QUANTITATIVE TECHNIQUES FOR

BUSINESS
MODULE I
INTRODUCTION TO QUANTITATIVE TECHNIQUES
QUANTITATIVE TECHNIQUES
Quantitative techniques are those technique which provide the
decision makes a systematic and powerful means of analysis, based
on quantitative data.
Classification of quantitative techniques
A) Mathematical techniques
B) Statistical techniques
C) Programming techniques
A) Mathematical techniques
A technique in which quantitative data are used along with
mathematical principles are known as mathematical techniques. It
involves
1) Permutation and Combination
Permutation means arrangement of object in a definite order.
Combination means selection of objects without considering order.
2) Set theory
It is a mathematical theory of well determined collection of objects.
3) Matrix
Matrix is a rectangular array of numbers or symbols enclosed by a
pair of brackets.
4) Determinants
It is a scalar value that is a function of the entries of a square matrix.
5) Differentiation
It is a mathematical process of finding changes in dependent variable
on the basis of changes in independent variable.
6) Integration
It is a process of finding changes in independent variable on the basis
of changes in dependent variable.
B) Statistical Techniques
Statistical techniques are those techniques which are used in
conducting statistical enquiry.
1) Collection of date
By using different methods for collecting primary and secondary
data.
2) Correlation analysis
It is used to study the degree of relationship among two or more
variables
3) Regression analysis
It is used to estimate the value of one variable for a given value of
another.
4) Index number
These measure the fluctuations in various phenomena over a period
of time.
5) Time series analysis
Analysis of time series help us to know the effect of factors which are
responsible for changes.
6) Probability theory
It provides numerical value of the likelihood of the occurrence of
events.
C) Programming Techniques
These are operation research techniques used by decision makers in
modern time.
1) Linear programming
This is used in finding a solution for optimising a given objective
under certain constraints.
2) Queuing theory
This deals with mathematical study of queues.
3) Game theory
It is used to determine the optimum strategy in a competitive
situation.
4) Decision theory
It involves making sound decision under risk and uncertainty.
5) Inventory theory
It helps for optimising the inventory levels.
6)Network programming
It is a technique of planning, scheduling, controlling and coordinating
large and complex projects comprising of number of activities and
events.
7) Simulation
It is a technique of testing a model which resembles a real life
situation.
Functions of quantitative techniques
1) To facilitates decision making.
2) To helps for scientific research
3) To help in minimising cost
4) To help in choosing an optimal strategy.
5) To enable proper use of resources.
Uses and advantages of quantitative techniques
1) Helpful in inventory management.
2) Facilitate decision making.
3) Useful in production management.
4) Proper allocation of resources.
5) Reduction in cost and minimising waiting time.
Limitations of Quantitative Techniques
1) It is very expensive.
2) It is time consuming.
3) It does not consider intangible facts.
4) It based on number of assumptions; it may lead to wrong
estimation.
5) It is a tool for decision making. It’s not decision itself.
 MODULE II
CORRELATION AND REGRESSION ANALYSIS
Correlation
Correlation is a statistical technique which can be used to study the
relationship between two or more variables.
Uses of correlation analysis
1) It helps to understand the economic behaviour.
2) It helps in estimating cost, price, etc.
3) It is used as a basis for regression analysis.
4) It helps to reduce range of uncertainty.
5) It measures the degree of relationship between variables.
Types / Classification of Correlation
1) Positive correlation
When the variables are varying in the same direction, it is called
positive correlation.
2) Negative correlation
When the variables are varying in the opposite direction, it is called
negative correlation.
3) Simple correlation
If only two variables are studied in a correlation analysis, it is called
simple correlation.
4) Multiple correlation
If more than two variables are studied in a correlation analysis, it is
called multiple correlation.
5) Partial correlation
It means the measure of association between two variables, while
controlling the effect of one or more additional variables.
6) Linear correlation
It means straight line relationship between two variables.
7) Non-linear correlation
It means there is no straight line or constant relationship between
