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Chapter 1 Introduction

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Chapter 1 Introduction

Uploaded by

37.Thảo Vân
Copyright
© © All Rights Reserved
Available Formats
Download as PDF, TXT or read online on Scribd
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Chapter 1

1 2 3

What is
The QA How to
Quantitative develop a
Analysis Approoach QA Model
Introduction
• Mathematical tools to solve problems have been used for
thousands of years

• Quantitative analysis can be applied to a wide variety of


problems
Not enough to just know the mathematics of a technique
Must understand the specific applicability of the
technique, its limitations, and assumptions

• Successful use of quantitative techniques (usually) results


in a solution that is timely, accurate, flexible, economical,
reliable, and easy to understand and use.
2
1.What is Quantitative Analysis?
Raw Raw
Data Data

Quantitative Analysis Meaningful Information

Quantitative analysis is a scientific approach to


managerial decision making in which raw data are
processed and manipulated to produce meaningful
information

3
1.What is Quantitative Analysis?

Quantitative factors are data that can be accurately


calculated
Quantitative factors might be
▪ Different investment alternatives,
▪ Interest rates,
▪ Inventory levels,
▪ Demand
▪ Labour cost
1.What is Quantitative Analysis?

Qualitative factors are more difficult to quantify but affect


the decision process
Qualitative factors such as
▪ The weather
▪ Legislation
▪ Technological breakthroughs
▪
1.What is Quantitative Analysis?

— Quantitative and qualitative factors may have different

— Decisions based on quantitative data can be automated

— Generally quantitative analysis will aid the decision


making process
2.The Quantitative Analysis Approach
Defining the Problem

Developing a Model

Acquiring Input Data

Developing a Solution

Testing the Solution

Analyzing the Results

Implementing the Results


S1 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
S2 Developing a model

• Quantitative analysis models are realistic, solvable, and


understandable mathematical representations of a situation
$ Sales

$ Advertising

9
S2 Developing a model

Mathematic model- a set of mathematical relationships


— Models generally contain variables (controllable and
uncontrollable) and parameters
— Controllable variables are generally the decision
variables and are generally unknown
Example: How many items should be ordered for
inventory?
— Parameters are known quantities that are a part of the
problem
Example: What is the cost of placing an order?

• Required input data must be available!


S3 Acquiring input data

Input data must be accurate –

Garbage in Process Garbage out

Data may come from a variety of sources such as company reports,


company documents, interviews, on-site direct measurement, or statistical
sampling
S4. 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.
S5. Testing the 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
S6. Analyzing the results

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 will change if the model or input data changes.
Sensitive models should be very thoroughly tested.

1-26
S7. Implementing the results

Implementation incorporates the solution into the company.


◦ Implementation can be very difficult.
◦ People may be resistant to 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
3. How To Develop A Quantitative Analysis Model

Develop model by using quantitative analysis model


A mathematical model of profit:

Profit = Revenue – Expenses


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
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

The parameters of this model are f, v, and s


as these are the inputs inherent in the
model
The decision variable of interest is X
Break-even point
Profits = Revenue - Expenses
Profits = sX – f – vX

0=sX – f – vX

f= sX – vX

X=f/(s-v)

Break-even point you need at least X items to break-even


and anything more than that obviously is profitable

To find that value of X to get break-even point we will need


these value f, s and v so these are parameters of this model.
We need data on that before we can figure out break-even
point

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