Intro to SPSS

Panimalar Engineering College
INTRODUCTION TO SPSS
Opening a new file:

Start – Programs – SPSS – SPSS16.0
Figure 1 – Opening new file
The Data Editor provides 2 views of data: the Data View and Variable View. Information
can be edited or deleted in both views.
Data View: this view displays the actual data values or value labels.
Variable View:
• Name: it is a unique name of each variable (the names should be different). The names
cannot contain space or other illegal characters and the first character must be a letter.
• Type: it specifies the type of data for each variable. The original setting is the most
frequently used type, the numeric type, which refers to variable, whose values are
numbers. However, we can change to Comma, Dot, Scientific Notation, Date, Dollar,
Custom Currency or String Variables.
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Figure 2 – Variable Type Dialog Box
• Width: the field width.

• Decimals: number of decimals in case of Numeric type.
• Label: descriptive name of a variable (up to 256 characters). It can contain space or
other characters, which we could not use in Names.
• Values: we can assign descriptive value labels for each value of a variable, thus the
numeric codes represent non-numeric categories.
Figure 3 – Value Labels Dialog Box
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INTRODUCTION TO MICROSOFT EXCEL 2010
Microsoft Excel is an example of a program called a “spreadsheet.” Spreadsheets are

used to organize real world data, such as a check register or a rolodex. Data can be
numerical or alphanumeric (involving letters or numbers). The key benefit to using a
spreadsheet program is that you can make changes easily, including correcting spelling or
values, adding, deleting, formatting, and relocating data. You can also program the
spreadsheet to perform certain functions automatically (such as addition and subtraction),
and a spreadsheet can hold almost limitless amounts of data—a whole filing cabinet’s
worth of information can be included in a single spreadsheet.
Opening Microsoft Excel

To get started with Microsoft Excel (often called “Excel”), you will need to
locate and open the program on your computer. To open the program, point
to Excel’s icon on the desktop with your mouse and double-click on it with
the left mouse button.
If you don’t see the Excel icon on your desktop, you’ll have to access the
program from the Start Menu. Click on the button in the bottom left corner
to pull up the Start Menu. You may see the Excel icon here, so click on it once with your
left button. If you still don’t see it, click on “All Programs” and scroll through the list of
programs until you find it. It may also be located in a folder called “Microsoft Office” or
something similar—it will depend on your specific machine. Click once with your left
button to open the program.
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Excel will then open a blank page called “Book1.” This is an image of the upper-left
corner of Excel.
This box features two important pieces of information: the name of the file that you are
currently working on (in this case, “Book1” since we have not yet renamed it) and which
program you are using (“Microsoft Excel”).
You will see a dark box around one of the lighter color boxes on the spreadsheet. This
means that a cell is selected and you will be able to enter information in that space.
Microsoft Excel Features
The Title Bar
This is a close-up view of the Title Bar, where file information is located. It shows the
name of the file (here, “Book1,” the default title) and the name of the program
(“Microsoft Excel”). You will be able to name your file something new the first time that
you save it. Notice the three buttons on the right side of the Title Bar, controlling the size
and closing of the program.
The Ribbon Menu System
The tabbed Ribbon menu system is how you navigate through Excel and access various
Excel commands. If you have used previous versions of Excel, the Ribbon system
replaces the traditional menus.
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At the bottom, left area of the spreadsheet, you will find worksheet tabs. By default,
three worksheet tabs appear each time you create a new workbook. On the bottom, right
area of the spreadsheet you will find page view commands, the zoom tool, and the
horizontal scrolling bar.
The File Menu
In Microsoft Office 2007, there was something called the Microsoft Office
Button ( ) in the top left-hand corner. In Microsoft Office 2010, this
has been replaced with a tab in the Ribbon called “File.” When you left-
click on this tab, a drop-down menu appears. From this menu, you can
perform the same functions as were found under the Microsoft Office
Button menu, such as: Create a new worksheet, open existing files, save
files in a variety of ways, and print.
Quick Access Toolbar
On the top left-hand side of the Title Bar, you will see several little icons
above the File menu. These let you perform common tasks, such as saving
and undoing, without having to find them in a menu. We’ll go over the
meanings of the icons a little later.
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The Home Tab
The most commonly used commands in Excel are also the most accessible. Some of these
commands available in the Home Tab are:
The Home Tab Toolbar offers options that can change the font, size, color, alignment,
organization and style of the text in the spreadsheet and individual cells. For example, the
“Calibri” indicates the FONT of your text, the “11” indicates the SIZE of your text; etc.
We will go over how to use all of these options to format your text in a little while.
Each of these options expands into a menu if you left-click on the tiny down-arrow in the
bottom right corner of the window.
This tab works the exact same way as the MS Word Formatting Toolbar. The main
difference is that the format changes will only affect the selected cell or cells, all
unselected cells remain in the default setting (“Calibri” font, size “11”).
Equation Editor
The Equation Editor is generally found below the ribbon menu. The left side denotes
which cell is selected (“C5”) and the right side allows you to input equations or text into
the selected cell. There are two ways to input information into a cell. You may either
select an individual cell and type the equation or text into the equation editor or type the
equation or text directly into the selected cell.
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Equations (for example, =SUM(D5+E5)) will automatically be hidden inside the cell and
can only be viewed using the equation editor; the result of the equation will display in the
cell.
If any written text is longer than the cell width, then the spreadsheet will cover up any
portion longer than the cell width. The information will still be in the cell, you just won’t
be able to see it at all times.
Keyboard Review
In order to use Excel effectively, you must input commands using both the mouse and the
keyboard. The above image of a keyboard should look similar to the keyboard in front of
you; learning just a few certain keys will help to improve your efficiency in typing as
well as present you with more options within the program. The following is a list of
commonly used keys that you may already be familiar with:
1. Backspace: This key deletes letters backwards .

