What is the Quantitative Approach to Management?

 The quantitative approach applies statistics, optimization models, information models,

computer simulations, and other quantitative techniques to the management process.
 Central to the quantitative approach is the principle that organizations are decision-making
units. These decision-making units can be made more efficiently using mathematical models
that place relevant factors into numerical terms.
 Also called operations research or management science.

When we say quantitative mag involve jud na siya ug numerical measures and terms such as
percentage, range etc. Now in the quantitative approach daw applies statistics, and when we say
statistics it involves the collection, organization, analysis, and presentation of data. In managing a
business or organization atu jud ng e organize ang mga data inside sa business so that magamit siya
for analyzation in case naay mga problems ( kung asay mga kulang or unsay mga need buhaton or e
improved into achieving maximum productivity sa company.) and to maintain its efficiency.

Aside from statistics, mag apply pd daw ang quantitative approach ug optimization models,
( optimization model is a translation of the key characteristics of the business problem you are trying
to solve- it is a mathematical technique to solving problems. Ang mathematical techniques nga e
apply when using optimization model is Linear programming, Mixed Programming, Nonlinear
programming, ug Constraint programing. Mga Algebra ni sila. Para mo evaluate and represent real-
life planning and decision support business problems such as sa logistics, scheduling, inventory
control, network design and more.

Information model specifies meta information used to achieve a common understanding of business
objects, their definition, structure and contents as well as all relationship to other business objects.

Mao ni siya example kung mag himo information model.

Computer Simulation ( from the word simulation or( to immitate ) is a use of a computer imitating a
real-world process or system. It requires a mathematical description, or model, of the real system in
the form of a computer program. So when we study the data of a business mo gamit tag computer
program to reproduce the process or system sa business. (Para ma assess sa management ang
current ug future performance sa business process or Sistema.)
The primary branches of the Quantitative Approach include:

 Management Science or Quantitative Management - This branch of management

theory focuses on the development of mathematical and statistical models as a
simplified representation of a system, process, or relationship as models, formulas,
and equations. These techniques help managers make maximum use of
organizational resources to produce goods and services. This field of management
has grown significantly with the development of computer systems and
computational abilities.
 Operations Management- Operations management is a field of management focusing on
efficiency, effectiveness, and producing or organizational systems, process, and functions
used in the manufacture of goods or provision of services. It focuses on the operation and
control of the production process (such as the use of resources) that transforms resources
into finished goods and services. It also looks at the extent to which the functional processes
satisfy the needs and wants of the consumer.
Operations management is a derivative of the mathematical models in which
specified measurement systems are applied to operational scenarios. These methods
are used to achieve a higher level of efficiency in operational tasks, such as plant
layout, plant location, inventory control, and product distribution.
Major areas of study within operations management include product or process
design, capacity planning, facilities location, facilities layout, materials requirement
planning, and handling, scheduling, purchasing and inventory control, quality
control, maintenance management, computer integrated manufacturing, just-in-
time inventory systems, and flexible manufacturing systems.
Types of operations management techniques include queuing theory, break-even
analysis, and simulation. These techniques are routinely applied to areas outside of
operations.
 Management Information Systems - Information systems allow for more efficient
creation, management, and communication of information across the organization
as well as in the outside environment. The information allows for more efficient
management decision-making by providing information in a more timely manner and
in a more useful format. Notably, Decision Support Systems (DSS) integrate decision
models and data to this end.
 Total Quality Management- What is Total Quality Management?
Total Quality Management (TQM) is a management theory developed following WWII
during the reconstruction of Japan. Perhaps the best-known proponent of this school of
management was W. Edwards Deming. Total quality management (TQM) is a
management approach that focuses on the following elements of operations:
 Customer Focus
 Value Improvement
 Employee Empowerment
 Synergy of Teams
  Final Product Quality
 Preventing rather than detecting defects
 Universal quality responsibility
 Continuous Improvement
 Statistical measurement
 Process Focused
 Constant refinement and learning
 Training and Learning
 Accurate Measurement
There are four phases of total quality management:
 Planning Phase: Employees discover the problems in regular operations and their
root causes. Employees conduct comprehensive research and collect relevant data.
The objective is to identify potential solutions to their problems.
 Doing Phase: Employees develop and execute strategies and plan to address
identified problems.
 Checking Phase: Data is collected to analyze performance to validate the
effectiveness of the processes and measure the outcome.
 Acting Phase: Outcomes are documents and employees begin addressing resulting
challenges.
Lean Management- Lean management is an approach to management focusing on
maximizing customer value while reducing process waste without compromising quality.
This is done through incremental improvement. The principles of lean management include:
Value Identification - Focus on the customers’ point of view.
Value Mapping - Eliminate all of the unnecessary steps in the value delivery process.
Operational Mapping - Focus on sequencing value-providing activities.
Value Pull - Identify the point at which customers pull value from the process.
Efficiency - Continue to seek increased efficiency with less waste.
Lean management seeks to achieve an ideal state of operations known as single-piece flow.
In product production, this means eliminating the waste associated with batch production.
Instead, it focuses on single-production production. In any process, this principle seeks to
eliminate wastes from unnecessary human motion, inventory inefficiency, labor
inefficiencies, space inefficiencies, product defects, and overproduction.
The benefits of lean management are that it reduces defects and manufacturing flexibility.
The downside or disadvantage is that it can result in lower productivity and longer process
cycles. Lean management was made popular by Toyota Corporation as part of its production
process.
Quantitative Management Techniques

Some of the primary techniques applicable to Quantitative Management include:

  Theory of Probability, or Probability theory is a branch of mathematics that can be used as a
business tool to assist with decision-making and other aspects of business operations. It is
embedded in some of the key decisions that businesses make and sometimes it is the final
piece in making decisions.

