEAR 2007 $54mill. CUSTOMERS' END USE EXPECTATIONS FORECAST =$57 mill. top-down viewpoint. TERRITORY 9 FORECASTS $3mill.5 mill. TERRITORY 6 FORECASTS $7mill. 1. THE AVERAGE OF THIS WORKING = $57. ----------------------------------------------------------- YEAR 2008 $57mill. TERRITORY 5 FORECASTS $8mill. ================================ NATIONAL TOTAL SALES FORECAST =$55 mill. enabling management to assess sales targets from an aggregate. TERRITORY 10 FORECASTS $3mill. Additionally. TERRITORY 3 FORECASTS $9mill. FORECAST ====================================== METHOD 4 Triangulated Forecasting provides a set of checks and balances that enables management to quickly identify potential problems. ================================= METHOD 2 • The pipeline perspective. =========================================== 3 Unauthorized Copying. YEAR 2005 $48mill.” is based on a comparison of current pipeline data with historical trends. allowing the company to apply knowledge gained from prior periods to the current forecast. the company’s forecasts are typically 20 percent above final attainment. providing management with a bottom-up view of current market conditions TERRITORY 1 FORECASTS $5mill. MARKET SHARE FORECAST 15% = $60 mill. MARKETING CHANNEL FORECAST =$ 58 mill. Reselling & Distribution of the Content is Strictly Prohibited . YEAR 2004 $45mill. shastrynotes@gmail. 4. or “analytic assessment.” is generated by analyzing opportunities at each stage of the pipeline.MARKET POTENTAIL FORECAST $400 mill. the analytic assessment highlights that. shastryacademy@yahoo. at this point in the quarter.FIELDSALES FORECAST = $55 mill. TERRITORY 4 FORECASTS $6mill. TERRITORY 2 FORECASTS $6mill. TERRITORY 8 FORECASTS $4mill. or “field assessment. TERRITORY 7 FORECASTS $4mill. SHASTRY ACADEMY. YEAR 2006 $51mill.

It might further seek to determine correlations and assign probabilities to the scenarios (and sub-sets if any). For example. It can be difficult to foresee what the future holds (e. stability of results) and the mean or median scores of the final rounds determine the results. to foresee what the scenarios are. YEAR4= 200. and this is true of the general forecasts never mind the implied financial market returns. Delphi is based on well-researched principles and provides forecasts that are more accurate than those from unstructured groups. It might consider sub-sets of each of the possibilities. The analysis is designed to allow improved decision-making by allowing more complete consideration of outcomes and their implications.g. After each round. achievement of consensus.g. taking 4 Unauthorized Copying. Delphi has been widely used for business forecasting and has certain advantages over another structured forecasting approach: prediction markets. The carefully selected experts answer questionnaires in two or more rounds. in economics and finance scenario analysis can be a demanding exercise. YEAR2 = 170. stocks and cash) in each of those scenarios. in economics and finance. the process is stopped after a pre- defined stop criterion (e. rapid growth. The technique can be adapted for use in face-to-face meetings. i. It is believed that during this process the range of the answers will decrease and the group will converge towards the "correct" answer. Depending on the complexity of the financial environment. and is then called mini-Delphi or Estimate-Talk-Estimate (ETE). The outcomes can be modelled mathematically/statistically e. asset allocation). the actual future outcome may be entirely unexpected). Finally. shastrynotes@gmail. Then it will be in a position to consider how to distribute assets between asset types (i. a financial institution might attempt to forecast several possible scenarios for the economy (e. and to assign probabilities to them. the institution can also calculate the scenario-weighted expected return (which figure will indicate the overall attractiveness of the financial environment).e. =========================================================== METHOD 2 Scenario analysis -is a process of analyzing possible future events by considering alternative possible outcomes (scenarios). moderate growth. YEAR3=190.g. Thus. a 5 -YEAR simple moving average of closing SALES is the mean of the previous 5 YEARS ' closing SALES . SHASTRY ACADEMY. participants are encouraged to revise their earlier answers in light of the replies of other members of the group. YEAR5=210 . For WE PROVIDE GUIDANCE ON MBA PROJECT FOR ALL UNIVERSITIES METHOD 5 Simple moving average A simple moving average (SMA) is the unweighted MEAN of the previous N data points.g. If those SALES are YEAR1= 150. shastryacademy@yahoo. slow growth) and it might also attempt to forecast financial market returns (for bonds.then the formula is 150+170+190+200+210=800/5 = FORECAST = 220 ============================================================== QUALITITATIVE METHODS METHOD 1 The Delphi method -is a systematic interactive forecasting method for obtaining forecasts from a panel of independent experts.e. number of rounds. Reselling & Distribution of the Content is Strictly Prohibited .com. a facilitator provides an anonymous summary of the experts’ forecasts from the previous round as well as the reasons they provided for their judgments.