2. Delete: This key deletes letters forward.
3. Shift: This key, when pressed WITH another key, will perform a secondary function.
4. Spacebar: This key enters a space between words or letters.
5. Tab: This key will indent what you type, or move the text to the right. The default
indent distance is usually ½ inch.
6. Caps Lock: Pressing this key will make every letter you type capitalized.
7. Control (Ctrl): This key, when pressed WITH another key, performs a shortcut.
8. Enter: This key either gives you a new line, or executes a command.
9. Number Keypad: These are exactly the same as the numbers at the top of the
keyboard; some people just find them easier to use in this position.
10. Arrow Keys: Like the mouse, these keys are used to navigate through a document or
page.
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STEPS FOR INCLUDING THE ADD-INs (SOLVER & DATA ANALYSIS)
The Analysis ToolPak is an Excel add-in program that provides data analysis tools for
financial, statistical and engineering data analysis.
To load the Analysis ToolPak add-in, execute the following steps.
1. Click on the green File tab. The File tab in Excel 2010 replaces the Office Button (or
File Menu) in previous versions of Excel.
2. Click on Options.
3. Under Add-ins, select Analysis ToolPak and click on the Go button.
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4. Check Analysis ToolPak and click on OK.
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5. On the Data tab, you can now click on Data Analysis.
The following dialog box below appears.
6. For example, select Histogram and click OK to create a Histogram in Excel.
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Excel includes a tool called solver that uses techniques from the operations research to
find optimal solutions for all kind of decision problems.
Load the Solver Add-in
To load the solver add-in, execute the following steps.
1. On the green File tab, click Options.
2. Under Add-ins, select Solver Add-in and click on the Go button.
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3. Check Solver Add-in and click OK.
4. You can find the Solver on the Data tab.
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DESCRIPTIVE STATISTICS
You can use the Analysis Toolpak add-in to generate descriptive statistics. For example,
you may have the scores of 14 participants for a test.
To generate descriptive statistics for these scores, execute the following steps.
1. On the Data tab, click Data Analysis.
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2. Select Descriptive Statistics and click OK.
3. Select the range A2:A15 as the Input Range.
4. Select cell C1 as the Output Range.
5. Make sure Summary statistics is checked.
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6. Click OK.
Result:
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t – TEST
This example teaches you how to perform a t-Test in Excel. The t-Test is used to test the
null hypothesis that the means of two populations are equal.
Below you can find the study hours of 6 female students and 5 male students.
H0: μ1 - μ2 = 0
H1: μ1 - μ2 ≠ 0
To perform a t-Test, execute the following steps.
1. First, perform an F-Test to determine if the variances of the two populations are equal.
This is not the case.
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3. Select t-Test: Two-Sample Assuming Unequal Variances and click OK.
4. Click in the Variable 1 Range box and select the range A2:A7.
5. Click in the Variable 2 Range box and select the range B2:B6.
6. Click in the Hypothesized Mean Difference box and type 0 (H0: μ1 - μ2 = 0).
7. Click in the Output Range box and select cell E1.
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8. Click OK.
Result:
Conclusion: We do a two-tail test (inequality). lf t Stat < -t Critical two-tail or t Stat > t
Critical two-tail, we reject the null hypothesis. This is not the case, -2.365 < 1.473 <
2.365. Therefore, we do not reject the null hypothesis. The observed difference between
the sample means (33 - 24.8) is not convincing enough to say that the average number of
study hours between female and male students differ significantly.
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F – TEST
This example teaches you how to perform an F-Test in Excel. The F-Test is used to test
the null hypothesis that the variances of two populations are equal.
Below you can find the study hours of 6 female students and 5 male students.
H0:σ12=σ22
H1: σ12 ≠ σ22
To perform an F-Test, execute the following steps.
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2. Select F-Test Two-Sample for Variances and click OK.
3. Click in the Variable 1 Range box and select the range A2:A7.
4. Click in the Variable 2 Range box and select the range B2:B6.
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6. Click OK.
Result:
Important: be sure that the variance of Variable 1 is higher than the variance of Variable
2. This is the case, 160 > 21.7. If not, swap your data. As a result, Excel calculates the
correct F value, which is the ratio of Variance 1 to Variance 2 (F = 160 / 21.7 = 7.373).
Conclusion: if F > F Critical one-tail, we reject the null hypothesis. This is the case,
7.373 > 6.256. Therefore, we reject the null hypothesis. The variances of the two
populations are unequal.
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ANOVA (Analysis of Variance)
This example teaches you how to perform a single factor ANOVA (analysis of variance)
in Excel. A single factor or one-way ANOVA is used to test the null hypothesis that the
means of several populations are all equal.
Below you can find the salaries of people who have a degree in economics, medicine or
history.
H0: μ1 = μ2 = μ3
H1: at least one of the means is different.
To perform a single factor ANOVA, execute the following steps.
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2. Select Anova: Single Factor and click OK.
3. Click in the Input Range box and select the range A2:C10.
5. Click OK.
Result:
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Conclusion: if F > F crit, we reject the null hypothesis. This is the case, 15.196 > 3.443.
Therefore, we reject the null hypothesis. The means of the three populations are not all
equal. At least one of the means is different. However, the ANOVA does not tell you
where the difference lies. You need a t-Test to test each pair of means.
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CORRELATION USING EXCEL
The correlation coefficient (a value between -1 and +1) tells you how strongly two
variables are related to each other. We can use the CORREL function or the Analysis
Toolpak add-in in Excel to find the correlation coefficient between two variables.
- A correlation coefficient of +1 indicates a perfect positive correlation. As variable X

