CAS5103 Introduction to Quantitative Techniques (Management Science) Course

Outline

I. Introduction
a. Problem Solving and Decision Making
b. Quantitative Analysis
c. Management Science Techniques

Source:

Anderson, D. S. (2016). An Introduction to Management Science: Quantitative

Approaches to Decision Making. Singapore: Cengage Learning Asia Pte Ltd.

Management Science is the discipline that adapts the scientific approach for problem solving
to help managers make informed decisions.

The goal of Management Science Techniques is to recommend the course of action that is
expected to yield the best outcome with what is available.

Problem Solving and Decision Making

Problem solving can be defined as the process of identifying a difference between the
actual and the desired state of affairs and then taking action to resolve the difference.
For problems important enough to justify the time and effort of careful analysis, the
problem-solving process involved the following seven steps:

1. Identify and define the problem.

2. Determine the set of alternative solutions.
3. Determine the criterion or criteria that will be used to evaluate the alternatives.
4. Evaluate the alternatives.
5. Choose an alternative.
6. Implement the selected alternative.
7. Evaluate the results to determine whether a satisfactory solution has been
obtained.

Decision making is the term generally associated with the first five steps of the
problem-solving process. Thus, the first step of decision making is to identify and
define the problem. Decision making ends with the choosing of an alternative, which
is the act of making the decision.

Criteria/ Criterion

Criteria, standard, norms, accepted, benchmark, basis.

Criteria – are the preferences of the decision maker.

- something that is used as a reason for making a judgement or decision.

Illustration 1:
When you were choosing the course to take in College
Illustration 2:
If I would like to purchase a laptop my criteria for buying it would be:
a. Price (Cheaper)
b. Quality
c. Durable
d. Advanced high tech operating system
e. Black
f. Thin
g. With 5 USB hubs, with RGB cable connector, etc
h. It must be user friendly

Illustration 3:
When you are trying to decide which car to buy. What is important to us that will help us
determine which car will best fit our situation?
a. Style
b. Comfort
c. Sound (noise it can create)
d. Gas mileage
e. Speed
f. Manual/transmission
g. Price
h. Payment terms availability
i. Reliability
j. Fashion trend
k. “I need the car to look cool so that I can impress women.”
l. “I need the car to be reliable so that I don’t have to worry about breakdowns in
traffic.”

There are some typical decision criteria:

1. Ease of implementation
2. Cost
3. Ease of modification/scalability/flexibility
4. Employee morale
5. Risk levels
6. Cost savings
7. Increase in sales or market share
8. Return on investment
9. Similarity to existing organization products
10. Increase in customer satisfaction

Types of decision problems

Single-criterion decision problems are problems in which the objective is to

find the best solution with respect to one criterion.
 Multicriteria decision problems are problems that involve more than one
criterion.

Steps in decision making process

1. Structuring the problem.

a. Define the problem.
b. Identify the alternatives.
c. Determine the criteria/criterion.

2. Analyzing the problem.

a. Evaluate the alternatives.
b. Choose an alternative.

Two basic forms of the problem analysis phase:

1. Qualitative Analysis is based primarily on the manager’s judgment and

experience; it includes the manager’s intuitive “feel” for the problem and more
an art than a science.
2. Quantitative Analysis focuses on the quantitative facts or data associated with
the problem. It includes the development of mathematical expressions that
describe the objectives, constraints, and other relationships that exist in the
problem. Then, by using one or more quantitative methods, the analyst will
make a recommendation based on the quantitative aspects of the problem.

Although skills in the qualitative approach are inherent in the manager and
usually increase with experience, the skills of the quantitative approach can be
learned only by studying the assumptions and methods of management science. A
manager who is knowledgeable in quantitative decision making procedures is in a
much better position to compare and evaluate the qualitative and quantitative sources
of recommendations and ultimately to combine the two sources in order to make the
best possible decision.

Some of the reasons why a quantitative approach might be used in the decision-
making process:

1. The problem is complex, and the manager cannot develop a good solution with
the aid of quantitative analysis.
2. The problem is especially important, like when a large amount of money is
involved, and the manager desires a thorough analysis before attempting to
make a decision.
3. The problem is new, and the manager has no previous experience from which to
draw.
4. The problem is repetitive, and the manager saves time and effort by relying on
quantitative procedures to make routine decision recommendations.

Quantitative Analysis
 Quantitative analysis begins once the problem has been structured. To
successfully apply this to decision making, the management scientist must work
closely with the manager or the user of the results. Work can begin on developing a
model to represent the problem mathematically.

Model development

Models

A Model is a selected simplified representation of the essential or relevant entities of some

specific reality and their characteristics.

Basic types of models:

• Iconic
• Analogue
• symbolic

Model development

Models are representations of real objects or situations and can be presented in

various forms.

1. An iconic model is a physical replica of a real object. (e.g., miniature of

buildings)
2. An analog model is physical in form but do not have the same physical
appearance as the object being modeled. (e.g., diagram, charts, tables)
3. A mathematical model includes the representation of a problem by a system of
symbols and mathematical relationships or expressions. It is a critical part of
any quantitative approach to decision making.
Example:
The total profit from the sale of a product can be determined by
multiplying the profit per unit by the number of units sold. If the profit per unit
of selling smart phones is P500, then the total profit P for selling x number of
units is
P = 500x.

In general, experimenting with models requires less time and is less expensive
that experimenting with the real object or situation. The value of model-based
conclusions and decisions is dependent on how well the model represents the real
situation.
Flowchart of the Process of Transforming Model Inputs into Output

Objective Function is a mathematical expression that describes the problem’s

objective.

Constraints are restrictions such as available of resources, materials and labor that
should be considered in decision making.

Uncontrollable inputs such as environmental factors which can affect both the
objective function and the constraints. If all uncontrollable inputs are known and
cannot vary, the model is referred to as a deterministic model. On the other hand, it
these are uncertain to the decision maker, the model is referred to as stochastic or
probabilistic model.

• inherent intelligence
• health of employees
• strengths
• learning style
• traits
• Talents and skills of the individuals.
• Crises and disasters
• Technology
• Competitor’s decision or reactions
• Economy
• Market
• Inflation rate
• Government leaders

Controllable inputs are inputs that are completely controlled or determined by the
decision maker. These are the decision alternative specified by the manager and are
also referred to as the decision variables of the model.
Management Science Techniques

Listed below are the management science techniques that the course will cover:

1. Linear Programming is a problem solving approach developed for situations

involving maximizing or minimizing a linear function subjects to linear
constraints that limit the degree to which the objective can be pursued.
2. Integer Linear Programming is an approach used for problems that can be set
up as linear programs, with the additional requirement that some or all of the
decision variables be integer values.
3. Distribution models are specialized solutions procedures for problems which
can be graphically represented by nodes and arcs.
4. Project Scheduling or PERT/CPM are techniques which help managers carry
out their project scheduling responsibilities.
5. Waiting Line or Queueing Models are developed to help managers understand
and make better decisions concerning the operation of systems involving lines.
6. Goal Programming is a technique for solving multicriteria decision problems,
usually within the framework of linear programming.
7. Forecasting methods are techniques that can be used to predict future aspects
of a business operation.