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Che514 V01 Notes 1

This chapter introduces quantitative analysis and provides an overview of its key concepts. Quantitative analysis uses a scientific approach to managerial decision making by processing raw data to produce meaningful information. The chapter outlines how to develop a quantitative analysis model, including defining the problem, developing a model, acquiring input data, developing a solution, testing the solution, and analyzing and implementing the results. Examples are provided of how quantitative analysis has helped companies save millions of dollars. Potential problems in the quantitative analysis approach are also discussed.

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0% found this document useful (0 votes)
86 views9 pages

Che514 V01 Notes 1

This chapter introduces quantitative analysis and provides an overview of its key concepts. Quantitative analysis uses a scientific approach to managerial decision making by processing raw data to produce meaningful information. The chapter outlines how to develop a quantitative analysis model, including defining the problem, developing a model, acquiring input data, developing a solution, testing the solution, and analyzing and implementing the results. Examples are provided of how quantitative analysis has helped companies save millions of dollars. Potential problems in the quantitative analysis approach are also discussed.

Uploaded by

Ryle Arbon
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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Introduction to Quantitative Analysis

Chapter 1

Learning Objectives
 Describe the quantitative analysis approach
• Understand the application of quantitative analysis in a
real situation
• Describe the use of modeling in quantitative analysis
• Use computers and spreadsheet models to perform
quantitative analysis
• Discuss possible problems in using quantitative
analysis
• Perform a break-even analysis

Chapter Outline
1.1 Introduction
1.2 What Is Quantitative Analysis?
1.3 The Quantitative Analysis Approach
1.4 How to Develop a Quantitative Analysis Model
1.5 The Role of Computers and Spreadsheet Models in
the Quantitative Analysis Approach
1.6 Possible Problems in the Quantitative Analysis
Approach
1.7 Implementation — Not Just the Final Step

Introduction
Mathematical tools have been used for
thousands of years.
Quantitative analysis can be applied to a wide
variety of problems.
It’s not enough to just know the mathematics of a
technique.
One must understand the specific applicability of the
technique, its limitations, and its assumptions.

Examples of Quantitative Analyses


In the mid 1990s, Taco Bell saved over $150 million using
forecasting and scheduling quantitative analysis models.
NBC television increased revenues by over $200 million
between 1996 and 2000 by using quantitative analysis to
develop better sales plans.
Continental Airlines saved over $40 million in 2001 using
quantitative analysis models to quickly recover from weather
delays and other disruptions.

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. Examples include:
Different investment alternatives
Interest rates
Inventory levels
Demand
Labor cost
Qualitative factors are more difficult to quantify
but affect the decision process. Examples
include:
The weather
State and federal legislation
Technological breakthroughs.

The Quantitative Analysis Approach


Defining the Problem
Develop a clear and concise statement that gives
direction and meaning to subsequent steps.
This may be the most important and difficult step.
It is essential to go beyond symptoms and identify true
causes.
It 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.

Developing a Model
Quantitative analysis models are realistic,
solvable, and understandable mathematical
representations of a situation.
Developing a Model
Models generally contain variables (controllable
and uncontrollable) and parameters.
Controllable variables are the decision variables and 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 holding cost of the inventory?

Acquiring Input Data


Input data must be accurate – GIGO rule:
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.

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.

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.

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
Pritchett’s Precious Time Pieces
Profits = sX – f – vX
Pritchett’s Precious Time Pieces
0 = sX – f – vX, or 0 = (s – v)X – f
Pritchett’s Precious Time Pieces
0 = sX – f – vX, or 0 = (s – v)X – f

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 solve
large or complex problems in a timely
fashion.
A model can be used to communicate
problems and solutions to others.
Models Categorized by Risk
Mathematical models that do not involve
risk are called deterministic models.
All of the values used in the model
are known with complete certainty.
Mathematical models that involve risk,
chance, or uncertainty are called
probabilistic models.
Values used in the model are
estimates based on probabilities.

Computers and Spreadsheet Models

Possible Problems in the Quantitative


Analysis Approach

Defining the problem


Problems may not be easily identified.
There may be conflicting viewpoints
There may be an impact on other departments.
Beginning assumptions may lead to a particular
conclusion.
The solution may be outdated.
Developing a model
Manager’s perception may not fit a textbook model.
There is a trade-off between complexity and ease of
understanding.
Acquiring accurate input data
Accounting data may not be
collected for quantitative problems.
The validity of the data may be
suspect.
Developing an appropriate solution
The mathematics may be hard to
understand.
Having only one answer may be
limiting.
Testing the solution for validity
Analyzing the results in terms of the
whole organization

Implementation –
Not Just the Final Step

There may be an institutional lack of


commitment and resistance to change.
Management may fear the use of
formal analysis processes will
reduce their decision-making
power.
Action-oriented managers may want
“quick and dirty” techniques.
Management support and user
involvement are important.
Implementation –
Not Just the Final Step
There may be a 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.

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