increases, variable Y increases. As variable X decreases, variable Y decreases.
- A correlation coefficient of -1 indicates a perfect negative correlation. As variable X

increases, variable Z decreases. As variable X decreases, variable Z increases.
- A correlation coefficient near 0 indicates no correlation.
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To use the Analysis Toolpak add-in in Excel to quickly generate correlation coefficients
between multiple variables, execute the following steps.
2. Select Correlation and click OK.
3. For example, select the range A1:C6 as the Input Range.
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4. Check Labels in first row.
5. Select cell A9 as the Output Range.
6. Click OK.
Result.
Conclusion: variables A and C are positively correlated (0.91). Variables A and B are not
correlated (0.19). Variables B and C are also not correlated (0.11) . You can verify these
conclusions by looking at the graph.
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REGRESSION USING EXCEL

This example teaches you how to perform a regression analysis in Excel and how to
interpret the Summary Output.
Below you can find our data. The big question is: is there a relation between Quantity
Sold (Output) and Price and Advertising (Input). In other words: can we predict Quantity
Sold if we know Price and Advertising?
2. Select Regression and click OK.
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3. Select the Y Range (A1:A8). This is the predictor variable (also called dependent
variable).
4. Select the X Range(B1:C8). These are the explanatory variables (also called
independent variables). These columns must be adjacent to each other.
5. Check Labels.
6. Select an Output Range.
7. Check Residuals.
8. Click OK.
Excel produces the following Summary Output (rounded to 3 decimal places).
R Square
R Square equals 0.962, which is a very good fit. 96% of the variation in Quantity Sold is
explained by the independent variables Price and Advertising. The closer to 1, the better
the regression line (read on) fits the data.
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Significance F and P-values
To check if your results are reliable (statistically significant), look at Significance F