two variables.
Degrees of Correlation
1. Perfect positive correlation
If an increase in the value of one variable is followed by the same
proportion of increase in the other variable, if a decrease in value of
one variable is followed by the same proportion of decrease in the
other variable, is called perfect positive correlation.
2. Perfect negative correlation
If an increase in the value of one variable is followed by the same
proportion of decrease in the other variable, if a decrease in value of
one variable is followed by the same proportion of increase in the
other variable, is called perfect positive correlation.
3. Limited degree of positive correlation
If an increase in the value of one variable is followed by a non-
proportional increase in the other variable, if a decrease in value of
one variable is followed by a non-proportional decrease in the other
variable, is called limited degree of positive correlation.
4. Limited degree of negative correlation
If an increase in the value of one variable is followed by a non-
proportional decrease in the other variable, if a decrease in value of
one variable is followed by a non-proportional increase in the other
variable, is called limited degree of negative correlation.
5. Zero correlation
No correlation between variables is called zero correlation.
Methods of studying correlation
1. Scatter diagram
2. Karl Pearson’s coefficient of correlation
3. Spearman’s rank correlation.
Scatter diagram
It is a graphical method of studying correlation.
Merits of scatter diagram
1. It is a simple method.
2. It is very easy to understand.
3. It does not have complex calculations
4. It is not influenced by the size of extremalities.
Demerits of scatter diagram
1. It gives only a rough idea about correlation.
2. It is not possible to establish extent degree of relationship.
Karl Pearson's coefficient of correlation
This is one of the most popular method of measuring correlation.
This method was developed by Karl Pearson in 1896.
Properties of Karl Pearson's coefficient of correlation
1. The coefficient of correlation lies between +1 and -1
2. No correlation denoted by r=0
3. It measure the degree and direction of changes.
4. It simply measure the correlation.
Merits of Karl Pearson’s coefficient of correlation
1. This is the most widely used method.
2. It gives a numerical value to express a relationship.
3. It gives both direction and degree of relationship between
variables.
4. It gives a single figure.
5. It gives accurate degree of correlation
Demerits of Karl Pearson’s coefficient of correlation
1. It is difficult to understand.
2. Time consuming method.
3. Complicated. mathematical calculations.
4. Unduly affected by extreme items.
5. Difficult to compute value of coefficient of correlation.
Probable error
It is a statistical device which measure the reliability and
dependability of value of coefficient of correlation.
Coefficient of determination
The square of coefficient of correlation is called coefficient of
determination.
Spearman’s rank correlation
The correlation coefficient obtained from ranks of the variables
instead of their quantitative measurement is called Spearman’s rank
correlation.
Merits of Spearman’s rank correlation
1. Simple to understand.
2. Easy to calculate.
3. It is an approximate measure.
4. It is useful when data are qualitative.
5. It can be applied for both quantitative and qualitative data.
Demerits of Spearman’s rank correlation
1. It is not convenient when N is large.
2. Further algebraic treatment is not possible.
3. It is applicable only individual observations.
4. It uses rank only. Ignores actual figures.
Regression
It is the measure of the average relationship between two or more
variables in terms of original units of the data.
Types of regression
1. Linear regression
It is a type of regression which uses only one independent variable
to explain the dependent variable.
2. Multiple regression
It is a type of regression which uses two or more variable to explain
the dependent variable.
Regression line
It is a line which shows average relationship between two variables X
and Y.
 Regression equation
It is the algebraic expression of the regression lines.
Difference between Correlation and Regression
Correlation Regression
It studies the degree of It studies the nature of
relationship between variables. relationship between variables.
It is not used for prediction. It is used for prediction.
There is no question of There must be dependent and
dependent and independent independent variables.
variable.
It used to determine degree of It is used to study cause and
relationship. effect relationship.
There may nonsense correlation. There is no nonsense regression.

