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CHAPTER 12-Quantitative Techniques For Decision-Making

This chapter discusses quantitative techniques for decision making including probability, payoff tables, decision trees, simulation, queuing, linear programming, program evaluation and review technique (PERT), Gantt charts, and inventory modeling. These techniques can help managers with planning, control, and decision making under uncertainty. The chapter provides examples and steps for using various quantitative models and illustrates key concepts like the economic order quantity model, safety stock, and critical paths.

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513 views135 pages

CHAPTER 12-Quantitative Techniques For Decision-Making

This chapter discusses quantitative techniques for decision making including probability, payoff tables, decision trees, simulation, queuing, linear programming, program evaluation and review technique (PERT), Gantt charts, and inventory modeling. These techniques can help managers with planning, control, and decision making under uncertainty. The chapter provides examples and steps for using various quantitative models and illustrates key concepts like the economic order quantity model, safety stock, and critical paths.

Uploaded by

bebelabs632
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We take content rights seriously. If you suspect this is your content, claim it here.
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CHAPTER 12

QUANTITATIVE TECHNIQUES FOR


DECISION MAKING
RATIONALE IN USING QUANTITATIVE TECHNIQUES
The more commonly used quantitative models for planning, control and
decision making are as follows:
PROBABILITY
Decision Making under Uncertainty
Assigning Probabilities
Types of Probabilities
Basic Terms Used with Probability
Rules in Combining Probabilities
Probability Distributions
Discrete distributions include the following:
Continuous distributions includes the following:
Illustrative Problem 16.1 Decision Making under Uncertainty
Solution:
PAYOFF (DECISION) TABLES
EXPECTED VALUE OF PERFECT INFORMATION
DECISION TREE
Advantages of Decision Tree Analysis
Limitations of Decision Tree Analysis
Steps in Making a Decision Tree
Illustrative Problem 12-2: Preparation of Decision Tree
Learning Curve
SIMULATION TECHNIQUES
The simulation procedures has five steps
Advantages and Limitations of Simulation
The limitations of simulation are as follows:
MONTE CARLO TECHNIQUE
SENSITIVITY ANALYSIS
QUEUING
LINEAR PROGRAMMING
Steps in the Formulation of Linear Program
Computational Methods of Linear Programming
Graphic Method
Illustrative Problem 12-1: Linear Programming –
Graphic Method applied to Product Mix Problem
Solution:
Algebraic Method
Simplex Method
Illustrative Problem 12-2: Linear Programming-Simplex Method:
Maximization of Profit
Shadow Prices
Illustrative Problem 12-3: Linear Programming – Graphic
Method: Minimization of cost.
Solution:
PROGRAM EVALUATION AND REVIEW TECHNIQUES
Basic Underlying Concept
Figure 12-1
Figure 12-2
Expected Activity Time
Concept of Critical Path
Cost Estimating
Illustrative Problem 12-4: Preparation of PERT-CPM Network
Solution:
Crashing the Network
PERT- Cost Network
Illustrative Problem 12-5: PERT- Cost Network
Variation in Activity Time
Figure 12-3
Variation Along a Path
Accountant’s Role in PERT
Benefits and Limitations of PERT
Limitations of PERT
GANTT CHART
Steps in Preparing a Gantt Chart
Figure 12-4 illustrate a Gantt Chart
Advantage / Disadvantage of Gantt Charts
INVENTORY MODELING
Figure 12-5
The Economic Order Quantity (EOQ) Model
Illustrative Problem 12-6: EOQ Computation
Solution:
Illustrative Problem 12-7: Recorder Point Computation
Figure 12-6
Safety Stock
Illustrative Problem 12-8: EOQ; Safety Stock; ROP
Solution:
Illustrative Problem 12-9: Safety Stock Determination
REQUIRED:
2. Determination of Stock that should be carried to minimize
total stockout costs and carrying costs.

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