MANANGMENT SCIENCE REVIEWER
WHAT IS MANAGEMENT SCIENCE?
 Management Science is a scientific approach to managerial
decision making whereby raw data are processed and
manipulated resulting in meaningful information
 RAW DATA – QUANTITATIVE ANALYSIS – MEANINGFUL
INFORMATION
 Management science also referred to as operations research,
quantitative methods and analysis, and decision sciences.
 Quantitative factors might be different investment
alternatives, interest rates, inventory levels, demand, or labor
cost
 Qualitative factors such as the weather, state and federal
legislation, and technology breakthroughs should also be
considered ( Information may be difficult to quantify but can
affect the decision-making process)
 Management scientist is a person skilled in the application of
management science techniques
 A model is an abstract mathematical representation of a
problem situation.
 A variable is a symbol used to represent an item that can take
on any value.
QUANTITATIVE ANALYSIS
INTRODUCTION
 Mathematical tools have been used for thousands of years
 Quantitative analysis can be applied to a wide variety of
problems
 It’s not enough to just know the mathematics of a technique
 One must understand the specific applicability of the
technique, its limitations, and its assumptions
Defining the Problem
 Need to develop a clear and concise statement that gives
direction and meaning to the following steps
 This may be the most important and difficult step
 It is essential to go beyond symptoms and identify true
causes
 May be necessary to concentrate on only a few of the
problems
 selecting the right problems is very important
 Specific and measurable objectives may have to be
developed
Developing a Model
 Quantitative analysis models are realistic, solvable, and
understandable mathematical representations of a situation
 A scale model is a representation or copy of an object
that is larger or smaller than the actual size of the
object being represented.
 Schematic Model is a diagram in model from. A
schematic, or schematic diagram, is a representation of
the elements of a system using abstract, graphic symbols
rather than realistic pictures.
 Models generally contain variables (controllable and
uncontrollable) and parameters
  Controllable variables are generally the decision variables and
are generally unknown
 Parameters are known quantities that are a part of the
problem
Acquiring Input Data
Testing the Solution
 Input data must be accurate – GIGO rule
 GIGO (garbage in, garbage out) is a concept common
to computer science and mathematics: the quality of
output is determined by the quality of the input.
So, for example, if a mathematical equation is
improperly stated, the answer is unlikely to be correct.
Analyzing the Results
Implementing the Results

 OUTPUT – RESULTS OF THE PROCESS
Developing a Solution
 The best (optimal) solution to a problem is found by
manipulating the model variables until a solution is found that
is practical and can be implemented
 Common techniques are – Solving equations
 Trial and error – trying various approaches and picking the
best result
 Complete enumeration – trying all possible values
 Using an algorithm – a series of repeating steps to reach a
solution
 Both input data and the model should be tested for accuracy
before analysis and implementation
 New data can be collected to test the model
 Results should be logical, consistent, and represent the real
situation
 Determine the implications of the solution
 Implementing results often requires change in an organization
 The impact of actions or changes needs to be studied and
understood before implementation
 Sensitivity analysis determines how much the results of the
analysis will change if the model or input data changes
(Sensitive models should be very thoroughly tested)
 Implementation incorporates the solution into the company
 Implementation can be very difficult
 People can resist changes
 Many quantitative analysis efforts have failed because a good,
workable solution was not properly implemented
 Changes occur over time, so even successful implementations
must be monitored to determine if modifications are
necessary
Modeling in the Real World
 Quantitative analysis models are used extensively by real
organizations to solve real problems
 In the real world, quantitative analysis models can be
complex, expensive, and difficult to sell
 Following the steps in the process is an important component
of success
4. Models can save time and money in decision making and problem
solving.
5. A model may be the only way to solve large or complex problems
in a timely fashion.
6. A model can be used to communicate problems and solutions to
others.

Models Categorized by Risk

• Mathematical models that do not involve risk are called
How To Develop a Quantitative Analysis Model
deterministic models (We know all the values used in the model with
 Profit = Revenue – Expenses complete certainty) • Mathematical models that involve risk, chance,
 Expenses can be represented as the sum of fixed and variable or uncertainty are called probabilistic models –( Values used in the
costs and variable costs are the product of unit costs times the model are estimates based on probabilities)
number of units Possible Problems in the Quantitative Analysis Approach
 Profit = Revenue – (Fixed cost + Variable cost)
 Profit = (Selling price per unit)(number of units sold) – [Fixed Defining the problem
cost + (Variable costs per unit)(Number of units sold)]  Problems are not easily identified
 Profit = sX – [f + vX] Profit = sX – f – Vx  Conflicting viewpoints
 where s = selling price per unit  Impact on other departments
 v = variable cost per unit  Beginning assumptions
 f = fixed cost  Solution outdated
 X = number of units sold
 Profits = sX – f – vX
Developing a model
Advantages of Mathematical Modeling
 Fitting the textbook models
1. Models can accurately represent reality.  Understanding the model
2. Models can help a decision maker formulate problems. Acquiring input data
3. Models can give us insight and information.
 Using accounting data
 Validity of data

