MODULE 2: INTRODUCTION TO QUANTITATIVE TECHNIQUES & PROBABILITY

mathematical
Quantitative Techniques

- techniques which provide the decision makers a systematic and powerful means
of analysis, based on quantitative data
-

-
It is a scientific method employed for problem solving and decision making by
the management
inevitable in decision-making process = unavoidable / certain to happen
quantitative techniques.
- quantitative data are used along with the principles of mathematics
Systematic collection, processing, and interpretation of quantitative data to
uses mathematical concepts, equation, algorithms to quantify & optimize
support decision-making processes in various aspects of management (planning,
1. Permutations & Combinations
optimization, forecasting)
Permutation means arrangement of objects in a definite order. The number of
CLASSIFICATION OF QUANTITATIVE TECHNIQUES arrangements depends upon the total number of objects and the number of
objects taken at a time for arrangement.
1. Mathematical Quantitaive Techniques M n!
2. Statistical Quantitative Techniques S nPr=
3. Programming Quantitative Techniques P
( n−r ) !
Combination means selection or grouping objects without considering their
order.
n!
MATHEMATICAL QUANTITATIVE TECHNIQUES nCr=
r ! ( n−r ) !

quantitative data are

2. Set Theory
- a modern mathematical device which solves various types of critical problems
- properties of “sets”

used along with the e.g. Union

3.
¿) = all; Intersection (∩¿ = common;
Matrix Algebra
Complement (x’) = not in particular set

principles of
- an orderly arrangement of certain given numbers or symbols in rows and
columns. It is a mathematical device of finding out the results of different
types of algebraic operations on the basis of the relevant matrices.

mathematics is known as e.g. Addition, Subtraction, Scalar Multiplication, Matrix Multiplication

4. Determinants
- It is a powerful device developed over the matrix algebra
- used for finding out values of different variables connected with a number of
simultaneous equations
5. Differentiation
MODULE 2: INTRODUCTION TO QUANTITATIVE TECHNIQUES & PROBABILITY
- It is a mathematical process of finding out changes in the dependent variable Interpolation is a statistical technique of estimating under certain assumptions
with reference to a small change in the independent variable Extrapolation provides estimated figures outside the range of given data
6. Integration 7. Statistical Quality Control
- is the reverse process of differentiation - Used for ensuring the quality of items manufactured
7. Differential Equation 8. Ratio Analysis
- mathematical equation which involves the differential coefficients of the - For analyzing financial statements of any business or industrial concerns
dependent variables. 9. Probability Theory
- Provides numerical values of the likelihood of the occurrence of events
STATISTICAL QUANTITATIVE TECHNIQUES 10. Testing of Hypothesis
- Important statistical tools to judge the reliability drawn on the basis of sample
- techniques which are used in conducting the statistical enquiry concerning to
studies
certain Phenomenon
- include all the statistical methods beginning from the collection of data till PROGRAMMING QUANTITATIVE TECHNIQUE
interpretation of those collected data (a.k.a Operations Research Techniques)
- - Model building techniques used by decision-makers in times
1. Collection of data 1. Linear Programming
- One of the important statistical methods is collection of data. There are - Used in finding a solution for optimizing a given objective under certain
different methods for collecting primary and secondary data constraints
2. Measures of Central Tendency, Dispersion, Skewness and Kurtosis 2. Queuing Theory
Measures of Central tendency is a method used for finding the average of a - Deals with mathematical study for queues
series - It aims in minimizing cost of both servicing and waiting
Measures of Dispersion used for finding out the variability in a series 3. Game Theory
Measures of Skewness measures asymmetry of a distribution - Used to determine the optimum strategy in a competitive situation
Measures of Kurtosis measures the flatness of peakness in a distribution 4. Decision Theory
- Concerned in making sound decisions under conditions of certainty, risks, and
3. Correlation & Regression Analysis uncertainty
Correlation is used to study the degree of relationship among two or more
variables. 5. Inventory Theory
Regression used to estimate the value of one variable for a given value of - Helps for optimizing the inventory levels
another - It focuses on minimizing cost associated with holding of inventories
4. Index Numbers 6. Network Programming
- Measures the fluctuations in various Phenomena like price, production, etc. over - Technique of planning, scheduling, controlling, monitoring and coordinating large
a period of time, they are described as economic barometers and complex projects comprising of a number of activities and events
5. Time Series Analysis 7. Simulation
- Helps us to know the effect of factors which are responsible for changes - Testing a model resembles a real-life situation
6. Interpolation & Extrapolation 8. Replacement Theory
MODULE 2: INTRODUCTION TO QUANTITATIVE TECHNIQUES & PROBABILITY
- Concerned with the problems of replacement of machines due to their

