Chapter: Introduction & Overview of Quantitative Analysis

Course: Quantitative Analysis for Decision Making

Lecture 1

Week: 1st (16th September)

Dr. Waqas Ahmed

Department of Operations and Supply Chain
NUST Business School (NBS)
National University of Sciences & Technology, Islamabad, Pakistan
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General Introduction
Course Details
●Course Title: Quantitative Analysis for Decision Making
●Course Code: GMT 502
●Credit Hours: 3
●Program: EMBA 2K21

Course Faculty
●Faculty Name: Dr. Waqas Ahmed
●Office: Room 216, NUST Business School, NUST
●Consultation Hrs: Monday (3:30 pm to 5:00 pm) and Thursday (4:00 pm to 5:30 pm)
●Email: [email protected]
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Faculty Introduction

hD (Industrial and Management Engineering)

Hanyang University, South Korea

S (Mechanical Engineering)

Seoul National University, South Korea

BA (Operations Management)

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Institute of Business & Management, UET, Lahore 3
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Class Introduction

ame

ducation before joining EMBA

rea of Interest

avorite Personality
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Required Course Material

Textbook:
1) Quantitative Analysis for Management, 10th Edition, by Render, Stair, and Hanna
2) An Introduction to Management Science Quantitative Approaches to Decision
Making 13th Edition, by David R. Anderson, Dennis J. Sweeney Thomas A. Williams
Rochester Jeffrey D. Camm Kipp Martin
3) Introduction to Management Science, 11th Edition, Pearson by Bernard W
Taylor III

●Reference Books:
You may use any standard Quantitative Analysis textbook to review the assigned topic.

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Grading and Exams.

Course Evaluation (Grade Breakup)
Grading will be done as per NBS criteria. The
breakup of the grade points is as follows:
●Final Exam           25%
●Midterm                    10%
●Final Project           15%
●Assignments 10%
●Quiz 10%
●Case Experimental Activity 30%
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Dates to remember

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Project Deatils

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Course Objectives
This
course will help students understand and explain:

earn how to make good managerial decisions.

⌂ How to construct Quantitative models
− Mathematical Optimization Models
− Probabilistic Models
− Transshipment and Network Models
− Integer and Multi-objective Models
⌂ Basic skills and knowledge of Quantitative Analysis and its
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Course Objectives

earn how to interpret the solution from the model.

⌂ How to read the output
⌂ Sensitivity analysis
− What if analysis especially for future expected change
⌂ How to implement the final decision

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Course Content (Weekly)

See Course Outline

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 Learning Objectives
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After completing this chapter, students will be able to:

1. Describe the quantitative analysis approach

2. Understand the application of quantitative analysis in
a real situation
3. Describe the use of modeling in quantitative analysis

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Introduction

athematical tools have been used for thousands of years

uantitative analysis can be applied to a wide variety of problems

t’s not enough to just know the mathematics of a technique

ne must understand the specific applicability of the technique, its

limitations, and its assumptions © Dr. Waqas Ahmed 13
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Examples of Quantitative Analyses

aco Bell saved over $150 million using forecasting and scheduling
quantitative analysis models

BC television increased revenues by over $200 million by using

quantitative analysis to develop better sales plans

ontinental Airlines saved over $40 million using quantitative analysis

models to quickly recover from weather delays and other disruptions
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What is Quantitative analysis Approach?

Quantitative analysis is a scientific approach to

managerial decision making whereby raw data
are processed and manipulated resulting in
meaningful information

Quantitative Meaningful
Raw Data Analysis Information

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What is Quantitative analysis

Approach?
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

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Sub-disciplines in modern era

ome application areas:

Management & Planning

Budgeting

Production and Inventory Planning

Logistics and Supply Chain

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Financial Optimization & Management 17
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Quantitative Analysis and Decision Making

otential Reasons for a Quantitative Analysis Approach to

Decision Making
⌂ The problem is complex.
⌂ The problem is very important.
⌂ The problem is new.
⌂ The problem is repetitive.

