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Quamet Intro 2

1. Quantitative methods are used to help make complex decisions that involve many variables and available data. Models are developed to help analyze the problem and potential solutions in a systematic way. 2. The quantitative methods process involves 6 steps: observing the problem, analyzing and defining it, developing a model, selecting appropriate data, providing solutions by testing the model, and analyzing and implementing results. 3. Quantitative methods provide opportunities to explicitly define objectives and assumptions, identify gaps in data, and examine how changes impact decisions. However, they also have shortcomings like oversimplifying problems and being difficult to explain to managers.

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Jazper Comia
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125 views

Quamet Intro 2

1. Quantitative methods are used to help make complex decisions that involve many variables and available data. Models are developed to help analyze the problem and potential solutions in a systematic way. 2. The quantitative methods process involves 6 steps: observing the problem, analyzing and defining it, developing a model, selecting appropriate data, providing solutions by testing the model, and analyzing and implementing results. 3. Quantitative methods provide opportunities to explicitly define objectives and assumptions, identify gaps in data, and examine how changes impact decisions. However, they also have shortcomings like oversimplifying problems and being difficult to explain to managers.

Uploaded by

Jazper Comia
Copyright
© © All Rights Reserved
Available Formats
Download as PPT, PDF, TXT or read online on Scribd
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Quantitative Methods

Quantitative Methods to Decision


Making Employed When –
The problem is complex.
The problem involves many variables.
There are data which describe the decision
environment.
There are data which describe the value or utility of
different possible alternatives.
The goals of the decision maker or its organization
can be described in quantitative terms.
Workable models are available for these situations
INTRODUCTION TO
Statistics/Management Science

Objectives:
1. Define what statistics/MS is
2. Provide short history of stat/MS
3. Review steps in the quantitative
methods process
4. Discuss opportunities/shortcomings/
applications of quantitative methods
Statistics…
Discipline devoted to gathering, presenting and describing
information

Facilitates use of available information to make better


decisions

Understanding of statistics results to knowing how to –


1. properly present and describe information
2. draw conclusions about large population based only on
information obtained from samples
3. improve processes
4. obtain reliable forecasts

(Levine, Berenson, Stephan; 1999)


Statistics…
Historically, growth & development of modern
statistics traced to three separate phenomena:

1. Need of government to collect data on its


citizenry (surveys and census)

2. Development of the mathematics of probability


theory

3. Advent of the computer

(Levine, Berenson, Stephan; 1999)


Statistics…
Descriptive statistics
methods involving collection, presentation, and
characterization of a set of data in order to
describe various features of that data set
properly

Inferential statistics
methods that make possible estimation of a
characteristic of a population or the making of a
decision concerning a population based only on
sample results
Management Science is…

… the discipline devoted to studying


and developing procedures to help in
the process of making decisions.

… the use of the scientific method for


decision making.
Scientific Method

1. Observation
2. Definition of the problem
3. Formulation of a hypothesis
4. Experimentation
5. Verification
Management Science is…

… an interdisciplinary field comprising


elements of mathematics, economics,
computer science, and engineering.

… an experimental and applied


science devoted to observing, under-
standing, and predicting the behavior
of purposeful human/machine systems

Operations Research Society of America


Systems Approach

… Consider an organization as human/

machine system comprising compo-


nents such as machinery,
departments, individual people.

… Viewing the organization as a


system permits management scientist
to consider the individual components
in relation to entire organization.
Characteristics of the Management
Science Approach

1. View the problem within a systems


perspective.
2. Apply scientific method to develop
solution methodology.
3. Use team or interdisciplinary
approach.
4. Use mathematical model.
5. Use high-speed electronic
computer.
Historical Overview

... Book of Exodus: Jethro, Moses’ father-in-


law, organization principles

… 15th century Venetian shipbuilders


used assembly line to outfit ships

… Adam Smith, 1776, division of labor

… Charles Babbage, 1832, skills differential in


wages

… Frederick Taylor, late 19th century, father


of scientific mgt one “best way”
Historical Overview

… Henry Gantt: scheduling production; human


aspect of management’s attitude to labor

… Pre-World War II
o Frederick Lancaster: predicted outcome
of military battles, numerical strength of
personnel/weaponry
o Thomas Edison: war game, simulate
naval maneuvers
o AKErlang: waiting time formulas
o WLeontieff: linear program of US
economy during Great Depression
Historical Overview

