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Original Title: Class 1 Mathematical Basis for Managerial Decision - Chapter1 - Gaurav

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You are on page 1of 42

USE IN MANAGERIAL

DECISION MAKING

(CHAPTER – 1)

- GAURAV GOYAL

(LECTURER)

03/10/10 1

CONTENTS

INTRODUCTION

BROAD CLASSIFICATION

WHAT IS STATISTICS?

CHARACTERISTICS OF STATISTICAL

DATA

STATISTICAL METHODS:CLASSIFICATION

OPERATION RESEARCH MODELS

SOME STATISTICAL TECHNIQUES

ADVANTAGES OF QT TO

MANAGEMENT

QT IN BUSINESS AND MANAGEMENT

03/10/10 2

INTRODUCTION

BEFORE INDUSTRIAL REVOLUTION AFTER INDUSTRIAL REVOLUTION

ision based on past experience

Decisionand

making

intuition

got complicated and quantitative techn

REASONS

1. Complexity of today’s managerial activities

em since customers 2were

. Availability of owner

known to the different

. type of tools for quantitative analysis of

3. Availability

eded since choice and of customer

requirement of high speed

wascomputers

known. to apply the quantitative techni

uired since manager used to work with the workers at the shop floor level.

t required since progress was recorded daily at the work centre.

uired by the owner for decision making were known to him.

03/10/10 3

BROAD CLASSIFICATION

QUANTITATIVE TECHNIQUES

STATISTICAL TECHNIQUES

OPERATION RESEARCH (OR PROGRAMMING) TECHNIQU

03/10/10 4

WHAT IS STATISTICS?

MISCONCEPTION

tion, analysisPeople

, interpretation and presentation

sometimes refer of of

it as a group numerical

data butdata .

actually it

APPLICATION

nce of statistics

Provides

is based

tools

on for

mathematical

predictionthought

and forecasting

and derivation

using. data a

03/10/10 5

CHARACTERISTICS OF STATISTICAL

DATA

Must be aggregate of facts

Should be affected to a marked

extent by multiplicity of causes

Must be enumerated / estimated to

a certain standard of accuracy.

Must have been collected in a

systematic manner for a pre-

determined purpose.

Must be placed in relation to each

other

Must be numerically expressed.

03/10/10 6

STATISTICAL

METHODS:CLASSIFICATION

STATISTICAL METHODS

2.Presentation 2.Estimation

03/10/10 7

CONTINUED……

collection of data.

APPLIED STATISTICS

ount for randomness and uncertainty and then used to draw inferences about the po

03/10/10 8

DESCRIPTIVE

STATISTICS(EXAMPLE)

03/10/10 9

INFERENTIAL STATISTICS (EXAMPLE)

A sample

filament

of . 200

Average

bulbs lifetime

is manufactured

is unknown

with

. the new filament .

The sample

the population

data provide

average

a sample

. average lifetime of 76 hours per

03/10/10 10

STATISTICAL DECISION THOERY

Deals with analyzing complex

business problems with alternative

courses of action and possible

consequences.

Relies on:-

a) nature of problem

b) decision environment

STATE OF DECISION CONSEQUENCES

Certainty Deterministic

Risk Probabilistic

Uncertainty Unknown

Conflict Influenced by opponent

03/10/10 11

OPERATION RESEARCH

MODELS

MODELS BASED ON PURPOSE

DESCRIPTIVE MODEL EXPLANATORY MODEL

be the behavior

1.Used

of atosystem

explain

based

behavior

on certain

of system

information

by establishing

. relationship bet

roblem situation more vividly including the alternative choices.

for

explain

a inventory

variations

iteminfor

productivity

a stated period

by establishing

by keeping relation

record ofamong

demand

thelevels

factors

andsut

03/10/10 12

OPERATION RESEARCH

MODELS

MODELS BASED ON PURPOSE

PREDICTIVE MODEL PRESCRIPTIVE MODEL

redict status

1.Provides

of a system

norms for

in the

comparison

near future

of alternative

based on data

solutions

. to select the be

redict stock prices for any given level of earning per share (EPS).