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Quantitative Analysis Approach/Process

Defining the Problem

Developing a Model

Acquiring Input Data

Developing a Solution

Testing the Solution

Analyzing the Results

Implementing the Results

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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

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Developing a Model
»Dr. Waqas Ahmed

Quantitative analysis models are realistic, solvable, and

understandable mathematical representations of a
situation

b + b 1X
Y=
$ Sales
0

$ Advertising
There are different types of models

Scale models Schematic

models

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 Developing a Model
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● Models generally contain variables (dependent and independent)

and parameters
● Variables are generally the decision variables and are generally
unknown
● Parameters are known quantities that are a part of the problem

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Acquiring Input Data
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Input data must be accurate – GIGO rule

Garbage In

Process

Garbage Out

Data may come from a variety of sources such as company reports, company
documents, interviews, on-site direct measurement, or statistical sampling

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 Developing a Solution
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he best (optimal) solution to a problem is found by

manipulating the model variables until a solution is
found that is practical and can be implemented

ommon techniques are

⌂ Solving equations
⌂ Trial and error – trying various approaches and picking the
best result
⌂ Complete enumeration – trying all possible values
⌂ Using an algorithm – a series of repeating steps to reach a
solution
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Testing the Solution

Both input data and the model should be tested for accuracy
before analysis and implementation
⌂ New data can be collected to test the model
⌂ Results should be logical, consistent, and represent the real situation

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Analyzing the Results

Determine the implications of the solution
⌂ Implementing results often requires change in an organization
⌂ The impact of actions or changes needs to be studied and understood
before implementation

Sensitivity analysis determines how much the results of the

analysis will change if the model or input data changes
 Sensitive models should be very thoroughly tested

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Implementing the Results

Implementation incorporates the solution into the company
⌂ Implementation can be very difficult
⌂ People can resist changes
⌂ Many quantitative analysis efforts have failed because a good,
workable solution was not properly implemented
Changes occur over time, so even successful
implementations must be monitored to determine if
modifications are necessary

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 Model Development
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odels are representations of real objects or situations

⌂ Mathematical models - represent real world problems through a
system of mathematical formulas and expressions based on key
assumptions, estimates, or statistical analyses

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Advantages of Models

enerally, experimenting with models (compared to experimenting with the real

situation):

⌂requires less time

⌂is less expensive
⌂involves less risk

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 Mathematical Models
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ost/benefit considerations must be made in selecting an

appropriate mathematical model.

requently a less complicated (and perhaps less precise)

model is more appropriate than a more complex and
accurate one due to cost and ease of solution
considerations. © Dr. Waqas Ahmed 30
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Mathematical Models

elate decision variables (controllable inputs) with fixed or

variable parameters (uncontrollable inputs).

requently seek to maximize or minimize some objective

function subject to constraints.

he values of the decision variables that provide the

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Example of Model Construction (1 of 3)

Information and Data:

 Business firm makes and sells a steel product
 Product costs $5 to produce
 Product sells for $20
 Product requires 4 pounds of steel to make
 Firm has 100 pounds of steel
Business Problem:
 Determine the number of units to produce to make the most profit,
given the limited amount of steel available.
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Model Construction

model is an abstract mathematical representation of a problem

situation.
Z = 20x -
5x

variable is a symbol used to represent an item that can take on any

value.

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Model Construction

ata are pieces of information from the problem

environment.

model is a functional relationship that includes

variables, parameters, and equations
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Model Construction

Z = 20x - 5x

4x = 100 lb. of steel

●Profit equation in this new model is an objective function, and the resource
equation is a constraint

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Example of Model Construction (1 of 3)

Information and Data:
 Business firm makes and sells a steel product
 Product costs $5 to produce
 Product sells for $20
 Product requires 4 pounds of steel to make
 Firm has 100 pounds of steel
Business Problem:
 Determine the number of units to produce to make the
most profit, given the limited amount of steel available.
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Example of Model Construction (2 of 3) »Dr. Waqas Ahmed

Variables: x = number of units to produce (decision

variable)
Z = total profit (in $)
Model: Z = $20x - $5x =15x(objective function)
4x = 100 lb of steel (resource constraint)
Parameters: $20, $5, 4 lbs, 100 lbs (known values)
Formal Specification of Model:
maximize Z = 15x
subject to 4x = 100 © Dr. Waqas Ahmed 37
Example of Model Construction (3 of 3) »Dr. Waqas Ahmed

Model Solution:
Solve the constraint equation:
4x = 100
x = 25 units

Substitute this value into the profit function:

Z = 15x
= 375($)
(Produce 25 units, to yield a profit of $375)

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Thank you! Any Questions

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