Quantitative

Techniques for
Decision
Making
CARAGDAG, Ian Angelo
GALICIA, Louise Anne
PERALTA, Jayson
RAMOS, Lhorvie Shaine L.
Rationale in
Using
Quantitative
Techniques
 RATIONALE IN USING
QUANTITATIVE TECHNIQUES
✘ Management accountants use
quantitative techniques in
developing the necessary
information needed by management
in carrying out their functions that
include planning, controlling, and
decision making.
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 QUANTITATIVE
MODELS
✘ A.K.A Mathematical Models

✘ Real-life Decision situations are

modeled mathematically under
certain assumptions in order to
achieve a deterministic solution.

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 SIMULATION

✘ A technique for experimenting with

mathematical / logical models using
a computer.

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Probabili
ty
 PROBABILITY

• A technique used by risk managers

for forecasting future events, such us
accidental losses. This process involves
a review of historical loss data to
calculate a probability distribution that
can be used to predict the future losses.

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 PROBABILITY
✘• Commonly used in planning, as well as in decision –
making under uncertainty.

✘ Decision Making Under Certainty – there is only one

event, and therefore only one outcome. The event has a
100% chance of occurrence.

✘ Decision Making Under Condition of Risk – the

probability distribution of the possible future states of
nature is known.
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 PROBABILITY
✘ A mathematical expression of doubt or assurance about
the occurrence of a chance events.

✘ It’s the varies from zero(0) to one(1) or 100%

✘ PROBABILITY OF 0 – the event cannot occur

✘ PROBABILITY OF 1 OR 100% - the event is certain to
occur
✘ PROBABILITY OF 0 AND 1 – Indicates the likelihood of
the event´s occurrence
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 BASIC TERM USED IN
PROBABILITY
ANALYSIS
✘ •Mutually Exclusive – If two events cannot
occur simultaneously .

✘• Joint Probability – Both event will occur.

✘ • Conditional Probability – One event will

occur given that the other events has already
occurred.
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 BASIC TERM USED IN
PROBABILITY
ANALYSIS
✘ •Independent Events – the occurrence of one
event has no effect on the other
events.

✘ • Dependent Event – the occurrence of one

event has an effect on the other events.

✘ • Pay Off – the value assigned to the different

outcomes from a decision. 11
 FORMULA FOR
PROBABILITY ANALYSIS
✘ •P(A)= NUMBER OF FAVOURABLE OUTCOME
✘ TOTAL NUMBER OF FAVOURABLE
OUTCOMES

✘ P(A) = n(A)/n(S)
✘ Where,

✘ P(A) is the probability of an event “A”

✘ n(A) is the number of favourable outcomes
✘ n(S) is the total number of events in the sample space
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 FORMULA FOR
PROBABILITY ANALYSIS
✘ •EXAMPLE:
✘ What is the probability that a card taken from a
standard deck, is an Ace?

✘ Total number of cards a standard pack contains = 52

✘ Number of Ace cards in a deck of cards = 4
✘ So, the number of favourable outcomes = 4
✘ Now, by looking at the formula,
✘ Probability of selecting an ace from a deck is,

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 FORMULA FOR
PROBABILITY ANALYSIS
✘ •P(Ace) = (Number of favourable outcomes) /
(Total number of favourable outcomes)

✘ P(Ace) = 4/52
✘ = 1/13

✘ So we can say that the probability of getting an

ace is 1/13.
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PAY-OFF
(Decision)
Tables
PAY OF DECISION TABLE
✘ A decision table is an excellent tool to use in
both testing and requirements management.
Essentially it is a structured exercise to
formulate requirements when dealing with
complex business rules.

✘ What Decision Table can do?

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DECISION TABLE AT A GLANCE — LOAN
APPROVAL EXAMPLE

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Monte Carlo
Technique
 MONTE CARLO
TECHNIQUE
✘ Monte Carlo simulation is a computerized
mathematical technique that allows people to
account for risk in quantitative analysis and
decision making. The technique is used by
professionals in such widely disparate fields as
finance, project management, energy,
manufacturing, engineering, research and
development, insurance, oil & gas,
transportation, and the environment.

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MONTE CARLO TECHNIQUE

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Sensitivity
Analysis
SENSITIVITY ANALYSIS
✘ The study of how the outcome of a decision
process changes as one or more of the
assumptions change.

✘ This model is also referred to as what-if or

simulation analysis. It is a way to predict the
outcome of a decision given a certain range of
variables.

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SENSITIVITY ANALYSIS
✘ Example:

With sales of 100 units, the company’s projected

profit is P500:
✘ Sales P5,000
✘ Less variable costs 3,000
✘ Contribution margin P2,000
✘ Less fixed costs 1,500
✘ Profit P 500

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SENSITIVITY ANALYSIS
✘ What would profit be if:

✘ a. sales in units increases by 20%

✘ b. variable costs per unit decreases by

5%

✘ c. fixed costs decreases by 500?