03/10/10 13

OPERATION RESEARCH

MODELS

MODELS BASED ON DEGREE OF ABSTRACTION

PHYSICAL MODEL GRAPHIC MODEL SCHEMATIC MODEL

.A model

thing

showing

, eitherrelationship

reduced in size

in

1.A amodel

or

graphical

scaled

depicting

up

manner

. sequence

. of activ

2 . MORE ABSTRACT than the Physical2 . MOREmodel

ABSTRACT

. than the Graphical

e.g. acharts

flow , chart

airplane

e.g., organisation

computer

model program

etc. chartwhose main features are depic

03/10/10 14

OPERATION RESEARCH

MODELS

MODELS BASED ON DEGREE OF ABSTRACTION

ANALOG MODEL MATHEMATICAL MODEL

1.Represents

not replica

the of

systems

the problem

by using

situations

mathematical

. symbols a

, works like the system it2 .represents

MOST ABSTRACT

.

n schematic.

e.g. the

etc. input-output model of the national eco

03/10/10 15

OPERATION RESEARCH

MODELS

MODELS BASED ON DEGREE OF CERTAINTY

DETERMINISTIC MODEL PROBABILISTIC MODEL

Situations

action results

in which

ineach

unique

course

and known

of action

pay-off

can. result in more

e.g. simulation

models. model, decision-theory model

03/10/10 16

OPERATION RESEARCH

MODELS

MODELS BASED ON SPECIFIC BEHAVIOR

CHARACTERISTICS

STATIC MODELS DYNAMIC MODEL

icular

on-makerset

hasoftofixed

make conditions

a sequence and

of optimal

do not change

decisions

in aatshort

every

-term

decision

period.point rega

only

on changes

one decision

over a required

period offor

timea. period.

e.g. product etc

development, dynamic programmi

03/10/10 17

Link for Excel

http://www.free-training-tutorial.com/format-cells.htm

03/10/10 18

03/10/10 19

OPERATION RESEARCH

MODELS

MODELS BASED ON SPECIFIC BEHAVIOR

CHARACTERISTICS

LINEAR MODELS NON - LINEAR MODELS

.If one or

a linear

more components

behavior. in a model exhibits a non-line

e.g. e.g.

Z = 5 + 3x Z = 5x2 + 3xy + y2

03/10/10 20

OPERATION RESEARCH

MODELS

MODELS BASED ON PROCEDURE OF SOLUTION

ANALYTICAL MODELS SIMULATION MODELS

and1.Is

solved

the experimentation

by known mathematical

on a mathematical

or analytical

structure

techniques

of real

to yield

life asystem

general

. sol

2.Done by inserting specific values of decision variables into the given stru

ar programming, game

e.g. theory

test effect

modelsof

, inventory

differentcontrol

number models

of service

etc counters based on

03/10/10 21

Measures of Location

■Mean

for data from a sample,

■Mode they are called sample statistics.

■Percentiles

for data from a population,

they are called population parameters.

as the point estimator of the

corresponding population parameter.

03/10/10 22

Mean

The mean of a data set is the

average of all the data values.

x

The sample mean is the point

estimator of the population mean

µ .

03/10/10 23

Sample Mean x

Sum

Sum ofof the

the values

values

of

of the

the nn observations

observations

∑x i

x=

n

Number

Number ofof

observations

observations

in

in the

the sample

sample

03/10/10 24

Population Mean µ

Sum

Sum ofof the

the values

values

of

of the

the N

N observations

observations

∑x i

µ=

N

Number

Number ofof

observations

observations in

in

the

the population

population

03/10/10 25

Sample Mean

Seventy efficiency apartments were randomly

sampled in a small college town. The monthly rent

prices for these apartments are listed on the next slide.

