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Chapter 1 Overviwe of Quantitative Method

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19 views19 pages

Chapter 1 Overviwe of Quantitative Method

Uploaded by

keneti
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Chapter 1

Introduction to Quantitative
analysis for decision
making/Management
Science
Outlines
– History Operations Research
– Nature & Significance of Operations Research
– Features of Operations Research
– Model and Modelling in Operations Research
What is management science?

• Management science, an approach to make


decision using quantitative analysis.

• In addition to management science, quantitative


approaches to decision making use the terms
operations research or decision science
interchangeably
History Operations Research

• In the early 1900s, Frederic W. Taylor, provided the


foundation for the use of quantitative methods in
management

• How ever, modern use of operations research techniques


for social decision making started during the WWII when a
group of British scientists applied scientific method to
address effective use of war material
Cont’d
• In 1947, George Dantzig discover the simplex
method for solving linear programming problems.

• At the same period, electronic digital computers


with their ability to perform arithmetic calculations
faster than a human being was develop.

• These give rise to tremendous boon to OR


Features of OR

• Operations research employs the scientific method


• OR takes an Organization wide perspective
• OR as a search for optimality
• OR requires Interdisciplinary approach
What is Decision Modeling?

Models: are representations of real objects or


situations
A scientific approach to managerial decision
making

• The development of a (mathematical) model of a real-


world scenario

• The model provides insight into the solution of the


managerial problem
Models can be:

• Deterministic Models
Where all the input data value are known with
complete certainty

• Probabilistic Models
Where some input data values are uncertain
Quantitative vs. Qualitative Data

The modeling process begins with data

• Quantitative Data
Numerical factors such as costs and revenues

• Qualitative Data
Factors that effect the environment which are
difficult to quantify
Spreadsheets in Decision Making
• Computers are used to create and solve
models

• Spreadsheets are a convenient alternative


to specialized software

• Microsoft Excel has extensive modeling


capability via the use “add-ins”
Steps in Decision Modeling
1. Formulation
Translating a problem scenario from
words to a mathematical model
2. Solution
Solving the model to obtain the optimal
solution
3. Interpretation and Sensitivity Analysis
Analyzing results and implementing a
solution
Steps in
Modeling
Cont’d

 Defining the Problem

• Conflicting viewpoints

• Impact on other departments

• Beginning assumptions

• Solution outdated
Cont’d
 Developing a Model
• Fitting the textbook models
• Understanding the model

 Acquiring Input Data


• Using accounting data

• Validity of data
Cont’d
 Developing/finding a Solution
• Using graphs

• Using simplex methods

 Testing the Solution

 Analyzing the Results

 Implementation
Cont’d
Types of model
 iconic models: is physical replicas of real objects. E.g. the
model airplane and toy truck are examples of iconic models.

 analog models: is a model that are physical in form but do


not have the same physical appearance as the object being
modeled.

 mathematical models: representations of a problem by a


system of symbols and mathematical relationships or
expressions
cont’d

Benefits Of Model

 The purpose, or value, of any model is that it enables us to


make inferences about the real situation by studying and
analyzing the model.
 Experimenting with models requires less time and is less
expensive than experimenting with the real object or
situation

 Reducing the risk associated with experimenting with the


real situation
Mathematical model

Example Model: Break-Even Analysis

Profit = Revenue – Costs

Revenue = (Selling price) x (Num. units)

Costs = FC + [(Cost per unit) x (Num. units)]


The Break Even Point (BEP) is the
number of units where;

Profit = 0, so
Revenue = Costs

BEP = Fixed cost

(Selling price) – (Cost per unit)

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