MODULE III
PROBABILITY

Set
Set is a well-defined collection of distinct objects.
Representation of Sets
1. Tabular method
In this method a set is described by the elements separated
by commas and enclosed with in braces
2. Set builder method
In this method set is represented by specifying the characteristics
property of its elements
Types of sets
1. Null set
A set containing no elements is called null or empty set
2. Single set
A set containing a single element is called single set or unit set
 3. Finite set
Set consists of a finite number of elements
4. Infinite set
Set consists of a infinite number of elements
5. Equivalent set
Two sets A and B are said to be equivalent set then it contains
equal number of elements
6. Equal set
Two sets contain equal elements are called equal sets
7. Subset
If every element of A is an element of B then A is called subset of
B
8. Universal set
If all the sets under consideration are subset of a fixed set U is
called Universal set
9. Disjoint set
Two sets A and B are said to be disjoint set if no elements A in B
Venn diagram
The relationship between sets can be represented by means of
diagram is known as Venn diagram.
Probability
Probability refers to the chance of happening or non-happening of
event.
Sample Point
Every indecomposable outcome of a random experiment is called
sample point.
Sample Space
It is a set containing all the sample points of that random
experiment.
Event
It is a subset of sample space.
Equally likely events
Two events are said to be equally likely if anyone them cannot be
expected to occur in preference to other.
Mutually exclusive events
A set of events are said to be mutually exclusive of occurrence of one
of them excludes the possibility of the occurrence of others.
Exhaustive events
It includes all possible outcomes of random experiment.
Dependent event
Happening of one event affect the happening of other is called
dependent event.
Permutation
It means arrangement of object in definite order.
Combination
It means selection of object without considering their order.
Classical definition of probability
If a random experiment results ‘n’ equally likely, mutually exclusive
and exhaustive number of cases of which ‘m’ cases are favourable to
the occurrence of an event ‘A’, then the probability of the event ‘A’ is
m
P(A) =
n

Relative frequency definition of probability

According to this definition, the probability of an event can be
defined as the relative frequency with which it occurs in an
indefinitely large number of trials. It is also called empirical
approach.
Axiomatic approach to probability
Let S be the sample space of a random experiment and A be an event
which is the subset of the sample space, so we can associate a real
number P(A) to the event A. P(A) is called the probability of the
event. It satisfies the following axioms:
1. 0 ≤ P(A) ≤ 1
2. P(S) = 1
3. P (A U B) = P(A) + P(B)
Addition theorem of probability
Mutually exclusive events Not mutually exclusive events
If two events A and B are If two events A and B are not
mutually exclusive, the mutually exclusive, the
probability of occurrence of probability of the occurrence of
either A or B is the sum of either A or B is the sum of their
individual probability of events A individual probability minus
and B. probability of both to happen.
P(A U B) = P(A) + P(B) P(A U B) = P(A)+P(B)-P(A∩B)
Multiplication theorem of probability
Independent variable Dependent variable
If two events are independent, If two events are dependent, the
then the probability of occurring probability of occurring the
both will be the product of second event will be affecting the
individual probability. outcome of the first.
P(A∩B) = P(A).P(B) P(A∩B) = P(A).P(B/A)
Baye’s Theorem
Let S be the sample space of a random experiment which is
partitioned into ‘n’ mutually exclusive events B1, B2,…., Bn. Let A be
an event in the sample space which can happen only if anyone of the
events B1, B2,…., Bn happens.
P(Bi).P(A/Bi)
P (Bi/A) = P(B1).P(A/B1)+P(B2)P(A/B2)+...+P(Bn)P(A/Bn)
 MODULE IV
THEORETICAL DISTRIBUTION
Theoretical Distribution
Theoretical distribution is a distribution obtained for a random
variable on the basis of a mathematical model. It is also called
probability distribution.
Random Variable
It is a variable whose value is determined by the outcome of a
random experiment.
Discrete probability distribution
If the random variable of a probability distribution assumes specific
values only, it is called discrete probability distribution.
Continuous probability distribution
If random variable of a probability distribution assumes any value in
a given interval, it is called continuous probability distribution.
Binomial Distribution
Binomial distribution is the probability distribution expressing the
probability of one set of dichotomous alternatives that is success or
failure.
Properties of Binomial Distribution
1. It is a discrete probability distribution.
2. The mean of binomial distribution is np.
3. The SD of binomial distribution is √𝑛𝑝𝑞.
4. The shape and location of binomial distribution changes as ‘p’
changes for a given ‘n’.
 5. Mean of the binomial distribution increases as ‘n’ increases
with ‘p’ remaining constant.
Poisson Distribution
Poisson distribution is a discrete probability distribution that
expresses the probability of a given number of events occurring in a
fixed interval of time.
Properties of Poisson Distribution
1. It is a discrete probability distribution.
2. It is a positively skewed distribution.
3. Mean and variance of Poisson distribution are equal to ‘m’.
4. Standard deviation of Poisson distribution is √𝑚
5. In Poisson distribution, the number of success is relatively
small.
Uses of Poisson Distribution
1. Count the number of telephone calls.
2. Count the number of defects.
3. Count the number of bacteria per unit.
4. Count the number of accidents.
5. Count the number of persons dying due to heart attack.
Normal Distribution
Normal distribution is continuous probability distribution for a real
valued random variable.
Properties of Normal Distribution / Normal Curve
1. It is a continuous probability distribution.
2. Normal curve is symmetrical about the mean.
 3. Normal curve is bell shaped curve.
4. Both side of normal curve coincide exactly.
5. Normal curve is mesokurtic.
6. Normal curve is asymptotic to the base line.
7. Total area under a normal curve is 100%.

