Quantitative Methods

DR. KISHORE KR. MORYA

Introduction to Quantitative Method

Why should I care to study this subject?

What is your view on this?
What are we dealing with?
Busines Sources
Data s Data of data
●
What is it? ●
Financial Data
●
Markets
●
Why is it ●
Market Data ●
Reports
important ●
Production ●
Magazines
●
How do we data ●
Journals
get it?
●
HR data ●
Newspaper
QM in Business
QM helps managers to
◦ Identify, Collect, Interpret, Analyze, and Manipulating Data

Why?
Because managers need answers.
Why managers need answers?
Because managers have to take decisions.
Why managers need to take decisions?
TO REMAIN IN THE BUSINESS
Some more questions about QM
Do managers really need QM to take decisions?
Do managers use mathematics while thinking about a problem and
finding the solution and then take the decision?
Yes or No
Most of the problems require quick solutions and many a times a
manager has to take a shot based on intuition.
How does QM help managers to take quick decisions?
By mastering the skill of quick decision making
How does one master this skill?
Use QM.
Some applications of quantitative methods
Marketing
Electronic point-of-sale scanners at retail checkout counters are used to collect
data for a variety of marketing research applications.
Production
A variety of statistical quality control charts are used to monitor
the output of a production process.
Finance
Financial advisors use price-earning ratios and dividend yields to
guide their investment recommendations.
 Syllabus
 Scales of Measurement: Nominal, Ordinal, Interval, and Ratio Scale

 Probability: Fundamentals, Addition Theorem, Multiplication Theorem, Bayes

Theorem, Random Variable

 Probability Distributions: Binomial, Poisson and Normal Distribution

 Sampling and Sampling Distributions: Population, Sample, Types of Sampling,

Sampling Distributions, Standard Errors, Sampling from Normal and Non-normal
Population, Central Limit Theorem, Finite Population Parameters
Syllabus…
 Estimation:
Point and Interval Estimation, Confidence Intervals, Interval estimates of Mean
and Proportion from Large Samples, Interval Estimation using t-distribution,
Sample size for estimating means and proportions
Hypothesis: Null, Alternate Hypothesis, Steps of Formulating Hypotheses
Testing of Hypotheses: Basic Concepts, Type I and Type II Errors, One Tailed and
Two Tailed Tests, One Sample Tests, Hypothesis Testing of Means when
Population Standard Derivation is Known and when Unknown, Hypothesis
Testing of Proportions for Large Samples. Two Sample Tests for Equality of
Means for Large and Small Samples, Equality of Means for Dependent Samples,
Difference between Proportions for Large Samples.
Coverage…
Chi-Square: Chi Square Test of Independence. and Goodness of fit.
Analysis of Variance (One Way ANOVA): Test for Equality of Means. Inference
about a population variance and about two population variances.
Bivariate analysis: Bivariate correlation and regression, Coefficient of
determination, assumptions in the regression model, tests of significance for the
correlation and regression coefficients.
Syllabus
Time Series Analysis: Components of Time Series, Trend Analysis- Moving
Average, Fitting linear and second degree trends, Seasonal Variation (Computing
using Ratio to Trend Method), Cyclical Variation. Irregular Variation, Problems
Involving All Four Components of Time Series.
Decision Trees: Decision Tree Analysis-Expected value under risk, under perfect
information, and under sample information.
Linear Programming, Transportation and Assignment problems: Formulating
Linear Programming Problems, Graphical approach, Formulation of
Transportation and Assignment problems, Solutions using Excel solver and other
software.
Case Studies
ICICI Bank’s “Get up to 100% Cash Back offer” Real Foods
Solnyx Pharmaceuticals: The Atoxeril Clinical Trial
Care Hygiene Hindustan Foods
Roja Silks Ram Publishers
Alexander Machine Company Best Fibre
Lakshmi Engines
 Text Books
1. Louise Swift and Sally Piff (2010), Quantitative Methods for business,
management and finance, 3rd Edition, Palgrave Macmillan.
2. Anderson, Sweeney and Williams (2011), Statistics for Business and
Economics, 9th Edition, Cengage Learning
3. Levine, Stephan, Krehbiel and Berenson (2010), Statistics for Managers, 5th
Edition, PHI
Scales of Measurement
Nominal Scale
Ordinal Scale
Interval Scale
Ratio Scale
Nominal Scale
Tag
Ordinal Scale
Rank
Interval Scale
Difference
Ratio Scale
Proportion
True Zero
Scales of Measurement
Introduction to Probability
Experiments, Counting Rules, and Assigning Probability
Events and their probabilities
Basic Relationships of Probability
Conditional Probability
Bayes Theorem
Probability : Measure of Chance of
Favorable Occurrence
Increasing Likelihood of Occurrence

