QUANTITATIVE

TECHNIQUES
IN BUSINESS
First Semester, AY 2024 - 2025
ARIEL FRANCISCO FARAON
Director of Procurement, JG Summit Holdings, Inc.
Industry Lecturer
Logistics and Supply Chain Management Program
College of Business Education
Introduction to
Quantitative
Analysis
 Learning Objectives
Describe the relationship between problem solving and
decision - making
Describe the quantitative analysis approach and understand
how to apply it in a real situation.
Describe the three categories of business analytics.
Describe the use of modeling in quantitative analysis.
Prepare a quantitative analysis model.
Use computers and spreadsheet models to perform
quantitative analysis.
Recognize possible problems in using quantitative analysis.
Recognize implementation concerns of quantitative analysis.
 Discussion Agenda
Management Science
Problem Solving and Decision Making
What Is Quantitative Analysis?
Business Analytics
The Quantitative Analysis Approach
How to Develop a Quantitative Analysis Model
The Role of Computers and Spreadsheet Models in the
Quantitative Analysis Approach
Possible Problems in the Quantitative Analysis
Approach
Implementation — Not Just the Final Step
 Management Science
Management science, an approach to decision making
based on the scientific method, makes extensive use of
quantitative analysis.
The scientific management revolution of the early
1900s, initiated by Frederic W. Taylor, provided the
foundation for the use of quantitative methods in
management.
Modern management science research is generally
considered to have originated during the World War II
period, when teams were formed to deal with strategic
and tactical problems faced by the military.
 Problem Solving
Problem solving can be defined as the process of identifying a
difference between the actual and the desired state of affairs
and then taking action to resolve the difference. For problems
important enough to justify the time and effort of careful
analysis, the problem-solving process involves the following
seven steps: (1) Identify and define the problem; (2) Determine
the set of alternative solutions; (3) Determine the criterion or
criteria that will be used to evaluate the alternatives; (4)
Evaluate the alternatives; (5) Choose an alternative; (6)
Implement the selected alternative; and (7) Evaluate the results
to determine whether a satisfactory solution has been obtained.
 Decision - Making
Decision making is the term generally associated with the
first five steps of the problem-solving process. Thus, the first
step of decision making is to identify and define the
problem. Decision making ends with the choosing of an
alternative, which is the act of making the decision.
For the moment assume that you are currently unemployed
and that you would like a position that will lead to a
satisfying career. Suppose that your job search has resulted
in offers from companies in Calamba, Laguna; San Fernando,
Pampanga; Meycauayan, Bulacan; and Cainta, Rizal.
Decision - Making
 Decision - Making
If salary were the only criterion of importance to you, the
alternative selected as “best” would be the one with the
highest starting salary. Problems in which the objective
is to find the best solution with respect to one criterion
are referred to as single-criterion decision problems.
Suppose that you also conclude that the potential for
advancement and the location of the job are two other
criteria of major importance. Thus, the three criteria in
your decision problem are starting salary, potential for
advancement, and location. Problems that involve more
than one criterion are referred to as multicriteria
decision problems.
Relationship Between Problem
Solving & Decision-making
Alternate Classification of the
Decision - Making Process
Reasons why a quantitative approach
might be used in the decision-making
process:
The problem is complex, and the manager cannot develop a
good solution without the aid of quantitative analysis.
The problem is especially important (e.g., a great deal of money
is involved), and the manager desires a thorough analysis before
attempting to make a decision.
The problem is new, and the manager has no previous
experience from which to draw.
The problem is repetitive, and the manager saves time and effort
by relying on quantitative procedures to make routine decision
recommendations.
 Let’s Review...
A problem is a discrepancy between an existing and a desired
state of affairs & identifying the real problem is no easy task.
Problem solving is a seven – step process that provides a rational
and analytical way of looking at decisions.