MODULE V
QUANTITATIVE APPROACH TO DECISION
MAKING
Decision making
Decision making is a process of selecting best alternative among
different alternatives.
Steps in decision making
1. Identify the problem.
2. Collection of data.
3. Identify the data.
4. Weight the evidence.
5. Choose alternatives.
6. Take action.
Various quantitative techniques for decision making
1. Mathematical programming.
2.Break even analysis.
3. Linear programming.
4. Decision tree analysis.
5. Capital budgeting.
6. Inventory management.
7. Simulation.
8. Game theory.
9. Queuing theory
10. Information theory.
Decision tree analysis
It is the graphical representation of various alternative solution that
are available to solve a problem.
Advantages of decision tree analysis
1. Simple and easy to understand.
2. Easy data interpretation and classification.
3. Clear visualization.
4. Initiates variable analysis.
5. Depicts most suitable projects.
Disadvantages of decision tree analysis
1. Inappropriate for excessive data.
2. Difficult to handle numerous outcomes.
3. Chances of classification errors.
4. Expensive process.
5. Sensitive towards biases.
6. Unsuitable for continues variables.
Model building
A model is an abstraction of reality or a representation of real object
or situation.
Model classifications
1. Physical model
Physical models are those models which look like a finished object
they represent.
2. Schematic model
It is the representation of elements of a system using graphic visuals.
3. Verbal models
Verbal models are those models which uses words to represent
some objects.
4. Mathematical model
Mathematical models are those model that uses numbers and
symbols to represent an object.
Steps in model building
1. Define the problem or situation.
2. Select criteria to establish objectives.
3. Formulate a model
4. Collect relevant data
5. Identify and evaluate alternatives.
6. Select the best alternative.
7. Implementation.
Linear programming
Linear programming is the problem of maximizing or minimizing a
linear function which is subjected to a linear constraint.
Characteristics of linear programming
1. Constraints
2. Objective functions
3. Linearity
4. Finiteness
5. Non negativity
6. Decision variable.
Advantages of linear programming
1. It provides better insight to the business problem.
2. It helps in optimum allocation of scare resources.
3. It helps to solve multi-dimensional problems.
4. Manager can opt best solution with the help of LP.
This is just a theory short note based on syllabus of Quantitative
Techniques for business. You should concentrate more on problems.
For full details of the subject, please refer text book.

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