(0.001). If this value is less than 0.05, you're OK. If Significance F is greater than 0.05,
it's probably better to stop using this set of independent variables. Delete a variable with a
high P-value (greater than 0.05) and rerun the regression until Significance F drops below
0.05.
Most or all P-values should be below below 0.05. In our example this is the case. (0.000,
0.001 and 0.005).
Coefficients
The regression line is: y = Quantity Sold = 8536.214 -835.722 * Price + 0.592 *
Advertising. In other words, for each unit increase in price, Quantity Sold decreases with
835.722 units. For each unit increase in Advertising, Quantity Sold increases with 0.592
units. This is valuable information.
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You can also use these coefficients to do a forecast. For example, if price equals $4 and
Advertising equals $3000, you might be able to achieve a Quantity Sold of 8536.214 -
835.722 * 4 + 0.592 * 3000 = 6970.
Residuals
The residuals show you how far away the actual data points are fom the predicted data
points (using the equation). For example, the first data point equals 8500. Using the
equation, the predicted data point equals 8536.214 -835.722 * 2 + 0.592 * 2800 =
8523.009, giving a residual of 8500 - 8523.009 = -23.009.
You can also create a scatter plot of these residuals.
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FORECASTING
In order to get the forecasting result we have to first calculate the trend line value.
Given below are the steps to calculate the trend line value.
This example teaches you how to add a trendline to a chart in Excel.
1. Right click the data series, and then click Add Trendline...
2. Choose a Trend/Regression type. Click Linear.
3. Specify the number of periods to include in the forecast. Type 3 in the Forward box.
4. Check "Display Equation on chart" and "Display R-squared value on chart".
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5. Click Close.
Result:
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Explanation: Excel uses the method of least squares to find a line that best fits the points.
The R-squared value equals 0.9295, which is a good fit. The closer to 1, the better the
line fits the data. The trendline gives you an idea which direction the sales are going. In
period 13, you might be able to achieve a sales of almost 120. You can verify this by
using the equation. y = 7.7515 * 13 + 18.267 = 119.0365.
When you add a trendline to an Excel chart, Excel can display the equation in a chart (see
below). You can use this equation to calculate future sales. The FORECAST and
TREND function give the exact same result.
Explanation: Excel uses the method of least squares to find a line that best fits the points.
The R-squared value equals 0.9295, which is a good fit. The closer to 1, the better the
line fits the data.
1. Use the equation to calculate future sales.
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2. Use the FORECAST function to calculate future sales.
Note: when we drag the FORECAST function down, the absolute references
($B$2:$B$11 and $A$2:$A$11) stay the same, while the relative reference (A12)
changes to A13 and A14.
3. If you prefer to use an array formula, use the TREND function to calculate future sales.
Note: first, select the range E12:E14. Next, type =TREND(B2:B11,A2:A11,A12:A14).

Finish by pressing CTRL + SHIFT + ENTER. The formula bar indicates that this is an
array formula by enclosing it in curly braces {}. To delete this array formula, select the
range E12:E14 and press Delete.
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EXTENDED EXPERIMENT – 1
1. Exercise problems for Descriptive statistics (Refer Page No: 13)
1.1. Calculate the descriptive measures for the following data
C-I Frequency
0-10 3
10-20 5
20-30 7
30-40 10
40-50 12
50-60 15
60-70 14
70-80 4
80-90 2
90-100 8
1.2.Calculate the median for the following data
C-I Frequency
0-50 78
50-100 123
100-150 187
150-200 82
200-250 51
250-300 47
300-350 13
350-400 9
400-450 6
450-500 4
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2. Exercise problems for Parametric tests (Refer Page No: 16)
(Problems for Large sample Z – test)
2.1.In a survey of buying habits, 400 women shoppers are chosen at random
in super market A. their average weekly food expenditure is Rs 250 with
S.D of Rs 40. For 400 women shoppers chosen in B, the average weekly
food expenditure is Rs 220 with S.D of Rs 55. Test at 1% level significance
whether average weekly food expenditure of the two populations of
shoppers are equal.
2.2.Two random samples give the following data:
Boys Girls
Size 300 625
Mean 145 150
SD 3 2.5
(Problems for small sample t – test)
2.3.Ten individuals are chosen at random from a population and their