 Sampling Analysis,- Sampling is an important process for any business as it takes into
consideration a homogeneous or similar behaving smaller group from the larger population.
In business, it helps identify the behavior of a larger population by analyzing the smaller
group.

 Correlation / Regression Analysis,- helps show a correlation (or lack thereof) between two
variables. Using basic algebra, you can determine whether one set of data depends on
another set of data in a cause-and-effect relationship.

 Time Series Analysis, - is used for non-stationary data—things that are constantly fluctuating
over time or are affected by time. Industries like finance, retail, and economics frequently
use time series analysis because currency and sales are always changing.

 Ratio Analysis,- is the process of using ratios to compare and interpret the financial
statements of a company. Ratio analysis can evaluate the liquidity, efficiency, profitability,
solvency, and performance of a company. Ratio analysis uses data from financial statements
to calculate the financial health and condition of a company

 Variance Analysis,- Variance analysis is the comparison of actual and planned numbers. It is
used in budgeting and management accounting to find out the difference between the actual
and the standard cost or revenue. It is a technique for determining the disparity between
budget estimates and actual figures and keeping a corporation under better management.
Variance analysis can be done on a monthly, quarterly, or yearly basis. Statistical Quality
Control,

 Linear Programming,- is a mathematical modeling technique in which a linear function is

maximized or minimized when subjected to various constraints¹. It has been useful for
guiding quantitative decisions in business planning. The technique determines the best way
to use available resources and helps make decisions about the most efficient use of limited
resources such as money, time, materials, and machinery².

 Game Theory,- is the study of how and why we make decisions. It is the formal study of
conflict and cooperation. In the world of business, competition between two companies can
be analyzed as a game in which the participants play to achieve a long-term competitive
edge. Game theory helps each participant develop his or her optimal strategy for, for
example, pricing products, determining when to launch a product, or deciding how much to
produce. It can help a company anticipate beforehand what its rivals will do and shows how
best to respond if a competitor surprises everybody with an unexpected move.

 Network Analysis, - is a method used to analyze, control, and monitoring of business

processes and workflows.

Enables project managers to take various factors into account when creating a project plan.

It is a method often used in procurement and production in order to control project processes
more efficiently and to complete projects on schedule and on budget.
  Break-Even Analysis,- a calculation that shows the point at which a business or a project has
no profit or loss. It compares the costs of running the business or the project to the revenue
generated by it. It is a tool for internal management, not a computation for external parties,
but it may be requested by financial institutions. It can help a business decide on product
pricing and cost control.

 Waiting Line or Queuing Theory,- is based on mathematical theories and deals with the
problems arising due to the flow of customers towards the service facility. The waiting line
models help the management in balancing between the cost associated with waiting and the
cost of providing service. Its findings may be used to provide faster customer service,
increase traffic flow, improve order shipments from a warehouse, or design data networks
and call centers.

 Cash-Benefit Analysis, etc. - There are three cash flow types that companies
should track and analyze to determine the liquidity and solvency of the
business: cash flow from operating activities, cash flow from investing
activities and cash flow from financing activities. All three are included on a
company’s cash flow statement.
In conducting a cash flow analysis, businesses correlate line items in those
three cash flow categories to see where money is coming in, and where it’s
going out. From this, they can draw conclusions about the current state of the
business.

WHAT IS QUANTITATIVE TECHNIQUE?

Decision Science is an application that uses a scientific approach and solves management problems.
It also helps managers to make the best decisions. Decision science includes a large number of
mathematically oriented techniques. These techniques can be either developed within the field of
decision science or taken from other disciplines. Decision science is a recognized and established
discipline in business. Decision science is a technique that is mainly used within businesses for
increasing efficiency and productivity.
In various surveys of businesses, many indicate that they use decision science techniques, and most
rate the results to be very good. Decision science is also known as operations research, quantitative
techniques, and quantitative analysis and management sciences. It is largely used in the daily routine
of most programs of business organizations.

The term Decision Science / Quantitative Techniques (QT) /Operations Research (OR) describes the
discipline that is focused on the application of Information Technology (IT) for well-versed decision-
making.

Quantitative techniques are those statistical and programming techniques: which support the
decision-making process especially those related to industry and business. QT takes into
consideration the elements of qualities such as the use of numbers, symbols, and other
mathematical expressions.

