Quantitative

methods for
business
Instructor: Dr. Huynh Thi Ngoc Hien
Email: htnhien@hcmiu.edu.vn
Examples of Quantitative Analyses for
businesses
• Heineken saved over $150 million using forecasting and
scheduling quantitative analysis models.
• Sony increased revenues by over $200 million by using
quantitative analysis to develop better sales plans.
• Vietnam Airlines saved over $40 million using quantitative
analysis models to quickly recover from weather delays and
other disruptions.
LECTURE 1: INTRODUCTION TO QUANTITATIVE ANALYSIS

LEARNING OUTCOMES
• What is Quantitative Analysis?
• The quantitative analysis approach.
• How to develop a quantitative analysis model.
• The role of computers in QA approach.
• Possible problems in QA.
• Implementation – Not just the final step.
What is Quantitative Analysis?

Raw data Quantitative analysis

Meaningful information

Quantitative analysis is a scientific approach to managerial

decision making
whereby raw data are processed and
manipulated resulting in meaningful information.
Using Quantitative Analysis to make decision
EXAMPLE

STATE OF NATURE

FAVORABLE UNFAVORABLE
ALTERNATIVE MARKET ($) MARKET ($)
Construct a large plant 200,000 –180,000

Construct a small plant 100,000 –20,000

Do nothing 0 0
Examples in Decision Making
HOURS REQUIRED TO
PRODUCE 1 UNIT

(T) (C) AVAILABLE HOURS

DEPARTMENT TABLES CHAIRS THIS WEEK
Carpentry 4 3 240

Painting and varnishing 2 1 100

Profit per unit $70 $50

What is the best combination of chairs and tables to

maximize profit?
Maximize profit = $70T + $50C
subject to

4T + 3C ≤ 240 (carpentry constraint)

2T + 1C ≤ 100 (painting and varnishing constraint)
T, C ≥ 0 (nonnegativity constraint)
 Group discussion:
Location choice: What are the quantitative and
qualitative factor for your choices?
What are the difference between quantitative
and qualitative analysis?
What are the difference between quantitative
and qualitative analysis?
What are the difference between quantitative
and qualitative analysis?
The Quantitative Analysis Approach
Step 1: Defining Problem
 Clear, concise statement of the problem
 Beyond the symptoms, identify true case
 Concentrate on a few problems
 Some specific measurable objectives are helpful
Defining the problem can be the most important
step.
 Step 2: Developing Model
• The types of models include physical, scale, schematic and
mathematical models
• Variables (controllable, uncontrollable), decision variables
• Parameters
• Models: solvable, data are obtainable

Physical model Scale model

$ Sales
Schematic model

$ Advertising
 Step 3: Input data

• GIGO principle (Garbage In, Garbage Out)

• From company document, reports
• Interview with employees and related persons
• Statistics

Garbage In

Process

Garbage Out
 Step 4: Developing Solution

• 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
The input data and model determine the accuracy of
the solution.
Step 5: Testing the Solution

• Before analyzing and Implementing

• Determine the accuracy and completeness of the data
• Test the robustness of the model
• Some hand calculation may be useful

Testing the data and model is done before the results

are analyzed and implemented.
 Step 6: Analyzing Result & Sensitivity Analysis

• Determine the implication of results

• Sensitivity analysis: how the solution will change with a
different model or data

Step 7: - Implementing the results

• The need of Simulation; Good, workable solution

• Bad implementation: fail in efforts
Modeling in the real world
CSX transportation: 35,000 employees, annual
revenue: $11 billion, must send empty railcars to
customer locations with risks of excess costs

Dynamic-car-planning system (DCP) (2 years and $5

millions) minimize costs

Historical data: 3 external (customer car orders,

available cars of the type needed, and the transit-
Modelling in time standards, 2 internal (customer priorities,
the real preferences and on cost parameters)

world
1 min loading and 10 seconds to solve, run every 15
mins to make final decisions

Validated and verified, better assignments with DCP

$51 million saved annually, no need to spend $1.4

billion to buy 18,000 railcars without DCP, many other
benefits

Extensive trainings and enhance DCP for car-order

forecasts
Possible problems in the Quantitative Analysis Approach
1. Defining the problem
 Conflicting viewpoints
 Impact on other departments
 Beginning assumptions
 Solution outdated
2. Developing a model
 Fitting the textbook models
 Understanding the model
3. Acquiring input data
 Using accounting data
 Validity of data
4. Developing a solution
 Hard-to-understand mathematics
 Only one answer is limiting
5. Testing the solution
 All assumptions should be reviewed
6. Analyzing results
 How a solution will affect the whole organization.
7. Implementation – Not just the final step
 Lack of commitment and Resistance to change
 Lack of commitment by Quantitative Analysts
 How To Develop a Quantitative Analysis
Model
Expenses can be represented as the sum of fixed and variable
costs and variable costs are the product of unit costs times the
number of units
Profit = Revenue – (Fixed cost + Variable cost)
Profit = (Selling price per unit)(number of units sold)
– [Fixed cost + (Variable costs per unit)
(Number of units sold)]
Profit = sX – [f + vX]
Profit = sX – f – vX

where
s = selling price per unit v = variable cost per unit
f = fixed cost X = number of units sold
 How to develop a quantitative analysis model
EXAMPLE

Bill’s company, Pritchett’s Precious Time Pieces, buys,

sells, and repairs old clocks and clock parts. Bill sells

rebuilt springs for a price per unit of $10. The fixed cost of

the equipment to build the springs is $1,000. The variable

cost per unit is $5 for spring material.

1.What is the profit model for Bill’s company?
2.How many springs would Bill’s company have to sell in
order to break even?
The role of computers and spreadsheet
models

• Use mathematics models require mathematical

calculations:
use computer to make these steps easier.
SUMMARY
• A scientific approach to decision making with the
Quantitative analysis: applications in real life and business
• Raw data  QA meaningful information
• (1) Defining the problem (2) developing a model  (3)
Steps of Quantitative acquiring input data (4) developing a solution (5)
approach testing a solution (6) analyzing the results and (7)
implementing the results
How to develop a • The profit model
quantitative model • Break-even point (BEP)

Role of computers • Make the steps easier

Possible problems of • Occur in each step of QA process

QA
• Problem: a statement, which should come from a manager, that
indicates a problem to be solved or an objective or a goal to be
reached.
• Variable: a measurable quantity that is subject to change.
• Model: a representation of reality or a real-life situation.
Glossary • Input data: data used in a model in arriving at the final solution
• Parameter: a measurable input quantity that is inherent in a
problem.
• Sensitivity analysis: a process that involves determining how
sensitive a solution is to changes in the formulation of a problem.
ASSIGNMENTS
Text book: “Quantitative Analysis for Management, 11th edition”, Barry Render et. al.,
McGraw Hill, 2012.

Homework: don’t need to submit

• Assignments (Chapter 1): 1-14, 1-16, 1-18, 1-20 and 1-22.
• One-page summary of the lecture.