heights are found to be (in inches) : 63,63,66,67,68,69,70,70,71,71.
Discuss the suggestion that the mean height in the population is 66 inches.
2.4.A meteorologist is studying the annual rainfall in a desert region. With all
available records, the average rainfall is 7.8 for the past 5 years rainfall
has been 8.0, 6.2, 4.1, 6.9, 5.6. The meteorologist works to know it the
decrease is statistically significant. Use α = 5%.
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(Problems for F – Ratio test)
2.5.Two independent samples had the data
Sample I Sample II
9 10
11 12
13 10
11 14
15 9
9 8
12 10
14
Do the estimates of population variance differ significantly?
2.6.Two independent samples of 8 and 7 items respectively had the following

values.
Sample I Sample II
9 14
11 12
13 10
11 14
15 9
9 8
14 10
14
Use 0.05 level to rest whether it is reasonable to assume that the variances
of the two populations are equal.
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(Problems for ANOVA – single factor test)
2.7.
Method I Method II Method III
182 170 162
170 192 166
179 190
i) Compute x
ii) At α = 0.05 level, is there any significant difference between the
methods.
2.8.The unit sales for five stores using four promotions in different methods
follow.
Free sample : 78 87 81 89 85
One-pack gift : 94 91 87 90 88
Cents off : 73 78 69 83 76
Refund by mail : 79 83 78 69 81
At the 0.01 level, do the promotions produce different effects on sales.
3. Exercise problems for Non-parametric tests
(Problems for Chi-square Test)
3.1.In a locality 100 persons were randomly selected and asked about their
educational achievements. The results are given as follows :
EDUCATION
Middle High
College TOTAL
School School
Male 10 15 25 50
SEX Female 25 10 15 50
TOTAL 35 25 40 100
Can you say education depends on gender.
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3.2.The influence of the economy on the chip sales at Silicon valley is studied.
4 stages of the economy are matched with 3 stages of chip sales for 200
weeks. The results are shown below :
WEEKLY CHIP SALES
High Medium Low TOTAL
Peak 20 7 3 30
Trough 30 40 30 100
ECONOMY Raising 20 8 2 30
Falling 30 5 5 40
TOTAL 100 60 40 200
State null and alternative hypothesis. At a significance value 0.10, what is

your conclusion?
(Problems for Run Test)
3.3.The following is an arrangement of 25 men (M) and 15 women (W) lined

up to purchase tickets for a premier picture show :
MWWMMMWMMWMWMWWWMMMWMMWWWMMMMMMW
WWMMMMMM
Test for randomness at 5% level of significance.
3.4.In a class, there are 30 boys and 20 girls. These students are selected for
the picnic according to their pattern of arrival as given below :
GBGGGBBBGBGBBGGGGBGGBBGBBBGBBGGBBGGBBBGBBBB
GBBBBBB
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From the sequence of arrival, can we conclude, the arrival pattern is
random?
(Problems for 2 Sample Independent Test (Mann Whitney or U Test))
3.5.Use Mann – Whitney test to determine if there is a significant difference

in the sales of the following two branches.
Month Branch A Branch B

1 257 210
2 280 230
3 200 250
4 250 260
5 284 275
6 295 300
7 297 320
8 265 290
9 330 310
10 350 325
11 340 329
12 272 335
3.6.Use Mann – Whitney test to determine if there is a significant difference

in the age distribution of the following two groups.
Day Evening
26 32
18 24
25 23
27 30
19 40
30 41
34 42
21 39
33 45
31 35
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4. Exercise problems for Correlation & Regression (Refer Page No: 24)
4.1.Calculate the coefficient of correlation from the following data and

comment on the result.
Experience (X) : 16 12 18 4 3 10 5 12
Performance (Y) : 23 22 24 17 19 20 18 21
4.2.Determine Karl Pearson’s coefficient of correlation and comment.
X : 52 63 45 36 37 65 47 60 56 25
Y : 280 130 250 230 210 250 230 200 250 180
4.3.Find the two regression lines for the following data:
X : 45 48 50 55 65 70 75 72 80 85
Y : 25 30 35 30 40 50 45 55 60 65
4.4. Compute the regression line
X : 10 15 35 40 50
Y : 100 90 110 80 120
5. Exercise problems for Forecasting (Refer Page No: 32)
5.1.
Purchases : 62 72 98 76 81 56 76 92 88 49
Sales : 112 124 131 117 132 96 120 136 97 85
Obtain regression equation of sales. Estimate sales when the purchases equal
100
5.2.
Test score : 50 60 50 60 80 50 80 40 70
Weekly
: 30 60 40 50 60 30 70 50 60
sales
i) Obtain the regression equation of sales on score.