-
deteriorating efficiency or breakdown
It helps to determine the most economic replacement policy
9. Non-Linear Programming
Even though the
- It is a programming technique which involves finding an optimum solution to a
problem in which some or all variables are non-linear.
10. Sequencing
quantitative techniques
- Sequencing tool is used to determine a sequence in which given jobs should be
performed by minimizing the total efforts
11. Quadratic Programming
are inevitable in
- Quadratic programming technique is designed to solve certain problems, the
objective function of which takes the form of a quadratic equation.
12. Branch and Bound Technique
decision-making
process, they are not
- Designed to solve the combinational problems of decision making where there
are large number of feasible solutions. Problems of plant location, problems of
determining minimum cost of production etc. are examples of combinational

free
problems.

Functions of Quantitative Techniques

1. To facilitate the decision-making process
2. To provide tools for scientific research
3. To help in choosing an optimal strategy
4. To enable in proper deployment of resources
from short comings. The
5. To help in minimizing costs
6. To help in minimizing the total processing time required for performing a set of
jobs
following are the
important limitations of
Limitations of
quantitative techniques:
Quantitative Techniques
MODULE 2: INTRODUCTION TO QUANTITATIVE TECHNIQUES & PROBABILITY

1. Quantitative while using quantitative

techniques involves techniques, otherwise it
mathematical models, will lead to wrong
equations and other conclusions.
mathematical 3. Quantitative
expressions techniques are very
2. Quantitative expensive.
techniques are based on 4. Quantitative
number of assumptions. techniques do not take
Therefore, due care must into consideration
be ensured
MODULE 2: INTRODUCTION TO QUANTITATIVE TECHNIQUES & PROBABILITY
- is the measure of how likely an event is

intangible facts like skill, -

-
provides a method for mathematical expressing doubt or assurance about the
occurrence of an event.
The probability of an event varies from 0 to 1 or 0% to 100%.

attitude, etc. a. A probability of 0 means the event cannot occur, whereas a probability of 1
means the event is certain to occur.
e.g. The probability that the sky will fall is 0 while the probability that a person will die is 1 or 100%.

5. Quantitative
b. probability between 0 to 1 indicates the likelihood of the event’s occurrence
e.g. The probability that a coin will yield heads is 0.5 (50%) on any single toss.

Experiment – are the uncertain situations, which could have multiples outcomes.

techniques are only tools e.g. Whether it rains on a daily basis is an experiment.
Outcome – the result of a single trial.
e.g. So if it rains today, the outcome of today’s trial from the experiment is “it rained”.

for analysis and

Event – one or more outcome from an experiment
e.g. “It rained” is one of the possible event of this experiment.
Probability – is the measure of how likely an event is
e.g. If there is 60% chance that it will rain tomorrow, the probability of the outcome “it rained” for tomorrow is 0.6.

decision-making. They Types of Events

are not decisions itself.

Limitations of Quantitative Techniques
1.
-
Mutually Exclusive Events
The events are said to be mutually exclusive when they do not occur
simultaneously. If one event is present in a trial, other events will not appear.
In other words, occurrence of one precludes the occurrence of all the others.
- they are not free from short comings. e.g.
1. Quantitative techniques involve mathematical models, equations and other a. If a girl is beautiful, she cannot be ugly.
b. If a ball is white, it cannot be red.
mathematical expressions
c. If a person is alive, he cannot be dead. He cannot also be alive and dead at the same time.
2. Quantitative techniques are based on number of assumptions. Therefore, due d. If a coin is tossed, either the head or tail will appear, but both cannot appear at the same time.
care must be ensured while using quantitative techniques, otherwise it will lead
to wrong conclusions.
3. Quantitative techniques are very expensive.
4. Quantitative techniques do not take into consideration intangible facts like skill,
attitude, etc.
e.
5. Quantitative techniques are only tools for analysis and decision-making. They
are not decisions itself.

PROBABILITY
MODULE 2: INTRODUCTION TO QUANTITATIVE TECHNIQUES & PROBABILITY

f. 2. Independent trial. Also, one trial

Events never
g. Two or more i.describes the outcome
events are said to be of other trials.
independent when the j.Example:
occurrence of one trial k. The repetitive
does not affect the tossing of a coin are
h. other. If the trials independent events. If
are made one by one, you try to toss a coin,
one trial is not then that event will
affected by the other not
MODULE 2: INTRODUCTION TO QUANTITATIVE TECHNIQUES & PROBABILITY
e.g. a. If a coin is tossed, there is an equal chance for the head and the tail to appear. Fifty percent or ½ for head and

l.affect the succeeding also 50% or ½ for tail. b. If a die is rolled, there is an equal chance for each face to appear with 16.67% or 1/6 for each
face.