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SENSITIVITY ANALYSIS

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Queuin
g
 QUEUING
✘ Queuing theory (or queuing theory) refers to the
mathematical study of the formation, function, and
congestion of waiting lines, or queues. At its core, a
queuing situation involves two parts.
✘ Someone or something that requests a service—
usually referred to as the customer, job, or request.
✘ 2. Someone or something that completes or delivers
the services—usually referred to as the server.

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QUEUING

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 QUEUING
✘ Queuing nodes are classified using the notation A/S/c/K/N/D
where:

✘ A is the arrival process

✘ S is the mathematical distribution of the service time
✘ C is the number of servers
✘ K is the capacity of the queue, omitted if unlimited
✘ N is the number of possible customers, omitted if unlimited
✘ D is the queuing discipline, assumed first-in-first-out if
omitted

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 QUEUING

For example, think of an ATM.

It can serve: one customer at a time; in a first-in-first-out order; with a randomly-distributed arrival process and
service distribution time; unlimited queue capacity; and unlimited number of possible customers.

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 Linear
Programmi
ng
 LINEAR PROGRAMMING
✘ • It is considered as an important techniques
which is used to find the optimum resource
utilization.
✘ • The word “Linear” defines the relationship
between multiple variables with degree one. The
word “Programming” defines the process of selecting
the best solution from various alternatives.
✘ • It is also used in mathematics and some other
field such as economics, business,
telecommunication, and manufacturing fields.

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 LINEAR PROGRAMMING
✘ •A quantitative technique used to find the optimal
solution to short term resource allocation problems
such as,

✘  -Maximization of the revenue, contribution

margin, or profit function.

✘  -Minimization of a cost function, subject to

constraints e.g. limited resources, production capacity
levels and etc.

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 STEPS IN FORMULATING A
LINEAR PROGRAM
1. Identify the decision variables
✘ Decision Variables – the unknowns used to construct
the objective and constraint functions. The values of
such variables are the outputs from the linear
programming process.

2. Express the objective and constraint functions in terms

of the decision variables in Step 1.
✘ Constraints – limit the values of variable. The
constraint equations reflects the types of inputs or
resources being allocated.

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 METHODS FOR SOLVING LINEAR
PROGRAMMING PROBLEMS
1. The simplex method- is one of the most popular methods to
solve linear programming problems. It is an iterative process to
get the feasible optimal solution. In this method, the value of the
basic variable keeps transforming to obtain the maximum value
for the objective function.

2. The graphical method - is used to optimize the two-variable

linear programming. If the problem has two decision variables, a
graphical method is the best method to find the optimal solution.
In this method, the set of inequalities are subjected to constraints.

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 LINEAR PROGRAMMING
APPLICATIONS
A real-time example would be considering the
limitations of labor and materials and finding
the best production levels for maximum profit
in particular circumstances. It is part of a vital
area of mathematics known as optimization
techniques. The applications of LP in some
other fields are:

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 LINEAR PROGRAMMING
APPLICATIONS
✘ Engineering – It solves design and manufacturing
problems as it is helpful for doing shape optimization.

✘ Efficient Manufacturing – To maximize profit, companies

use linear expressions.

✘ Energy Industry – It provides methods to optimize the

electric power system.

✘ Transportation Optimization – For cost and time

efficiency.

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 IMPORTANCE OF LINEAR
PROGRAMMING
✘ Linear programming is broadly applied in the field
of optimization for many reasons. Many functional
problems in operations analysis can be represented
as linear programming problems. Some special
problems of linear programming are such as
network flow queries and multi-commodity flow
queries are deemed to be important to have
produced much research on functional algorithms
for their solution.

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 Program
Evaluation and
Review
Technique
(PERT)
 PROGRAM EVALUATION AND
REVIEW TECHNIQUE (PERT)
✘ A networking technique used for
planning and controlling the
activities in a project. It provides
management pertinent information
about a project.

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ACCOUNTANT’S ROLE IN
PERT
✘ 1. Determination of cost estimates and
actual costs of each activity in a project.
✘ 2. Preparation of activity/project cost
reports and computation/analysis of cost
variances.

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 BENEFITS OF PERT
✘ Useful in planning and controlling.

✘ Essential in accountant’s budgetary tasks.

✘ Useful in terms of the progress of each part

of the project.

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GANTT Chart
 GANTT CHART

✘ Gantt Chart (or Bar Chart)- shows the different

activities or tasks in a project, as well as their
estimated start and completion times.

✘ ADVANTAGES:
✘ A gantt chart is a simple to construct and use. It can
be used on all type of projects.
✘ It is very useful control tool.

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 GANTT CHART

✘ It can be used to monitor activities in a project. It

shows which activity should be in progress as a
certain date and how close it is to completion time

✘ DISADVANTAGES:
✘ A gantt chart does not show the interrelationship
among the activities in a project. Only simple
relationship can be shown on the chart

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GANTT CHART

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T ha nk
Y ou !!
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