03/10/10 26

Sample Mean

445 615 430 590 435 600 460 600 440 615

440 440 440 525 425 445 575 445 450 450

465 450 525 450 450 460 435 460 465 480

450 470 490 472 475 475 500 480 570 465

600 485 580 470 490 500 549 500 500 480

570 515 450 445 525 535 475 550 480 510

510 575 490 435 600 435 445 435 430 440

03/10/10 27

Sample Mean

x=

∑ x i

=

34,356

=490.80

n 70

445 615 430 590 435 600 460 600 440 615

440 440 440 525 425 445 575 445 450 450

465 450 525 450 450 460 435 460 465 480

450 470 490 472 475 475 500 480 570 465

600 485 580 470 490 500 549 500 500 480

570 515 450 445 525 535 475 550 480 510

510 575 490 435 600 435 445 435 430 440

03/10/10 28

Median

n The median of a data set is the value in the middle

when the data items are arranged in ascending order.

n Whenever a data set has extreme values, the median

is the preferred measure of central location.

n The median is the measure of location most often

reported for annual income and property value data.

n A few extremely large incomes or property values

can inflate the mean.

03/10/10 29

Median

26 18 27 12 14 27 19 7 observations

12 14 18 19 26 27 27 in ascending order

Median = 19

03/10/10 30

Median

26 18 27 12 14 27 30 19 8 observations

12 14 18 19 26 27 27 30 in ascending order

03/10/10 31

Median

Averaging the 35th and 36th data values:

Median = (475 + 475)/2 = 475

425 430 430 435 435 435 435 435 440 440

440 440 440 445 445 445 445 445 450 450

450 450 450 450 450 460 460 460 465 465

465 470 470 472 475 475 475 480 480 480

480 485 490 490 490 500 500 500 500 510

510 515 525 525 525 535 549 550 570 570

575 575 580 590 600 600 600 600 615 615

Note: Data is in ascending order.

03/10/10 32

Mode

n The mode of a data set is the value that occurs with

greatest frequency.

n The greatest frequency can occur at two or more

different values.

n If the data have exactly two modes, the data are

bimodal.

n If the data have more than two modes, the data are

multimodal.

03/10/10 33

SOME STATISTICAL

TECHNIQUES

MEASURES OF CENTRAL TENDENCY

1.MEAN: Computed by dividing sum of

the values of observations by the

number of items.

2.MEDIAN: Item which lies exactly

midway between the lowest and

the highest value when data is

arranged in ascending or

descending order.

3.MODE: It is the central value that

occurs most frequently.

03/10/10 34

SOME STATISTICAL

TECHNIQUES

MEASURES OF DISPERSION

The difference between the

maximum and the minimum value

of a distribution is called the

measure of dispersion.

1.SKEWNESS: the measure of the

direction and degree of symmetry

are called measures of skewness

2.KURTOSIS: The measure of

peakedness in a distribution is

called Kurtosis.

03/10/10 35

SKEWNESS AND KURTOSIS

03/10/10 36

SOME STATISTICAL

TECHNIQUES

CORRELATION

àIt measures the degree to which the

change in the dependent variable

is associated with change in the

independent variable.

REGRESSION ANALYSIS

àUsed for determining the causal

relationship between 2 variables.

TIME SERIES ANALYSIS

àConsists of a set of data recorded

over successive periods of time.

àMeasures the effect of the following

03/10/10 37

SOME STATISTICAL

TECHNIQUES

TIME SERIES ANALYSIS

àConsists of a set of data recorded

over successive periods of time.

àAnalysis is done on the above data

taking the periodic changes,

cyclical changes, seasonal

variations and random variations

into consideration.

03/10/10 38

ADVANTAGES OF QT TO

MANAGEMENT

Definiteness

Condensation

Comparison

Formulation of policies

Formulating and testing hypothesis

Prediction

03/10/10 39

QT IN BUSINESS AND

MANAGEMENT

MANAGEMENT

i) Marketing:

analysis market research

information

Statistical records for building

and maintaining an extensive market

Sales forecasting

ii) Production

Production planning, control and

analysis

Evaluation of machine

performance 03/10/10 40

QT IN BUSINESS AND

MANAGEMENT

iii) Finance, Accounting and

Investment:

financial forecast, budget

preparation

financial investment decisions

Selection of securities

Auditing function

iv) Personnel

labour turnover rate

employment trends

performance appraisal

wage rates and incentive plans

03/10/10 41

QT IN BUSINESS AND

MANAGEMENT

ECONOMICS

measure of GNP.

determination of business cycle.

comparison of market prices

etc.

analysis of population

formulation of appropriate

economic policies

RESEARCH AND DEVELOPMENT

development of new product

lines

optimum use of resources

03/10/10 42

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