Mathematics for Decision

Introduction

Md. Aktar Kamal

Assistant Professor
Dept. of Management Studies
FBS,BUP
 Definition of Mathematics

The word Mathematics comes from Greek word

“Mathema” which means Learning,Study and
Science.

Mathematics is abbreviated as Maths (UK) and

Math.(US)
Definition of Mathematics
 Aristotle defined mathematics as:
“The science of quantity”.

 According to Benjamin
“Mathematics is the science that draws
necessary conclusions”.
Definition of Mathematics

§ Mathematics is the science which helps us to reach

necessary and correct decisions

§ Mathematics is the science of space, numbers and

quantity. (Oxford Dictionary)

§ Mathematics is the science of number, symbol,

abstract thinking, Motion, Time and their mutual

relations. (Modern Definition)

 Branches in Mathematics
Pure Mathematics Applied Mathematics

Pure mathematics is mathematics that studies

entirely abstract concepts.
Applied mathematics is a branch of mathematics 
that deals with mathematical methods that find use
in science, engineering, Business, Computer
science, and Industry.
 Mathematics for Decision Making

Mathematics is distinct branch of Science, Which

helps managers, executives and decision makers
in taking decisions regarding present or future
phenomenon in different areas where there are
the alternatives available to them.
Mathematics for Decision Making
 It is a quantitative approach to decision
making based on the scientific method of
problem solving.

 The application of scientific methods,

techniques and tools to problem involving
the operations of system in order to provide
optimum solutions to the problem
Mathematics for Decision Making
 Mathematics used by commercial enterprises
to record and manage business operations.
Commercial organizations use mathematics
in accounting, inventory management,
marketing, sales forecasting, and financial
analysis etc.
The Characteristics of Business
mathematics
1) a primary focus on managerial decision making
2) the application of scientific approach to decision
making.
3) the application of systematic and logical approach.
4) the use of methods and knowledge from several
disciplines.
5) a reliance on mathematical and other quantitative
models.
 Problem Solving and Decision Making
 7 Steps of Problem Solving
◦ Identify and define the problem.
◦ Determine the set of alternative solutions.
◦ Determine the criteria for evaluating the alternatives.
◦ Evaluate the alternatives.
◦ Choose an alternative.
◦ Implement the chosen alternative.
◦ Evaluate the results.
Potential Reasons for a Quantitative
Analysis Approach to Decision Making

1. The problem is complex, and the manager

cannot develop a good solution without the
aid of quantitative analysis.
2. The problem is especially important (e.g.,
a great deal of money is involved), and the
manager desires a thorough analysis before
attempting to make a decision.
Cont…
3. The problem is new, and the manager has no
previous experience from which to draw.

4. The problem is repetitive, and the manager saves

time and effort by relying on quantitative
procedures to make routine decision
recommendations.
Scientific Approach to Problem
Solving
Steps in the Scientific Approach
to Problem Solving Process
Observation - Identification of a problem that exists in the
system or organization.
Definition of the Problem - problem must be clearly and
consistently defined showing its boundaries and interaction
with the objectives of the organization.
Model Construction - Development of the functional
mathematical relationships that describe the decision variables,
objective function and constraints of the problem.
Model Solution - Models solved using management science
techniques.
Model Implementation - Actual use of the model or its
solution.
Model
 Models are representations of real objects or
situations.

 A mode is an abstract mathematical

representation of a problem situation.
Three forms of models

◦ Iconic models - physical replicas (scalar

representations) of real objects

◦ Analog models - physical in form, but do not physically

resemble the object being modeled

◦ Mathematical models - represent real world problems

through a system of mathematical formulas and
expressions based on key assumptions, estimates, or
statistical analyses
Problem Definition
Example of Model Construction (1 of 2)
 Information and Data:
Business firm makes and sells a steel product
Product costs $5 to produce
Product sells for $20
Product requires 4 pounds of steel to make
Firm has 100 pounds of steel
 Business Problem:
Determine the number of units to produce to make the
most profit given the limited amount of steel available.
Problem Definition
Example of Model Construction (2 of 2)
Variables: X = number of units (decision variable)
Z = total profit
Model: Z = $20⋅X - $5⋅X (objective function)
4⋅X = 100 lb of steel (resource constraint)
Parameters: $20, $5, 4 lbs, 100 lbs (known values)
Formal Specification of Model:
maximize Z = $20⋅X - $5⋅X
subject to 4⋅X = 100
Model Building
Break-Even Analysis (1 of 4)
Used to determine the number of units of a
product to sell or produce (i.e. volume) that will
equate total revenue with total cost.
The volume at which total revenue equals total
cost is called the break-even point.
Profit at break-even point is zero.
Model Building
Break-Even Analysis (2 of 4)
Model Components
 Fixed Costs (c ) - costs that remain constant
f
regardless of number of units produced.
 Variable Cost (c ) - unit cost of product.
v
 Total variable cost (vcv) - function of volume (v) and
variable per-unit cost.
 Total Cost (TC) - total fixed cost plus total variable
cost.
 Profit (Z) - difference between total revenue vp (p =
price) and total cost.
Z = v⋅p – cf – v⋅cv
Model Building
Break-Even Analysis (3 of 4)
 Computing the Break-Even Point
The break-even point is that volume at which total
revenue equals total cost and profit is zero:
V = cf/(p – cv)
Example: Western Clothing Company
cf = $10000
cv = $8 per pair
p = $23 per pair
V = 666.7 pairs, break-even point
Model Building
Break-Even Analysis (4 of 4)
Limitations
 Time consuming

 Lack of acceptance by decision makers

 assessment of uncertainties are difficult to obtain

 use of over simplified model possibly leads to a erroneous

recommendations.

 can be expensive to undertake.