Identify the Problem

Collect Relevant Information
Develop Alternatives Decision – making
Evaluate each Alternative
Select the Best Alternative
Implement the Decision
Follow-up and Evaluate
Problem Solving & Decision-making
Identify the problem
Make sure that you identify the real problem
Collect relevant information
What are the surrounding circumstances & Is there
more than one way to resolve the issues?
Develop alternatives
Make sure that alternatives are developed based
on the collected information. This will make the
alternatives plausible.
Problem Solving & Decision-making
Evaluate each alternative
Identify the strengths and weakness of each
alternative. It is best to use time-tested tools, both
qualitative and quantitative
Select the best alternative
Select the one that best addresses the salient
discrepancies
Implement the decision
Take the steps necessary to ensure correct timing
and execution
Follow – up and evaluate results
 Decision Tools
Expected Value Analysis. It permits decision makers to place a
monetary value on the various consequences likely to result
from the selection of a particular course of action.
Decision Tree: Encompass’ expected value analysis by
assigning probabilities to each possible outcome and
calculating payoffs for each decision path.
Marginal Analysis: Analyzing decisions in terms of their
incremental costs.
Management Information System (MIS): A mechanism to
provide the manager with needed and accurate
information on a regular and timely basis.
 Decision-making Styles
Everyone brings their own unique personalities and experiences
to the decisions they make.
The four decision-making styles, analytical, directive,
conceptual, and behavioral, are strategies leaders and
individuals employ to make choices. Different styles work better
in different situations or environments, and understanding
decision-making leads to productive, cooperative, and engaged
work environments.
The decision-style model assumes that people differ along two
dimensions: (1) their way of thinking (How they process
information), and (2) tolerance for ambiguity (How clear does
everything have to be)
 Decision-making Styles
DIRECTIVE BEHAVIORAL
Low tolerance for Work well with others.
ambiguity. Concerned with achievements
Seeks rationality. of subordinates.
Efficient and logical. Receptive to suggestions.
Makes quick decisions. Avoids conflict.
Short term focus Seeks acceptance.

ANALYTIC CONCEPTUAL
High tolerance for Very broad in outlook.
ambiguity. Considers many alternatives.
Requires more information. Good at finding creative solutions.
Considers more alternatives. Focus long range.
Careful and adaptable.
 Ethics in Decision-making
Common Rationalizations Different Views of Ethics
Utilitarian: Decisions are made
“Its not really illegal or
solely on the basis of their
immoral.”
outcomes. The greatest good for
“Its in my (Organization’s)
the greatest number.
best interest”
Rights View: Decisions emphasize
“No one will find out”
respecting and protecting the
“Since it benefits the
basic rights of individuals.
organization, it will be
Justice View: A view that requires
protected”
individual to impose and enforce
“Everybody does it”
rules fairly and impartially so there
is an equitable distribution of
benefits and costs.
What is Quantitative Analysis
Mathematical tools have been used for thousands of years
Quantitative analysis can be applied to a wide variety of
problems
- Not enough to 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
 What is Quantitative
Analysis?
Quantitative analysis is a scientific approach to
managerial decision making in which raw data are
processed and manipulated to produce meaningful
information
 What is Quantitative
Analysis?
Quantitative factors are data that can be accurately
calculated
– Different investment alternatives
– Interest rates
– Financial ratios
– Cash flows and rates of return
– Flow of materials through a supplyy chain
 What is Quantitative
Analysis?
Qualitative factors are more difficult to quantify but
affect the decision process
– The weather
– State and federal legislation
– Technological breakthroughs
– The outcome of an election
 What is Quantitative
Analysis?
Quantitative and qualitative factors may have different
roles
Decisions based on quantitative data can be automated
Generally quantitative analysis will aid the decision-
making process
Important in many areas of management
– Production/Operations Management
– Supply Chain Management
– Business Analytics
 Examples of Quantitative
Analyses
Using forecasting and employee scheduling
quantitative analysis models, Taco Bell saved over $150
million.
NBC Television increased revenues by over $200 million
by using quantitative analysis to develop better sales
plans for advertisers
Continental Airlines saved over $40 million every year
using quantitative analysis models to recover from
weather delays and other disruptions quickly.
 Business Analytics
A data-driven approach to decision making
– Allows better decisions
– Large amounts of data
– Information technology is very important
– Statistical and quantitative analysis are used to
analyze the data and provide useful information
 Business Analytics
Descriptive analytics – the study and consolidation
of historical data
Predictive analytics – forecasting future outcomes
based on patterns in the past data
Prescriptive analytics – the use of optimization
methods
Business Analytics
The Quantitative Analysis
Approach
 Defining the Problem
Develop a clear and concise statement of the
problem to provide direction and meaning
– This may be the most important and difficult step
– Go beyond symptoms and identify true causes
– Concentrate on only a few of the problems –
selecting the right problems is very important
– Specificand measurable objectives may have to be
developed
 Developing a Model
Models are realistic, solvable,
and understandable
mathematical representations
of a situation
Different types of models
 Developing a Model
Mathematical model –a set of mathematical
relationships
Models generally contain variables and parameters
– Controllable variables, decision variables, are
generally unknown
+ How many items should be ordered for inventory?
– Parameters are known quantities that are a part of
the model
+ What is the cost of placing an order?
Required input data must be available
 Acquiring Input Data
Input data must be accurate – GIGO rule
Data may come from a variety of sources –company
reports, documents, employee interviews, direct
measurement, or statistical sampling
 Developing a Solution
Manipulating the model to arrive at the best (optimal)
solution
Common techniques are
– Solving equations
– Trial and error– trying various approaches and
picking
the best result
– Complete enumeration – trying all possible values
– Using algorithm – a series of repeating steps to
reach a solution
 Testing the Solution
Both input data and the model should be tested for
accuracy and completeness before analysis and
implementation
– New data can be collected to test the model
– Results should be logical, consistent, and represent
the real situation
 Analyzing the Results
Determine the implications of the solution
– Implementing results often requires a change in an
organization
– The impact of actions or changes needs to be
studied and understood before implementation
Sensitivity analysis post-optimality analysis
determines how much the results will change if the
model or input data changes
– Sensitive models should be very thoroughly tested
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
 How to Develop a
Quantitative Analysis Model
A mathematical model of profit:

Profit = Revenue − Expenses

Revenue and expenses can be expressed in different

ways
 How to Develop a
Quantitative Analysis Model
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
Profit = Revenue − (Fixed cost The + parameters
Variableofcost)this model are
f, v, and s as these are the inputs
Profit = (Selling price per unit)(Number of units sold) −
inherent in the model.
[Fixed cost + (Variable costs The
perdecision
unit)(Number of units
variable of interest is
sold)] X.

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
Pritchett’s Precious Time Pieces
The company buys, sells, and repairs old clocks
– Rebuilt springs sell for $8 per unit
– Fixed cost of equipment to build springs is $1,000
– Variable cost for spring material is $3 per unit
s= 8 f = 1,000 v=3
Number of spring sets sold = X
Profits = $8X− $1,000 − $3X
If sales = 0, profits =− f = − $1,000
If sales = 1,000, profits = [($8)(1,000) − $1,000 − ($3)(1,000)]
= $4,000
Pritchett’s Precious Time Pieces
Companies are often interested in the break-even point
(BEP), the BEP is the number of units sold that will result
in $0 profit
0 = sX − f − vX, or 0 = (s − v)X − f
Solving for X, we have
f = (s− v)X
X = f÷(s − v)

Fixed cost
BEP =
(Selling price per unit) - (Variable cost per unit)
Pritchett’s Precious Time Pieces
BEP for Pritchett’sPrecious Time Pieces

BEP = $1,000÷($8 − $3) = 200 units

Sales of less than 200 units of rebuilt springs will
result in a loss
Sales of over 200 units of rebuilt springs will result in
a profit
Advantages of Mathematical
Modeling
Models can accurately represent reality.
Models can help a decision-maker formulate problems.
Models can give us insight and information.
Models can save time and money in decision-making
and problem-solving.
A model may be the only way to promptly solve large or
complex problems.
A model can be used to communicate problems and
solutions to others.
 Models Categorized by Risk
Mathematical models that do not involve risk or chance
are called deterministic models
– Allof the values used in the model are known with
complete certainty
Mathematical models that involve risk or chance are
called probabilistic models
– Values used in the model are estimates based on
probabilities
 Computers and Spreadsheet
Models
POM-QM for Windows The QM for Windows Main Menu
An easy to use
decision support
system for use in
POM and QM courses
This is the main
menu of quantitative
models
An Excel add-in
Computers and Spreadsheet
Models
Entering the Data for Pritchett’s Precious Time Pieces Example
into QM for Windows
 Computers and Spreadsheet
Models

QM for Windows
Solution Screen for
Pritchett’s Precious
Time Pieces Example
Computers and Spreadsheet
Models
Excel QM in Excel 2016 Ribbon and Menu of Techniques
Computers and Spreadsheet
Models
Entering the Data for Pritchett’s Precious Time Pieces Example into Excel QM in Excel 2016
 Computers and Spreadsheet
Models
Using Goal Seek in the Break-Even Problem to Achieve a Specified Profit
 Possible Problems in the
Quantitative Analysis Approach
Defining the problem
– Problems may not be easily identified
– Conflicting viewpoints
– Impact on other departments
– Beginning assumptions
– Solution outdated
Developing a model
– Fitting the textbook models
– Understanding the model
 Possible Problems in the
Quantitative Analysis Approach
Acquiring accurate input data
– Using accounting data
– Validity of the data
Developing a solution
– Hard-to-understand mathematics
– Only one answer is limiting
Testing the solution
§ Solutions not always intuitively obvious
Analyzing the results
§ How will it affect the total organization
Implementation – Not Just the
Final Step
Lack of commitment and resistance to change
– Fear formal analysis processes will reduce
management’s decision-making power
– Fear previous intuitive decisions exposed as
inadequate
– Uncomfortable with new thinking patterns
– Action-oriented managers may want “quick and
dirty” techniques
– Management support and user involvement are
important
Implementation – Not Just the
Final Step
Lack of commitment by quantitative analysts
– Analysts should be involved with the problem and
care about the solution
– Analysts should work with users and take their
feelings into account
 Assignment
Read Case Study: Food and Beverages at
Southwestern University Football Games in pages
19 - 20 of the textbook
Prepare a brief report for Dr. Starr that covers the
items noted.
Prepare for a 10-minute presentation next meeting