… World War II developments


o Effective use of radar, anti-submarine
warfare, civilian defense, deployment of
convoy vessels to accompany supply
ships
o British Prof. PMS Blackett and his
Blackett circus multidiscipline team
approach
o John von Neumann developed game
theory and utility theory
o George Dantzig developed simplex
method of linear programming: use of
algebra for optimal resource allocation
Steps in the Quamet Process

Process Activities Process Steps Process Output


 
Site visits Step 1: Sufficient
Conferences Observe the problem information and
Observation environment support to proceed
Research
  
Define use Step 2: Clear grasp of need
Define objectives Analyze and define for and nature of
Define limitations the problem solution requested
 
MS/OR tools Step 3: Model that works
Interrelationships Develop a model under stated
Known solutions environmental
Research constraints
Steps in the Quamet Process

Process Activities Process Steps Process Output


Internal-external data Step 4: Sufficient inputs
Facts Select appropriate to operate and
Opinions data input test model
Computer data banks

Testing Step 5: Solutions that support


Limitations Provide solution, current organizational
Verifications test reasonableness objectives
 
 Behavior issues Step 6: Management
“Selling” the idea Analyze results, “Ownership” to
Management involvement implement support operation
Explanations of the model
Opportunities of the Quantitative
Methods

Forces managers to be explicit about objectives,


assumptions, constraints

Points out gaps in data required to support workable


solutions to problems
 
Permits examination of situation, change conditions
under which decisions are made, examine effects of
changes – without serious damage or excessive cost
Opportunities…
Forces managers to be precise about how variables in
problem interact with each other

Makes managers consider very carefully just what


variables influence decisions
 
Lets us find solution to a complex problem more quickly
than hand computation and often the only way to solve
large complex problems
 
Lets us model a problem and its solution so future
solutions can be done by computer, freeing
management time for decisions using more intuitive
approach
Shortcomings of the Quantitative
Methods
 
Simplifies problem or makes simplifying
assumptions in order to solve it, producing
solutions with limitations
 
For problems a manager must solve only one time,
constructing complex quamet model often too
expensive compared with other less sophisticated
approaches
 
Shortcomings…
Sometimes quamet specialists become enamored with
model built they forget it doesn’t represent “real world” in
which decisions must be made

Sometimes quamet specialists forget to counsel managers


on limitations of models built, including fact that many have
to be combined with judgment and intuition for effective use
 
Managers may forget to include important constraint or
assign incorrect value to the constraint
Shortcomings…
Many quamet solutions are complex they
are difficult to explain to managers in a way
that builds support and confidence

Many “real world” problems don’t have


quamet solutions
Applications of Quamet

Accounting
 Forecasting cash flows - Forecasting
 Assigning audit teams effectively - Assignment
Problem
 
Finance
 Allocating capital among various alternatives - DM
Techniques
 Managing an investment portfolio - LP Method
 Volume of production to maximize profit - Breakeven
Analysis
Marketing
 Determining the best product mix - LP Method
 Effectively allocating advertising among various media -
LP Method
 Deciding on the most effective packaging alternative -
Simulation

Production/Operations
 Minimizing in-process inventory - Inventory Techniques
 Moving products through manufacturing the shortest
time - PERT/CPM
 Determining landing and takeoff schedules in airports -
Queuing
Production/Operations
 Best route to follow in delivery of products -
Transportation Problem
 Crash performance of automobiles -
Simulation

Organizational Development/Human
Resources
 Negotiation in CBA situations - Game Theory
 Deploying a field sales force optimally -
Assignment Problem
A Good Quamet Solution Should be -

1. Technically appropriate: adheres to technical requirements


of model

2. Reliable: works time after time in conditions for which it


was designed
 
3. Economically viable: produces benefit > cost of
development; good return on investment
 
4. Behaviorally appropriate: management support, acceptance
 
Subjects to be covered –
1. Probabilities/Statistical Quality
Control
2. Decision Making Under Uncertainty/
Risk, Marginal Analysis, Utility
Theory, Decision Trees, Game
Theory
3. Forecasting
4. Linear Programming, LP Extensions
5. Transportation/Assignment
Problems
6. Network Models, PERT/CPM

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