5. Simple Events

tossing of coins. The e.g.

- Simple event deals with the probability of the happening or not-happening of a
single event.

preceding trial also a.

b.
If you toss a coin, you are considering the probability of getting a head or a tail.
If there are 10 white balls and 6 red balls in a bag and you want to know the probability of drawing a red
ball, then it is considered a simple event.

never describes the 6.

-
Compound event
Compound event deals with the joint occurrence of two or more events.
e.g. You want to know the probability of having 3 white balls if you are going to draw 3 balls simultaneously draw in a

outcome of the
bag with 10 white balls and 6 red balls.

Probability Distribution
- A probability distribution specifies the value of a variable with their associated

m. succeeding trials
2. Independent Events
probabilities.
Discrete Data vs Continuous Data
Discrete data – can take only specified values
e.g. When you roll a die, the possible outcomes are 1, 2, 3, 4, 5, or 6. It cannot be 1.5, 2.45, or 3.33
- Two or more events are said to be independent when the occurrence of one trial
Continuous data – can take any value within a given range. The range maybe finite or
does not affect the other. If the trials are made one by one, one trial is not
infinite.
affected by the other trial. Also, one trial never describes the outcome of
e.g. A girl’s weight is said to be 54 kgs but it can be 54.3 kgs, 54.215 kgs or 59.994 kgs.
other trials Types of Distributions
e.g. The repetitive tossing of a coin are independent events. If you try to toss a coin, then that event will not affect
the succeeding tossing of coins. The preceding trial also never describes the outcome of the succeeding trials
1. Bernoulli Distribution
- has only two possible outcomes, namely 1 (success) and 0 (failure).
e.g.
3. Dependent Events
a. The probability of getting a head if a coin is tossed. 50% success and 50% failure
- Dependent events are those in which the occurrence and non-occurrence of one b. The probability of success and failure need not to be equally likely like the probability of the Lakers (85%) winning a
event in a trial may affect the outcome of the other trials. basketball game versus the Ginebra (15%).
e.g. If a card is drawn from a deck of playing cards and is not put back in the deck, the in the second withdrawal of a
card from the deck will alter the probability of drawing a certain card 2. Uniform Distribution
- the probabilities of getting the outcomes are equally likely.
4. Equally Likely Events - This has the same concept with equally likely events.
- Events are said to be equally likely when the chances of occurrence for each
event is equal. Events cannot be said to be equally likely when one event occurs 3. Binomial Distribution
more often than the others.
MODULE 2: INTRODUCTION TO QUANTITATIVE TECHNIQUES & PROBABILITY
- a distribution where only two outcomes are possible, such as success or failure,
Illustration
gain An investment
or loss may and
, win or lose havewhere
threethe
possible outcomes
probability depending
of success andon the state
failure is the
of economy.
sameIf the
for alleconomy
the trialsis strong, there will be a ₱12,000 return on investment. If
the economy is fair, there will be an ₱8,000 return of investment. If the economy is
weak,
4. the investment
Normal will suffer a loss of ₱2,000. The probability that the economy
Distribution
for- the any
coming year will is
distribution beknown
40% strong, 40%
as normal fair, and 20%
distribution if itweak. Find
has the the expected
following
value ofcharacteristics:
the return on investment.
A B C D
State
a. ofTheEconomy
mean, median, and Probability ROI
mode of the distribution coincide. AxC
b. The Strong 40%
curve of the distribution ₱ 12,000
is bell-shaped and symmetrical. ₱ 4,800
c. The Fair
total area under 40% the curve is 1. ₱ 8,000 ₱ 3,200
Weak half of the values
d. Exactly 20% are to the left of the center
₱ (2,000)
and the other(₱ 400)
half to
the right. Expected value of Return on Investment ₱ 7,600

5. Poisson Distribution Value of perfect information

- any distribution is called Poisson distribution when the following assumptions - the amount of profit foregone due to uncertain conditions affecting the
are valid: selection of a course of action.
a. Any successful event should not influence the outcome of another successful - The difference between the expected value without perfect information and
event. the return if the best action is taken given perfect information
b. The probability of success over a short interval must equal the probability of
success over a long interval.
c. The probability of success in an interval approaches zero as the interval
becomes smaller.
E.g.
i. The number of printing errors at each page of the book.
ii. The number of customers arriving at a salon in an hour.

6. Exponential Distribution
- helps in analysis of events such as the time intervals between the number of
customers arriving at a salon in an hour or the lifespan of an air conditioner.

Expected Value
- provides a rational means for selecting the best alternative.
- expected value of an action is found by multiplying the probability of each
outcome by its pay-off and summing the products.
- best alternative is the one having the highest expected value.