Introduction to Quantitative Analysis

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