After completing this chapter, you will be able to:
- Describe the quantitative analysis approach
- Understand the application of quantitative analysis in a real situation
- Describe the use of modeling in quantitative analysis
- Use computers and spreadsheet models to perform quantitative analysis
- Discuss possible problems in using quantitative analysis
- Perform a break-even analysis
Introduction
- Mathematical tools have been used for thousands of years
Quantitative analysis can be applied to a wide variety of problems
It’s not enough to just know the mathematics of a technique
One must understand the specific applicability of the technique, its limitations, and its assumptions
Examples of Quantitative Analyses
- Dzikri Cell company saved over $150 million using forecasting and scheduling quantitative analysis models
- XYZ television increased revenues by over $200 million by using quantitative analysis to develop better sales plans
- Ali Baba Airlines saved over $40 million using quantitative analysis models to quickly recover from weather delays and other disruptions
What is Quantitative Analysis?
Quantitative analysis is a scientific approach to managerial decision making whereby raw data are processed and manipulated resulting in meaningful information
- Quantitative factors might be different investment alternatives, interest rates, inventory levels, demand, or labor cost
- Qualitative factors such as the weather, state and federal legislation, and technology breakthroughs should also be considered
Information may be difficult to quantify but can affect the decision-making process
Defining the Problem
Need to develop a clear and concise statement that gives direction and meaning to the following steps
This may be the most important and difficult step
- It is essential to go beyond symptoms and identify true causes
- May be necessary to concentrate on only a few of the problems – selecting the right problems is very important
- Specific and measurable objectives may have to be developed
Developing a Model
Quantitative analysis models are realistic, solvable, and understandable mathematical representations of a situation
- Models generally contain variables (controllable and uncontrollable) and parameters
- Controllable variables are generally the decision variables and are generally unknown
- Parameters are known quantities that are a part of the problem
Acquiring Input Data
Input data must be accurate – GIGO rule
Data may come from a variety of sources such as company reports, company documents, interviews, on-site direct measurement, or statistical sampling