They can be described and explained. ============================================================ METHOD 3 Rational and explicit methods The whole purpose of the recitation of alternatives. and luck. Their forecasts are based exclusively on intuition. The virtue of the use of EXPLICIT methods is that they can be reviewed by others. SHASTRY ACADEMY. Probabilities are assigned to reflect the likelihood of an event in the presence and absence of other events. ================================================= METHOD 5 Cross-impact matrix method . His only choice is whether the forecast is obtained by rational and explicit methods. Mainstream science generally ignores this fact because the implications are simply to difficult to accept. Reselling & Distribution of the Content is Strictly Prohibited .. The advantage of this technique is that it forces forecasters and policy-makers to look at the relationships between system components. rather than viewing any variable as working independently of the others. There are also many examples of wrong forecasts. the forecast can be reviewed at any subsequent time. and can be checked for consistency. is to show that there really is no alternative to forecasting.Relationships often exist between events and developments that are not revealed by univariate forecasting techniques. or by intuitive means. Furthermore. shastryacademy@yahoo. effect the likelihoods of other events. forecast accuracy level. insight. =================================================================== METHOD 4 Genius forecasting . and in some cases.This method is based on a combination of intuition. and the level of result appropriateness and applicability. he will choose among them on the basis of which provides him with the most desirable outcome. The virtues of the use of rational methods are as follows: They can be taught and learned. There are many examples where men and women have been remarkable successful at predicting the future. The cross-impact matrix method recognizes that the occurrence of an event can. 5 Unauthorized Copying. Thus his decision is inevitably based on a forecast.e. Psychics and crystal ball readers are the most extreme case of genius forecasting. Our current understanding of reality is not adequate to explain this phenomena. If a decisionmaker has several alternatives open to him. period of time. =========================================== Considerations in the choice of forecasting methods? The selection of the forecast method should be based on several criteria taking into account the applicability of the forecast methodcomplexity. forecast costs. Some psychic individuals are capable of producing consistently accurate forecasts. The resultant inter- correlational structure can be used to examine the relationships of the components to each other. i. These methods are even guaranteed to produce the same forecast regardless of who uses them. in turn. shastrynotes@gmail. The weakness in genius forecasting is that its impossible to recognize a good forecast until the forecast has come to WE PROVIDE GUIDANCE ON MBA PROJECT FOR ALL UNIVERSITIES account of possible variability within single scenarios as well as possible relationships between scenarios. They provide a procedure followable by anyone who has absorbed the necessary training. and within the overall Science fiction writers have sometimes described new technologies with uncanny accuracy. the scope of initial data.

