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Quantitative Techniques In Business

Monika Rehman
Submitted to Ma’am Aliya Kanwal

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Why we study quantitative techniques in business?

Provide a tool for scientific analysis: These techniques provide executives with a more
precise description of the cause and effect relationship and risks underlying the business
operations in measurable terms and eliminates the conventional, intuitive, and
subjective basis on which managements are used to formulate their decisions in the past.

Provide solutions for various business problems: These techniques are being used in
the field of production, procurement, marketing, finance, and allied fields. Problems
like how best can the managers and executives allocate the available resources to
various products so that in a given time the profits are maximum or the cost is minimum?
Is it possible for an industrial enterprise to arrange the time and quantity of orders of its
stock such that overall profit with given resources is maximum? How best can the
manager determine the number of men and machines to be employed and used in a
manner that neither remains idle and at the same time the customer or the public will
not wait for unduly long for service?. And similar other problems can be solved with
the help of quantitative techniques.

Enable proper deployment of resources: Quantitative Techniques like Programme

Review and Evaluation Technique(PERT) helps in the proper deployment of resources.
PERT enables organizations to determine the latest finish time for each event and
activities thereby helping in the identification of critical path. It will also enable us to
deploy resources from one activity to another to facilitate early completion.

It helps in minimizing waiting for time and servicing costs: This theory that is
queuing theory helps management in minimizing total waiting time and servicing costs.
This technique also analyses the feasibility of adding facilities and thereby helps
businesses to take a correct and profitable decision.

Assists in choosing an optimum strategy: Game Theory is especially used to

determine the optimum strategy in a competitive situation and enables businesses to
minimize losses by adopting the optimum strategy. Adopting game theory effectively
will no doubt help organizations gain a competitive advantage.

They render great help in optimum resource allocation: Linear programming

technique is used to allocate resources in an optimum manner in problem scheduling,
product-mix, and so on. In an industry that manufactures different products, the
application of linear programming will help the organization to select and manufacture
appropriate product-mix that will maximize their profit at minimum cost.

Enable management to decide when to buy and how much to buy: The technique of
inventory planning enables management to decide when to buy and how much to buy.
An inventory model Like EOQ would help to determine the quantity of material needed
at the lowest cost.
They facilitate the process of decision-making: Decision theory enables business
organizations to select the best course of action when information is given in a
probabilistic form. Through decision tree techniques, executives' judgment can
systematically be brought into the analysis of problems. Simulation is another important
technique used to initiate an operation or process before the actual performance. The
significance of simulation lies in the fact that it enables us to find out the effect of
alternative courses of action in a situation involving uncertainty where the mathematical
formulation is not possible. Even a complex group of variables can be handled through
this technique. Through this technique, a random shock that can affect an organization
can be simulated and examined how the organization can cope with the scenario.

Through various quantitative techniques management can know the reactions of the
integrated business systems. The integrated production model techniques are used to
minimize costs concerning workforce, production, and inventory. This technique is
quite complex and is used by companies having detailed information concerning their
sales and costs statistics over a long period. Besides various operation research(O.R)
Techniques also help in the management of people making decisions concerning various
problems of business and industry. The techniques are designed to investigate how the
system would react to various variations in its component elements and/or external
environmental factors

Applications of Quantitative Techniques in Business

There is no branch of human activity that can escape the attention of statistics. It is a
tool of all sciences. It is indispensable for research and intelligent judgment. It has
become a recognized discipline in its own right. A few specific areas of application are
mentioned below.

➢ Finance and Accounting: Cash flow analysis, Capital budgeting, Dividend

and Portfolio management, Financial planning.
➢ Marketing Management: Selection of product mix, Sales resources
allocation, and Assignments.
➢ Production Management: Facilities planning, Manufacturing, Aggregate
planning, Inventory control, Quality control, Work Scheduling, Job
sequencing, Maintenance, and Project planning and scheduling.
➢ Personnel Management: Manpower planning, Resource allocation,
Staffing, Scheduling of training programs.
➢ General Management: Decision Support System and Management of
Information Systems, MIS, Organizational design and control, Software
Process Management and Knowledge Management.

Applications
Business owners are often forced to make decisions under conditions of uncertainty.
Luckily, quantitative techniques enable them to make the best estimates and thus
minimize the risks associated with a particular decision. Ideally, quantitative models
provide company owners with a better understanding of information, to enable them to
make the best possible decisions.

➢ Production Planning

Quantitative analysis also helps individuals to make informed product-planning

decisions. Let’s say a company is finding it challenging to estimate the size and
location of a new production facility. Quantitative analysis can be employed to
assess different proposals for costs, timing, and location. With effective product
planning and scheduling, companies will be more able to meet their customers’
needs while also maximizing their profits.