0 .5 1
Probability:

The event The occurrence The event

is very of the event is is almost
unlikely just as likely as certain
to occur. it is unlikely. to occur.
An Experiment and its Sample Space
An experiment is any process that generates well-defined outcomes
The sample space for an experiment is the set of all experimental outcomes
An experimental outcome is also called a sample point
Assigning Probability
Classical Method
Relative Frequency Method
Subjective Method
Classical Method
If an experiment has n possible outcomes, this method
would assign a probability of 1/n to each outcome.

Example

Experiment: Rolling a die

Sample Space: S = {1, 2, 3, 4, 5, 6}
Probabilities: Each sample point has a
1/6 chance of occurring
Relative Frequency Method
Each probability assignment is given by
dividing the frequency (number of days) by
the total frequency (total number of days).

Number of Number
Polishers Rented of Days Probability
0 4 .10
1 6 .15
2 18 .45 4/40
3 10 .25
4 2 .05
40 1.00
Subjective Method
 When economic conditions and a company’s
circumstances change rapidly it might be
inappropriate to assign probabilities based solely on
historical data.
 We can use any data available as well as our
experience and intuition, but ultimately a probability
value should express our degree of belief that the
experimental outcome will occur.
 The best probability estimates often are obtained by
combining the estimates from the classical or relative
frequency approach with the subjective estimate.
Event and their Probabilities
An
An event
event is
is aa collection
collection of
of sample
sample points.
points.

The
The probability
probability of
of any
any event
event is
is equal
equal to
to the
the sum
sum of
of
the
the probabilities
probabilities of
of the
the sample
sample points
points in
in the
the event.
event.

IfIf we
we can
can identify
identify all
all the
the sample
sample points
points of of an
an
experiment
experiment andand assign
assign aa probability
probability to
to each,
each, we
we
can
can compute
compute the
the probability
probability ofof an
an event.
event.
 Some Basic Probability Relationships
There are some basic probability relationships that
can be used to compute the probability of an event
without knowledge of all the sample point probabilities.

Complement
Complement of
of an
an Event
Event

Union
Union of
of Two
Two Events
Events

Intersection
Intersection of
of Two
Two Events
Events

Mutually
Mutually Exclusive
Exclusive Events
Events
Compliment of an Event
The
The complement
complement of of event
event A
A is
is defined
defined toto be
be the
the event
event
consisting
consisting of
of all
all sample
sample points
points that
that are
are not
not in
in A.
A.
cc
The
The complement of A is denoted by A ..
complement of A is denoted by A

Sample
Event A Ac Space S

Venn
Diagram
Union of Two Event
The
The union
union of
of events
events AA and
and BB is
is the
the event
event containing
containing
all
all sample
sample points
points that
that are
are in
in A
A or
or BB or
or both.
both.

The
The union
union of
of events
events A
A and
and BB is
is denoted
denoted by A B
by A B

Sample
Event A Event B Space S
Intersection of Two Events
The
The intersection
intersection of
of events
events A A and
and BB is
is the
the set
set of
of all
all
sample
sample points
points that
that are
are in
in both
both A
A and
and B. B.

The
The intersection
intersection of
of events
events A
A and
and BB is
is denoted
denoted by
by A 
A 

Sample
Event A Event B Space S

Intersection of A and B
Addition Law
The
The addition
addition law
law provides
provides aa way
way to
to compute
compute the
the
probability
probability of
of event
event A,
A, or
or B,
B, or
or both
both AA and
and BB occurring.
occurring.

The
The law
law is
is written
written as:
as:

P(A B) = P(A) + P(B) - P(A  B

Mutually Exclusive Events
Two
Two events
events are
are said
said to
to be
be mutually
mutually exclusive
exclusive ifif the
the
events
events have
have no
no sample
sample points
points in
in common.
common.

Two
Two events
events are
are mutually
mutually exclusive
exclusive if,
if, when
when one
one event
event
occurs,
occurs, the
the other
other cannot
cannot occur.
occur.

Sample
Event A Event B Space S