Find the probabilities that a.F  M. He failed in Mathematics only b.F) = P (S.F) = 30% = 30/100 = 0.F) = 45% = 45/100 = 0.15 (b) To find P( passed in statistics if known failed in maths) = P (failed in maths) and P ( passed in statistics) 6 Unauthorized Copying.20 = 0.35 P (passed in Statistics) = P (S. • Forecast object (micro and macro economic indicator forecast methods). if it is known that he has failed in Mathematics Solution: Given: P (failed in statistics) = P( U M.3 P (failed in maths) = P (M. • Forecast goal (genetic and normative forecast methods).3 + 0.45 = 0. in Mathematics. He passed in Statistics. mid-term and longterm forecast development methods).F U M.F) + P (M.F) = 0.20 P (failed in maths only) = P (M.F) = 0.45 (a) To find P (failed in Maths only) P (S.F INERTSECTION M. 35% and 45% failed in Statistics. Accuracy Ease of interpretation Ease of use Ease of using data Credibility Speed Cost savings Ease of implementation Time horizon Adaptive to condition ========================================== 2. Among the examinees in an examination 30%. CRITERIA FOR THE DECISION MAKING. and in at least one of the subjects respectively. Reselling & Distribution of the Content is Strictly Prohibited .35 – 0.F  M.70 P (Failed in atleast one subject) = P (S.F) – P ( S. • Forecast time span (short-term.F) P ( WE PROVIDE GUIDANCE ON MBA PROJECT FOR ALL UNIVERSITIES Type of information (quantitative and qualitative forecast methods). SHASTRY ACADEMY. shastrynotes@gmail. An examinee is selected at random. shastryacademy@yahoo.F) = 35% = 35/100 = 0.35-0.F) – P(S.P) = 100 – 30 = 70% = 0.

5 = 1 P(-1< Z< 1) = P (-1< Z< 0) + P(0 < Z< 1) = 2* P (0< Z< 1) = 2* 0.3413 = 0.5 = 25/ 13.5 – 0.6 = 26cms (approx) (ii) P (520.6826 Number of observations between 520.4744 (From normal distribution the Table) = 0.5/13.5 – 534) / 13.25 on one side of normal graph The table value for 0.85) = 0. µ = 5 34 cm .85 σ P (X>561) = P ( Z> 1.5<X<547.e Z= 0.0256 Number of observations above 561 = 1000*0.5 = -1 Z= (547.From a set of 1000 observations known to be normally distributed. shastrynotes@gmail.5 cm? Between what limits will the middle 50% of the observations lie? Solution: Given: σ = 1 3.0256 = 25.6 = 683cms (approx) (ii) Given 50% of middle value i.5 = 13.5) Z = (520.245 3.5 and 547.25 is 0.5 = -13.5.5 – 534) / 13.5/2 = 0. the mean is 534 cm and SD is 13.5 = 1000* = 0.70 = 0.5 on both sides of 0 i.5 cm. How many observations are likely to exceed 561 cm? How many will be between 520.5 = 1.5/ 13.5 cm .P (0 < Z < WE PROVIDE GUIDANCE ON MBA PROJECT FOR ALL UNIVERSITIES = 0.6826 = 682. n = 1000 (i) P (X > 561) Z=X-µ = ( 561 . Reselling & Distribution of the Content is Strictly Prohibited .35 * 0. shastryacademy@yahoo. SHASTRY ACADEMY.e Z = 0.67 7 Unauthorized Copying.5 cm and 547.534) / 13.

. Secondly. the above depicts the proportion of samples that would fall between 0. the standard error of the mean can refer to an estimate of that standard deviation.045 where 50% of middle observations lie. and 3 standard errors above and below the actual shastrynotes@gmail. of using the sample mean as a method of estimating the population mean) is the standard deviation of those sample means over all possible samples (of a given size) drawn from the population.045 Τ he interval is from 524.67*σ = 5 3 4  0. the sample mean is the usual estimator of a population WE PROVIDE GUIDANCE ON MBA PROJECT FOR ALL UNIVERSITIES Confidence interval µ = Mean 0. Reselling & Distribution of the Content is Strictly Prohibited . Write a note on “standard error. as long as the estimator is unbiased. However. 543.5 = 5 2 4. The standard error of a method of measurement or estimation is the standard deviation of the sampling distribution associated with the estimation method. 2. the standard deviation of the error (the difference between the estimate and the true value) is the same as the standard deviation of the estimates themselves. this is true since the standard deviation of the difference between the random variable and its expected value is equal to the standard deviation of a random variable itself. For example.67∗ 13. A mnemonic for remembering the term standard error is that.e.955 to 543. different samples drawn from that same population would in general have different values of the sample mean. computed from the sample of data being analysed at the time. Distinguish between Standard error and Sampling error STANDARD ERROR For a value that is sampled with an unbiased normally distributed error.[1] The term may also be used to refer to an estimate of that standard deviation. 4. SHASTRY ACADEMY. The standard error of the mean (i. shastryacademy@yahoo. derived from a particular sample used to compute the estimate. 1. 8 Unauthorized Copying.955.

