Presentation Graphics forQuantitative Analysis for Management, 8th Edition

Render/Stair/HannaPrepared by John Swearingen

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Chapter 1

Introduction to Quantitative Analysis

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Learning ObjectivesStudents will be able to:Describe the quantitative analysis approachUnderstand the application of QA in a real situationDescribe the use of modeling in QAUse computers and spreadsheet models to perform QADiscuss possible problems in using quantitative analysisPerform breakeven analysis

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Chapter Outline1.1 Introduction1.2 What is Quantitative Analysis (QA)1.3 The QA Approach1.4 How to Develop a QA Model1.5 The Role of Computers and Spreadsheet Models in the QA Approach1.6 Possible Problems in the QA Approach1.7 Implementation - Not Just the Final Step

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IntroductionMathematical tools have been used for thousands of yearsQA can be applied to a wide variety of problemsOne must understand: the specific applicability of the technique, its limitations and its assumptions

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The Evolution of QA1990198019701960195019401930192019101900

Expert Systems and Artificial IntelligenceDecision SupportInformation SystemGoal ProgrammingDecision TheoryNetwork ModelsDynamic ProgrammingGame TheoryTransportationAssignment TechniqueInventory ControlQueuing TheoryMarkov Analysis

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The Decision-Making ProcessProblemQuant.AnalysisLogicHistoric DataMarketing ResearchScientific AnalysisModelingQual. AnalysisWeatherState and federal legislationNew technological breakthroughsElection outcome

Decision?

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Overview of Quantitative AnalysisScientific Approach to Managerial Decision MakingConsider both Quantitative and Qualitative FactorsRaw DataQuantitativeAnalysisMeaningfulInformation

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The Quantitative Analysis ApproachDefine the problemDevelop a modelAcquire dataDevelop a solutionTest the solutionAnalyze the results and perform sensitivity analysisImplement the results

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The QA Approach - Fig 1.1Define the ProblemDevelop a ModelAcquire Input DataDevelop a SolutionTest the SolutionAnalyze the ResultsImplement the Results

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Define the ProblemAll else depends on thisClear and concise statement requiredMay be the most difficult stepMust go beyond symptoms to causesProblems are related to one anotherMust identify the right problemMay require specific, measurable objectives

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Develop the ModelModel: representation of a situationModels: physical, logical, scale, schematic or mathematicalModels: variables (controllable or uncontrollable) and parametersControllable variables decision variablesModels must be:solvablerealisticeasy to understandeasy to modify

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Acquire DataAccurate data is essential (GIGO)Data from:company reportscompany documentsinterviewson-site direct measurementstatistical sampling

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Develop a SolutionManipulate the model, find the best solutionSolution: practical implementableVarious methods:solution of equation(s)trial and errorcomplete enumerationimplementation of algorithm

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Test the SolutionMust test both Input dataModelDetermine:AccuracyCompleteness of input datacollect data from a different sources and compareCheck results for consistencyDo they make sense?Test before analysis!

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Analyze the ResultsUnderstand the actions implied by the solutionDetermine the implications of the actionConduct sensitivity analysis - change input value or model parameter and see what happensUse sensitivity analysis to help gain understanding of problem (as well as for answers)

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Implement the ResultsIncorporate the solution into the companyMonitor the resultsUse the results of the model and sensitivity analysis to help you sell the solution to management

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Modeling in the Real WorldModels are complexModels can be expensiveModels can be difficult to sellModels are used in the real world by real organizations to solve real problems

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How to Develop a QA ModelProfits = Revenue - ExpensesProfits =Revenue (Price per Unit) (Number Sold) Expenses- Fixed Cost - (Variable Cost/Unit) (Number Sold)Profits = $10Q - $1,000 - $5QProfit

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How to Develop a QA ModelBreakeven PointSet Revenue = 0

PQ - F VQ = 0

Then

F = PQ VQ

And:

Q = F/(P V) Q = quantity soldF = fixed costV = variable cost/unitBreakeven Quantity = F/(P-V)

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Models Can Help Managers toGain deeper insight into the nature of business relationshipsFind better ways to assess values in such relationships; andSee a way of reducing, or at least understanding, uncertainty that surrounds business plans and actions

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ModelsAre less expensive and disruptive than experimenting with real world systemsAllow What if questions to be askedAre built for management problems and encourage management inputEnforce consistency in approachRequire specific constraints and goals

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Models: The Up SideModelsAccurately represent realityHelp a decision maker understand the problemSave time and money in problem solving and decision makingHelp communicate problems and solutions to othersProvide the only way to solve large or complex problems in a timely fashion

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Models: The Down SideModelsMay be expensive and time-consuming to develop and testAre often misused and misunderstood (and feared) because of their mathematical complexityTend to downplay the role and value of nonquantifiable informationOften have assumptions that oversimplify the variables of the real world

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Using Models(from Dr. J.N.D. Gupta)Some SuggestionsUse descriptive modelsUnderstand why the managers involved decide things the way they doIdentify managerial and organizational changes required by the modelAnalyze each situation in terms of its impact on managementPrepare a realistic cost/benefit analysis of tradeoffs of alternate solutions

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Mathematical Models Characterized by RiskDeterministic models - we know all values used in the model with certaintyProbabilistic models - we know the probability that parameters in the model will take on a specific value

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QM For Windows

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QM For Windows

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Excel QM

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Excel QMs Main Menu of Models

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Possible Problems in Using ModelsDefine the ProblemConflicting viewpointsDepartmental impactsAssumptionsDevelop a ModelFitting the ModelUnderstanding the Model

Acquire Input DataAccounting DataValidity of DataDevelop a SolutionComplex MathematicsOnly One Answer is LimitingSolutions become quickly outdated

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Possible Problems - ContinuedTest the SolutionIdentifying appropriate test proceduresAnalyze the ResultsHolding all other conditions constantIdentifying cause and effectImplement the SolutionSelling the solution to others

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