ii) If a sales man has a score of 65, what is the sale?
iii) If a salesman has sales of 75,w hat is the score?
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PORTFOLIO OPTIMIZATION
(Portfolio Selection, Risk Analysis and Sensitive Analysis)
What is optimization?
 How can a large drug company determine the monthly product mix at their
Indianapolis plant that maximizes corporate profitability?
 If Microsoft produces Xbox consoles at three locations, how can they minimize
the cost of meeting demand for Xbox consoles?
 What price for Xbox consoles and games will maximize profit from Xbox sales?
 Microsoft would like to undertake 20 strategic initiatives that will tie up money
and skilled programmers for the next five years. They do not have enough
resources to undertake all 20 projects. Which projects should they undertake?
 How do bookmakers find the best set of "ratings" for NFL teams to set accurate
point spreads?
 How should I allocate my retirement portfolio among high-tech stocks, value
stocks, bonds, cash, and gold?
In all these situations, we want to find the best way to do something. More formally, we
want to find the values of certain cells in a spreadsheet that optimize (maximize or
minimize) a certain objective. The Excel Solver tool helps you answer optimization
problems.
Defining an optimization model

An optimization model has three parts: the target cell, the changing cells, and the
constraints.
Target cell
The target cell represents the objective or goal. We want to either minimize or maximize
the target cell. In the example of a drug company's product mix, the plant manager would
presumably want to maximize the profitability of the plant during each month. The cell
that measures profitability would be the target cell. The target cells for each situation
described at the beginning of the article are listed in the following table.
Maximize or
Model Target cell
minimize
Drug company
Maximize Monthly profit
product mix
Xbox shipping Minimize Distribution costs
Xbox pricing Maximize Profit from Xbox consoles and games
Microsoft project Net present value (NPV) contributed by
Maximize
initiatives selected projects
Difference between scores predicted by ratings
NFL ratings Minimize
and actual game scores
Retirement portfolio Minimize Riskiness of portfolio
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Keep in mind that in some situations, you might have multiple target cells. For example,
Microsoft might have a secondary goal to maximize Xbox market share.
Changing cells
Changing cells are the spreadsheet cells that we can change or adjust to optimize the
target cell. In the drug company example, the plant manager can adjust the amount
produced for each product during a month. The cells in which these amounts are recorded
are the changing cells in this model. The following table lists the appropriate changing
cell definitions for the models described at the beginning of the article.
Model Changing cells

Drug company product
Amount of each product produced during the month
mix
Amount produced at each plant each month that is shipped to
Xbox shipping
each customer
Xbox pricing Console and game prices
Microsoft program
Which projects are selected
initiatives
NFL ratings Team ratings
Retirement portfolio Fraction of money invested in each asset class
Constraints
Constraints are restrictions you place on the changing cells. In our product mix example,
the product mix can't use more of any available resource (for example, raw material and
labor) than the amount of the available resource. Also, we should not produce more of a
product than people are willing to buy. In most Solver models, there is an implicit
constraint that all changing cells must be nonnegative. I'll discuss nonnegativity
constraints in more detail in later chapters. Remember that a Solver model does not need
not have any constraints. The following table lists the constraints for the problems
presented at the start of the chapter.
Model Constraints
Drug company product Product mix uses no more resources than are available
mix Do not produce more of a product than can be sold
Do not ship more units each month from a plant than plant
capacity
Xbox shipping
Make sure that each customer receives the number of Xboxes
they need
Xbox pricing Prices can't be too far out of line with competitors’ prices
Microsoft project Projects selected can't use more money or skilled programmers
initiatives than are available
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NFL ratings None
Invest all our money somewhere (cash is a possibility)
Retirement portfolio Obtain an expected return of at least 10 percent on our
investments
Installing and running Solver