Such errors can be considered to be systematic errors. These are often expressed in terms of its standard error. Here "large enough" would depend on the particular quantities being analysed. sampling error or estimation error is the error caused by observing a sample instead of the whole population. the term standard error is often used to refer to an estimate of this unknown quantity. but its formal or semi-formal use to provide confidence intervals or tests should be avoided unless the sample size is at least moderately large. As a result. In such cases it is important to be clear about what has been done and to attempt to take proper account of the fact that the standard error is only an estimate. statistical theory provides probabilistic estimates of the likely size of the sampling error for a particular statistic or estimator. the true value of the standard deviation is usually unknown. such as an average or percentage. The sampling error can be found by subtracting the value of a parameter from the value of a statistic. shastrynotes@gmail. see sample size and statistical power for more detail. SHASTRY ACADEMY. Non-sampling error is a catch-all term for the deviations from the true value that are not a function of the sample chosen. although in practice the exact sampling error is typically unknown. One well-known case where a proper allowance can be made arises where the Student's t-distribution is used to provide a confidence interval for an estimated mean or difference of means. Non-sampling errors are much harder to quantify than sampling error. for example by using maximum likelihood or a more formal approach to deriving confidence intervals. Unfortunately. In other cases. It leads to sampling errors which either have a prevalence to be positive or negative. Sampling error also refers more broadly to this phenomenon of random sampling variation. the standard error may usefully be used to provide an indication of the size of the uncertainty. 9 Unauthorized Copying. SAMPLING ERROR In statistics. including various systematic errors and any random errors that are not due to WE PROVIDE GUIDANCE ON MBA PROJECT FOR ALL UNIVERSITIES In many practical applications. a sampling error is the difference between a sample statistic used to estimate a population parameter and the actual but unknown value of the parameter .although the cost of doing this may be prohibitive. this is not often possible and it may then be better to use an approach that avoids using a standard error. If the observations are collected from a random sample. In nursing research. The likely size of the sampling error can generally be controlled by taking a large enough random sample from the population. shastryacademy@yahoo. will generally be subject to sample-to-sample variation. Sampling bias is a possible source of sampling errors. Sampling error can be contrasted with non-sampling error. An estimate of a quantity of interest. Reselling & Distribution of the Content is Strictly Prohibited . These variations in the possible sample values of a statistic can theoretically be expressed as sampling

Compute the two regression equations on the basis of the following data: X Y Mean 40 45 Standard Deviation 10 9 Given that the coefficient of correlation between X & Y is 0.8 Regression equation of Y on X _ _ Y–Y=r σ (X-X) Y −−− σ X Y-45 = 0. σ = 9.5 (9/10) ( X.45X – 18 Y = 0.6 10 Unauthorized Copying. Also estimate the value of Y for X=48? Solution: _ _ X = 40 .56Y-25. SHASTRY ACADEMY.2 X=0.5(10/9) (Y-45) X-40= 0.45X + 23 When X = 48 .50.56Y+ 14. Y = 0.56(Y-45) WE PROVIDE GUIDANCE ON MBA PROJECT FOR ALL UNIVERSITIES 5. r = 0.40) Y-45 = 0. Y = 45 .50 X Y Regression equation of X on Y _ _ X–X=r σ (Y – Y) X ---- σ Y (X-40)= 0. shastrynotes@gmail. shastryacademy@yahoo.45(48) + 23 = 44. Reselling & Distribution of the Content is Strictly Prohibited . σ = 10 .com.