➢ Purchase and Inventory

One of the greatest challenges that businesses face is being able to predict the
demand for a product or service. However, with quantitative techniques,
companies can be guided on just how many materials they need to purchase, the
level of inventory to maintain, and the costs they’re likely to incur when shipping
and storing finished goods.

➢ The Bottom Line

Quantitative analysis is the use of mathematical and statistical techniques to

assess the performance of a business. Before the advent of quantitative analysis,
many company directors based their decisions on experience and gut. Business
owners can now use quantitative methods to predict trends, determine the
allocation of resources, and manage projects

➢ Project Management
Quantitative methods have found wide applications in
project management. These techniques are used for
optimizing the allocation of manpower, machines, materials,
money, and time. Projects are scheduled with quantitative
methods and synchronized with the delivery of material and
workforce.
➢ Production Planning and Scheduling
Determining the size and location of new production
facilities is a complex issue. Quantitative techniques aid in
evaluating multiple proposals for costs, timing, location, and
availability of transportation. Product mix and scheduling
get analyzed to meet customer demands and maximize
profits.
 ➢ Purchasing and Inventory
Predicting the amount of demand for a product is always
risky and uncertain. Quantitative techniques offer guidance
on how much raw material to purchase, levels of inventory
to keep, and costs to ship and store finished products.
➢ Marketing
Marketing campaigns get evaluated with large amounts of
Data. Marketers apply quantitative methods to set budgets,
Allocate media purchases, adjust product mix and adapt to
Customers' preferences. Surveys produce data about
Viewers' responses to advertisements. How many people
Saw the ads, and how many purchased the products? Such
Information is evaluated to get the return on investment in
an advertising campaign.
➢ Finance
Financial managers rely heavily on quantitative techniques.
They evaluate investments with discounted cash flow
models and return on capital calculations. Products get
analyzed for profit contribution and cost of production.
Workers are scrutinized for productivity standards and
hiring or firing to meet changing workloads.
Predicting cash flow is always a critical concern for
managers, and quantitative measurements help them to
predict cash surpluses and shortfalls. They use probabilities
and statistics to prepare annual profit plans.
➢ Research and Development
Risking funds on research and development is always a best guess scenario. The
outcomes are never certain. So, managers look to mathematical projections
about the probability of success and eventual profitability of products to make
investment decisions.
➢ Agriculture
Operations research techniques have long been employed by
farmers. They utilize decision trees and make assumptions
about weather forecasts to decide which crops to plant. If
forecasters predict cold weather, is it more profitable to
plant corn or wheat? What happens if the weather is warm?
These are all probabilities that farmers use to plan their crop
rotations.
What are the Tools used in Quantitative Research

Quantitative methods involve the collection and analysis of objective data, often in
numerical form. The research design is determined before the start of data collection
and is not flexible. The research process, interventions, and data collection tools (e.g.
questionnaires) are standardized to minimize or control possible bias.
➢ Observation Checklist:
The researcher directly observes (watches and listens to) some phenomenon and
then systematically records the resulting observations.
Tool: The observation checklist is the instrument used for structured
observation. The checklist consists of pre-determined specific categories of
behavior’s/arrangement/processes/procedures that will be observed.
➢ Questionnaires:
Survey instruments comprising a series of questions, designed to measure a
given item or set of items.
Tool: Questionnaires can be used for structured interviews, offline or online
self-administered data collection, and telephone interviews. In a questionnaire,
the subjects are required to respond to questions in writing or, more commonly,
by marking an answer sheet. In the latter type of questionnaire, response options
are often closed lists of responses.
➢ Performance-Based Instruments:
Performance-based instruments are alternative forms of assessment used to
demonstrate a skill or proficiency by having the participant create, produce or
do something (e.g. write a paper, create a portfolio, do an athletic performance).
Although popular in recent years, the use of these approaches is fraught with
technical difficulties. They are often time-consuming and may require
equipment or other resources that are not readily available.
➢ Diary:
A diary is a self-completed record of experiences during the study period (e.g.
alcohol consumption, episode of sickness, or travel).
➢ Electronic Data Cap Capture:
Electronic data capture is a method for collecting data entered directly into a
computer or other electronic device (i.e. rather than paper forms). The
instrument can be in web-based, handheld Smartphone, or computer format
Quantitative Techniques of Decision Making
Decision-making is one of the most fundamental functions of management
professionals. Every manager has to make decisions about his field of work. Hence, it
is an all-pervasive function of basic management. The process of decision-making
contains various methods. Quantitative techniques of decision-making help make these
methods simpler and more efficient.
Decision Making:

It is widely believed that management at its core is making decisions. A manager’s role
can be summed up as making decisions to help an organization achieve its objectives
and vision So all managerial functions such as planning, direction, organizing, control,
etc. are executed by the manager making a decision. Almost every function of a typical
manager requires him to make decisions on a routine basis. These decisions generally
depend on the nature and scope of his work, authority, and powers. A decision is
a judgment of a course of action that aims to achieve specific results. Decisions form
the basic foundation for every task a person achieves. A manager often has to choose
from a range of alternatives for every task he has to complete. Choosing the right one is
important because every decision has consequences. Hence, we can say that decision-
making involves selecting a course of action from several alternatives. This is a very
important function that managers have to carry out routinely.

Quantitative Techniques
There are several techniques that a manager can employ while making decisions. For
example, quantitative techniques enable managers to take decisions objectively and
efficiently. These techniques rely on a scientific and statistical approach to make good
decisions. The following are six such important quantitative techniques of decision
making:

✓ Linear Programming: This technique helps in maximizing an objective under

limited resources. The objective can be either optimization of a utility or
minimization of a disutility. In other words, it helps in utilizing a resource or
constraint to its maximum potential. Managers generally use this technique only
under conditions involving certainty. Hence, it might not be very useful when
circumstances are uncertain or unpredictable.
✓ Probability Decision Theory: This technique lies in the premise that we can
only predict the probability of an outcome. In other words, we cannot always
accurately predict the exact outcome of any course of action. Managers use this
approach to first determine the probabilities of an outcome using available
information. They can even rely on their subjective judgment for this purpose.
Next, they use this data of probabilities to make their decisions. They often use
‘decision trees’ or pay-off matrices for this purpose.
✓ Game Theory: Sometimes, managers use certain quantitative techniques only
while taking decisions about their business rivals. The game theory approach is
one such technique. This technique simulates rivalries or conflicts between
businesses as a game. Managers under this technique aim to find ways of gaining
at the expense of their rivals. To do this, they can use 2-person, 3-person, or n-
person games.
✓ Queuing Theory: Every business often suffers waiting for periods or queues
about personnel, equipment, resources, or services. For example, sometimes a
manufacturing company might gather a stock of unsold goods due to irregular
demands. This theory aims to solve such problems. This theory aims to minimize
such waiting periods and also reduce investments in such expenses.
 For example, departmental stores often have to find a balance between unsold
stock and purchasing fresh goods. Managers in such examples can employ the
queuing theory to minimize their expenses.
✓ Simulation: As the name suggests, the simulation technique observes various
outcomes under hypothetical or artificial settings. Managers try to understand
how their decisions will work out under diverse circumstances. Accordingly,
they finalize the decision that is likely to be the most beneficial to them.
Understanding outcomes under such simulated environments instead of natural
settings reduces risks drastically.
✓ Network Techniques: Complex activities often require concentrated efforts by
personnel to avoid wastage of time, energy, and money. This technique aims to
solve this by creating strong network structures for work. There are two very
important quantitative techniques under this approach. These include the Critical
Path Method and the Programmed Evaluation & Review Technique. These
techniques are effective because they segregate work efficiently under networks.
They even drastically reduce time and money.

Develop a Questionnaire for Quantitative Techniques in Business

Likert Scale Questionnaire for Measure Employee Performance

Questions Highly Dissatisfy Neural Satisfy Highly

Dissatisfy Satisfy

X1: Job Satisfaction

1 You are satisfied with your work

2 You are satisfied regarding your

associate works

3 Work makes the best use of my

abilities

4 Having physical working

conditions that are safe, not
injurious to health, not stressful

5 Having a job that provides a

steady employment

X2: Salary
6 I receive the right amount of
salary for my work.

7 The economy affects my

satisfaction with my current
salary level
8 I’m being paid fairly in
comparison to others.

9 You are likely interested in

advancement and financial gain

10 Your medical insurance

X3: Working Experience

11 I feel that workplace training

opportunities
encourage me to work better
12 I am valued as a hardworking
individual
within my organization
13 I need assistance in performing
jobs

14 I’m happy about the promotion

criteria of the employees

Job Performance

16 I have the tools and resources I

need to do my job

17 My supervisor actively listen to

my issues and suggestions

18 Working hours that allow me

enough time with family and time
to pursue other strong interests
19 In my job, I am satisfied with how
often I take part in problem-
solving.

20 You are enthusiastic about your

job