QT is basically a helpful enhancement to judgment and intuition. Quantitative techniques assess

planning factors and alternatives as and when they arise rather than suggest courses of action.
Quantitative techniques may be defined as those techniques which provide the decision maker with
a systematic and powerful means of analysis and help, based on quantifiable data, in exploring
policies for achieving pre-determined goals. ''Quantitative techniques are mainly appropriate to
problems of complex business enterprises".

QT can be considered as the scientific approach to managerial decision-making. This approach starts
from raw data and after manipulation or processing, information is produced which is valuable for
making decisions.

The main aim of quantitative analysis is the processing and manipulating of raw data into meaningful
information. For increasing the use of quantitative analysis, computers can be used as an
instrument.

According to C.R. Kothari :

"Quantitative Techniques may be defined as that technique which provides the decision maker with a
systematic and powerful means of analysis and help, based on quantitative in exploring policies for
achieving per-determined goals”.

Quantitative Techniques are devices developed on the basis of mathematical and statistical models.

Characteristics of Quantitative Techniques:

1) Decision-Making:

Decision-making or problem-solving constitutes the major working of operations research:

Managerial decision-making is considered to be a general systematic process of operations research
(OR).

2) Scientific Approach:

Like any other research, operations research also emphasizes the overall approach and takes into
account all the significant effects of the system. It understands and evaluates them as a whole. It
takes a scientific approach towards reasoning. It involves the methods defining the problem, its
formulation, testing, and analyzing of the results obtained.

3) Objective-Oriented Approach:

Operations Research not only takes the overall view of the problem but also endeavors to arrive at
the best possible (say optimal) solution to the problem at hand. It takes an objective-oriented
approach. To achieve this, it is necessary to have a defined measure of effectiveness which is based
on the goals of the organization. This measure is then used to make a comparison between
alternative solutions to the problem and adopt the best one.

4) Inter-Disciplinary Approach:

No approach can be effective if taken one at a time. OR (Operations Research)is also interdisciplinary
in nature. Problems are multi-dimensional and the approach needs teamwork. For example,
managerial problems are affected by economic, sociological, biological, psychological, physical, and
engineering aspects. A team that plans to arrive at a solution, to such a problem, needs people who
are specialists in areas such as mathematics, engineering, economics, statistics, management, etc.
What are the Positive and Negative Aspects of Quantitative Management
Theory?
Benefits include:
 It establishes relationships amongst quantifiable variables of decision-making
situations and facilitates disciplined thinking.
 Mathematical models help to derive precise and accurate results by analyzing
complex statistical data.
 It is useful in areas of planning and control where data is available in
quantitative terms. Decisions are based on data and logic rather than intuition
and judgment.
 Computer-based Statistical packages are available which facilitate the
analysis of qualitative data also (dummy variables are used to analyze the
non-quantifiable data).
Negatives include:
 Mathematical models cannot fully account for individual behaviors and
attitudes.
 The time needed to develop competence in quantitative techniques may delay
the development of other managerial skills.
 Mathematical models typically require a set of assumptions that may not be
realistic in an industrial setting.
 Among the different functions of management, its use is limited to organizing,
staffing, and directing. It applies more to planning and control functions.
 It does not eliminate risk but only attempts to reduce it.
 It assumes that all the variables affecting the problem can be quantified in
numerical terms which is not always true.
 Decisions are often based on the availability of limited information.

Who are some of the primary contributors of various theories to the quantitative approach?

 Decision Theory - Determination of objectives of the firm, assessment of group conflicts and
interaction, and organization analysis. R.M. Thrall, C.I. Bernard, H.A. Simon, N. Weine.
Decision theory looks at the various factor that influences management decision-making. It
views decision-making as a continuous process within the organization. The organization’s
success will depend upon the quality of the decisions made. This requires the use of
quantitative methods in evaluating options. Communication plays an important role in
efficient decision-making. Decisions can be grouped into programmed and Non-
Programmed, Organizational and Personal, and major and Minor Decisions.

 Inventory Theory - Economic lot size and inventory control. F.W. Harris, J.F. Magee

 Game Theory - Timing and pricing in a competitive market, military strategy. J. Von Newman,
Shubik
  Queuing Theory - Inventory control, traffic control, radio communication, telephone trunking
system. A.K. Erlang, L.C. Edie, P.M. Morse, M.G. Kendall.

 Linear Programming - Assignment of equipment and personnel scheduling, input-output

analysis, and product mix. W. Leontief, G.B. Dantzig, P.A. Samuelson

 Sampling Theory - Quality control, Simplified accounting and auditing, consumer surveys,
and product preferences in marketing research. E. Deming, H.F. Dodge

 Probability Theory - Almost all areas of application. R.A. Fisher, T.C. Fry, W. Feller

 Statistical Decision Theory - Estimation of model parameters in probabilistic models. A.

Wald, E.D. Molina, W. Shewhart

 Symbolic Logic - Circuit design, legal inference. G. Boole, B. Russell, A.N. Whitehead.

The relevance of the quantitative approach today is that it has contributed most

directly to managerial decision-making, particularly in planning and controlling.

The availability of sophisticated computer software programs has made the use

of quantitative techniques more feasible for managers.