To install Solver, click Add-Ins on the Tools menu, and then select the Solver Add-in
check box. Click OK, and Excel will install the Solver. Once the add-in is installed, you
can run Solver by clicking Solver on the Tools menu.
The following figure shows the Solver Parameters dialog box, in which you input the
target cell, changing cells, and constraints that apply to your optimization model.
Note You'll see how to do this in more detail in each of the Solver model articles listed
in the See also section of this article.
After you have input the target cell, changing cells, and constraints, what does Solver do?
To answer this question, you need some background in Solver terminology. Any
specification of the changing cells that satisfies the model's constraints is known as a
feasible solution. For instance, in our product mix example, any product mix that
satisfies the following three conditions would be a feasible solution:
 Mix does not use more raw material and labor than is available.
 Mix produces no more of each product than is demanded.
 Amount produced of each product is nonnegative.
Essentially, Solver searches over all feasible solutions and finds the feasible solution that
has the "best" target cell value (the largest value for maximum optimization, the smallest
for minimum optimization). Such a solution is called an optimal solution. Some Solver
models have no optimal solution and some have a unique solution. Other Solver models
have multiple (actually an infinite number of) optimal solutions.
The best way to understand how to use Solver is by looking at detailed examples. In the
See also section of this article, you can find links to additional articles that describe how
to use the Solver to address several important business (and nonbusiness) problems.
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Test yourself
For each situation described below, identify the target cell, changing cells, and
constraints.
 I am borrowing $100,000 for a 15-year mortgage. The annual rate of interest is 8
percent. I make monthly payments. How can I determine my monthly mortgage
payment?
 How should an auto company allocate its advertising budget between different
advertising formats?
 Where should a city locate a single hospital?
 How should a drug company allocate sales-force effort to their products?
 A drug company has $2 billion to allocate to purchasing biotech companies.
Which companies should they buy?
 The tax rate charged to a drug company depends on the country in which a
product is produced. How can a drug company determine where each drug should
be made?
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1. Find out the risk & return of the portfolio form the following:
Position Return Probability

(%)
Growth 10 0.25
Expansion 18 0.25
Maturity 22 0.25
Decline -8 0.25
2. The return of the securities A & B are given below:
Returns
Security Security
Probability
A B
0.5 4 0
0.4 2 3
0.1 0 3
Give the securities of your preference based on risk & returns.
3. The sun and moon corporations have the following join probability
distribution of returns for the next year :
Position Prob Return(sun) Return(moon)

Boom 0.1 14 20
Recession 0.2 -5 -2
Normal 0.4 10 9
Recovery 0.1 9 14
Slow growth 0.2 12 18
(a) Determine the covariance of returns for sun and moon corporation
(b) What is the correlation of returns between sun and moon
corporations
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4. Find out the maximum variance of the securities return and the risks are
given below:
Securities Beta Return Proportion in portfolio

X 1.2 0.02 0.4
Y 1.1 0.01 0.3
Z 0.8 0.01 0.3
5. Find out the minimum variance of the securities return and the risks are
given below:
Stock A Stock B Stock C Stock D

Expected return 0.07 0.05 0.15 0.20
Standard deviation 0.13 0.11 0.19 0.25
Correlations
Stock A 1.00 0.60 0.40 -0.20
Stock B 0.60 1.00 0.30 -0.50
Stock C 0.40 0.30 1.00 -0.05
Stock D -0.20 -0.50 -0.05 1.00
Covariances
Stock A 0.0169 0.0086 0.0099 -0.0065
Stock B 0.0086 0.0121 0.0063 -0.0138
Stock C 0.0099 0.0063 0.0361 -0.0024
Stock D -0.0065 -0.0138 -0.0024 0.0625
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TRANSPORTATION PROBLEM
Use the solver in Excel to find the number of units to ship from each factory to each
customer that minimizes the total cost.
Formulate the Model
The model we are going to solve looks as follows in Excel.
1. To formulate this transportation problem, answer the following three questions.
a. What are the decisions to be made? For this problem, we need Excel to find out how
many units to ship from each factory to each customer.
b. What are the constraints on these decisions? Each factory has a fixed supply and each
customer has a fixed demand.
c. What is the overall measure of performance for these decisions? The overall measure
of performance is the total cost of the shipments, so the objective is to minimize this
quantity.
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2. To make the model easier to understand, name the following ranges.
Range Name Cells