Developing a solution
 Hard-to-understand mathematics
 Only one answer is limiting
 maximum of the minimums or the "best of the worst". This is the
Testing the solution
Analyzing the results
Implementation
 Lack of commitment and resistance to change
 Management may fear the use of formal analysis
processes will reduce their decision-making power –
 Action-oriented managers may want “quick and dirty”
techniques
 Management support and user involvement are
important Implementation
 Lack of commitment by quantitative analysts –
 An analysts should be involved with the problem and
care about the solution –
 Analysts should work with users and take their feelings
into account
Decision Theory
 Expected Value (Realist) Compute the expected value under each
action and then pick the action with the largest expected value. This
is the only method of the four that incorporates the probabilities of
the states of nature. The expected value criterion is also called the
Bayesian principle.
 Maximax (Optimist) The maximax looks at the best that could
happen under each action and then chooses the action with the
largest value. They assume that they will get the most possible and
then they take the action with the best best case scenario. The
maximum of the maximums or the "best of the best". This is the
lotto player; they see large payoffs and ignore the probabilities.
 Maximin (Pessimist) The maximin person looks at the worst that
could happen under each action and then choose the action with
the largest payoff. They assume that the worst that can happen will,
and then they take the action with the best worst case scenario. The
person who puts their money into a savings account because they
could lose money at the stock market.
 Minimax (Opportunist) Minimax decision making is based on
opportunistic loss. They are the kind that look back after the state of
nature has occurred and say "Now that I know what happened, if I
had only picked this other action instead of the one I actually did, I
could have done better". So, to make their decision (before the
event occurs), they create an opportunistic loss (or regret) table.
Then they take the minimum of the maximum. That sounds
backwards, but remember, this is a loss table. This similar to the
maximin principle in theory; they want the best of the worst losses
Decision-Making is the act of selecting a preferred course of action among
alternatives.
1. Identify the problem. To make decision, first, identify the problem you
need to solve. Cleary define your decision to achieve your goal. To achieve
your goal, make sure your goal is specific, measurable and timely.
2. Determine the criteria that can solve the problem. Gather relevant
information relevant to your choice. You may also do an internal assessment
seeing where your organization succeeded or failed in areas related to your
decisions as basis in making decisions. Also, seek information from friends,
experts, external sources including related studies. Assets and resources are
also part of the organization as criteria that could also solve the problem.
Avoid too much information as this would only complicate the process.
3. Search for the different possible alternatives. With the relevant
information that you have gathered, you may now identify possible
solutions to your problem. Usually, there are more than one option to
consider when trying to meet a goal. For example, if your company is trying
to gain more engagement in social media, your alternatives could include (1)
paid social advertisement, (2) change your social media strategy (2) or (3) a
combination of the two.

4. Evaluate each alternative. Once you identified multiple alternatives, the

next thing to do is to evaluate each alternatives. This is done by weighing
the evidence against the said alternatives. Identify pitfalls for each
alternatives, and weigh those against the possible alternatives. You may also
consider advantages and disadvantages of choosing such alternative.

5. Select the best alternative. This the most important part of the decision
making process where you make decisions. After you identified and clarified
what decisions need to be made, gather all relevant information, and
developed and consider potential paths to take. Then you may now ready to
choose the best alternative to take.

6. Implement the chosen alternative. Once you have made your decision,
act on it. Develop a plan to make your decision tangible and achievable. You
may also develop a project plan related to your decisions.

7. Monitor the implementation. To monitor the implementation, you need

to review the plan or decision. Take an honest look back at your decisions.
Did you solve the problem? Did you meet your goals? If yes, take note what
worked to be done for further reference and improvement. If not, learn
from your mistakes and begin the decision making process again.

1. Decision- Making under the Condition of Certainty The

decision maker knows which state of nature will occur. At this
situation, he will decide definitely on the best possible solution
favorable for him because he knows exactly what will happen.
2.