Chapter 1 - Quantitative Mangement Approach

RIFT VALLEY UNIVERSITY
SCHOOL OF GRADUATE STUDIES

BURAYU CAMPUS
MBA Program
Course title: Quantitative Analysis for Management
Decisions (MBA 631)
Course Credit hours: 3
Instructor’s Name: Getachew Gobena
(Asst. Professor)
Instructor’s email: [email protected]
October 2023
Sheger, Oromia, Ethiopia
Chapter 1: Introduction to Scientific Method and
Management Science
1.1. Overview of Management Science
 The scientific management revolution of the early 1900s,
initiated by Frederic W. Taylor. 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 (1939-1945).
o Teams, which often consisted of people with diverse specialties (e.g.,
mathematicians, engineers, and behavioral scientists), were joined together
to solve a common problem by utilizing the scientific method.
o Developments that occurred during the post–World War II period
led to the growth and use of management science in non-military
applications.
o The most significant development was the discovery by George
Dantzig, in 1947 of the simplex method for solving linear
programming problems.
1.2. Problem Solving and Decision Making
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 justification and careful analysis of problem, 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: is the process of identifying, analyzing and
choosing the best alternative from many analyzed alternatives to
implement it.
 If there is no alternative, then there is no need to worry about

decision-making.
 It 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.
 Quantitative management approach is a scientific method to
solve management problems in order to help managers to make
better decision.
 It encompasses a number of mathematically oriented

techniques that have either been developed within the field of
management science.
 Quantitative management approach can be applied to some

problems in a variety of different types of organizations
including government, military, business and health care
institutions, etc.
1.3. Quantitative Approach to Problem Solving
 The management science approach follows a generally
recognized ordered set of steps of the following:
Observation
Problem
definition
Model
Construction
Feedback
Solution
Information
Implementation
1. Observation
 The first step in the application of quantitative management
approach is the identification of problem that exists in the
system of the organization.
 Thus, the system must be continuously and closely observed

so that problems can be identified as soon as they occur or are
anticipated.
 The problems are most of the time identified by a management

scientist, a person skilled in the techniques of management
approach and trained to identify problems.
2. Definition of the Problem
 Once the problem has been identified, it must be clearly and
concisely defined.
 Since the existence of a problem implies that the objectives of the
firm are not being met in some way, the goals or objectives of the
organization must be also clearly defined.
 The problem is an observed gap between what happened and
what ought to happen.
3. Model Construction
 A management model is an abstract representation of an
existing problem situation.
 It can be in the form of a graph or a chart, but most frequently it
consists of a set of mathematical relationships that are made up
of numbers and symbols.
Mathematical Models Cont’d
Relate decision variables (controllable outputsb) with

fixed or variable parameters (uncontrollable inputs).
Frequently seek to maximize or minimize some

objective function subject to constraints.
The values of the decision variables that provide the

mathematically-best output are referred to as the
optimal solution for the model.
10/21/2023 10
Mathematical Model Cont’d
Models generally contain variables (controllable and

uncontrollable) and parameters. Controllable
variables are generally the decision variables and are
generally unknown.
Parameters are known quantities that are a part of the

problem.
10/21/2023 11
 The problem definition phase leads to a specific
objective, such as maximization of profit or
minimization of cost, and possibly a set of restrictions or
constraints, such as production capacities.
 The success of the mathematical model and quantitative

approach will depend heavily on how accurately the
objective and constraints can be expressed in terms of
mathematical equations or relationships.
 A mathematical expression that describes the problem’s
objective is referred to as the objective function.
10/21/2023 12
Mathematical Models Cont’d
 Objective Function: – a mathematical expression that
describes the problem’s objective, such as maximizing
profit or minimizing cost.
 Constraints: – a set of restrictions or limitations, such
as production capacities.
Uncontrollable Inputs:– environmental factors that are
not under the control of the decision maker.
Decision Variables: – controllable inputs; decision
alternatives specified by the decision maker, such as the
number of units of Product X to produce.
10/21/2023 13
 For example:
 A business firm that sells product costs of $5 to produce and sells for $20. A
model that computes the total profit that will accrue from the item sold is:
Z = $20x - $5x
 ‘x’ represents the number of units of the products that are produced and sold.
 ‘z’ represents the total profit that results from the sale of the product.
 The symbols ‘z’ and ‘x’ are variables.
 In addition, ‘z’ is a dependent variable because its value is dependent on the
number of units sold.
 ‘x’ is an independent variable since the number of units sold is not dependent
on anything else ( in this equation).
 The numbers $20 and $5 are called parameters.
 Parameters are constant values that are generally coefficients of variables
(symbols) in the equation.
 Parameters usually remain constant during the process of solving a specific
problem.
 The parameter values are derived from data (piece of information) from the
problem environment.
1.4. Quantitative Analysis Techniques
 The management science deals with many techniques that can
help managers to make decision under:
 certainty conditions
 uncertainty conditions.
 under risk conditions
 The decisions that can be made on certainty conditions depend
on experience and past data of the organization.
 Under certainty conditions, different types of mathematical
programming techniques can be used for making decision when
the existing data become difficult to manually compute.
 The programming used to identify this technique does not refer
to computer programming, but rather to a predetermined set of
mathematical steps used to solve a problem.
 The mathematical programming techniques assume that all
parameters in the model are known with certainty.
 Therefore, the solution results are assumed to be known with the

certainty, with no probability
 A technique that assumes certainty in its solution is referred to
as deterministic.
 The decisions under uncertainty conditions are made with the
different degree of decision maker´s optimism.
 Decisions under risk conditions are made with the use of
probabilistic techniques with some possibility that alternative
solutions might exist.
1.5. Classification of Quantitative Analysis
Techniques
END OF CHAPTER 1

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RIFT VALLEY UNIVERSITY

SCHOOL OF GRADUATE STUDIES

 If there is no alternative, then there is no need to worry about

 Thus, the first step of decision making is to identify and define

 It encompasses a number of mathematically oriented

 Quantitative management approach can be applied to some

 Thus, the system must be continuously and closely observed

 The problems are most of the time identified by a management

Relate decision variables (controllable outputsb) with

Frequently seek to maximize or minimize some

The values of the decision variables that provide the

Models generally contain variables (controllable and

Parameters are known quantities that are a part of the

 The success of the mathematical model and quantitative

 Therefore, the solution results are assumed to be known with the

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