UnitCost C4:E6
Shipments C10:E12
TotalIn C14:E14
Demand C16:E16
TotalOut G10:G12
Supply I10:I12
TotalCost I16
3. Insert the following functions.
Explanation: The SUM functions calculate the total shipped from each factory (Total
Out) to each customer (Total In). Total Cost equals the sumproduct of UnitCost and
Shipments.
Trial and Error
With this formulation, it becomes easy to analyze any trial solution.
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For example, if we ship 100 units from Factory 1 to Customer 1, 200 units from Factory
2 to Customer 2, 100 units from Factory 3 to Customer 1 and 200 units from Factory 3 to
Customer 3, Total Out equals Supply and Total In equals Demand. This solution has a
total cost of 27800.
It is not necessary to use trial and error. We shall describe next how the Excel Solver can
be used to quickly find the optimal solution.
Solve the Model
To find the optimal solution, execute the following steps.
1. On the Data tab, click Solver.
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Enter the solver parameters (read on). The result should be consistent with the picture
below.
You have the choice of typing the range names or clicking on the cells in the spreadsheet.
2. Enter TotalCost for the Objective.
3. Click Min.
4. Enter Shipments for the Changing Variable Cells.
5. Click Add to enter the following constraint.
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6. Click Add to enter the following constraint.
7. Check 'Make Unconstrained Variables Non-Negative' and select 'Simplex LP'.
8. Finally, click Solve.
Result:
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The optimal solution:
Conclusion: it is optimal to ship 100 units from Factory 1 to Customer 2, 100 units from
Factory 2 to Customer 2, 100 units from Factory 2 to Customer 3, 200 units from Factory
3 to Customer 1 and 100 units from Factory 3 to Customer 3. This solution gives the
minimum cost of 26000. All constraints are satisfied.
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INTRODUCTION TO POM-QM SOFTWARE

The easiest way to start the program is by double-clicking the program icon that is on the
desktop. Alternatively, you may use the standard Windows means for starting the
program. Click on Start, Programs, POM-QM for Windows 3, POM-QM for
Windows 3 in order to use the software. After starting the program, a splash screen will
appear as displayed on the next page.
The Main Screen
The second screen that appears is an empty main menu screen. The first time that this
screen appears, a Tip of the Day form will appear as displayed below. If you don’t want
the Tip of the Day to show up each time, then uncheck the box at the lower left of the
form. If you change your mind later and want to see the Tip of the Day, then go to the
Help menu.
Please notice the background in the middle of the screen. This is referred to as a gradient.
This gradient appears whenever the main screen is empty and it appears on other screens
in the software. You may customize the display of the gradient by using Format, Colors
as explained in Chapter 3.
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After closing the Tip of the Day, or if you have chosen not to see the tips, the next screen
is the module selection screen (shown in Chapter 2). In order to display all of the screen
components, we have selected a module and loaded a data file.
The top of the screen is the standard Windows title bar for the window. At the beginning
the title is POM-QM for Windows (or POM for Windows or QM for Windows). If you are
using a Prentice Hall text then the names of the authors of the texts should appear in this
title bar at the beginning of the program as shown in the figure on the previous page. (If
not, go to Help, User Information.) The title bar will change to include the name of the
file when a file is loaded or saved as shown above. On the left of the title bar is the
standard Windows control box and on the right are the standard minimize, maximize, and
close buttons for the window-sizing options.
Below the title bar is a bar that contains the Main Menu. The menu bar is very
conventional and should be easy to use. The details of the menu options of File, Edit,
View, Module, Format, Tools, Window, and Help are explained in Chapter 3. At the
beginning of the program, the Edit option is not enabled, as there is no data to edit. The
Window option is also disabled, since this refers to results windows and we have no
results. While the menu appears in the standard Windows position at the top of the
screen, it can be moved if you like by clicking on the handle on the left and dragging the
mouse.
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Below the menu is a standard toolbar (also called a button bar or ribbon). This toolbar
contains shortcuts for several of the most commonly used menu commands. If you move
the mouse over the tool for about two seconds, an explanation of the tool (balloon help)
will appear on the screen. As with most software packages, the toolbar can be hidden if
you so choose (right click on any of the toolbars or use View, Toolbars, Customize).
Hiding the toolbar, allows for more room on the screen for the problems. As is the case
with most toolbars, we allow the toolbar to float. In order to reposition any of the
toolbars, simply click on the handle on the left and drag.
One very important tool on the standard toolbar is the SOLVE tool on the far right of
the toolbar. This is what you press after you have entered the data and you are ready to
solve the problem. Alternatively, you may use File, Solve or press the [F9] key. Please
note that after pressing the SOLVE tool, this tool will change to an EDIT tool. This is
how you go back and forth from entering data to viewing the solution. For two modules,
linear programming and transportation, there is one more command that will appear on
the standard toolbar. This is the STEP tool (not displayed in the figure), and it enables
you to step through the iterations, displaying one iteration at a time.
Below the standard toolbar is a format toolbar. This toolbar is very similar to the toolbars
found in Excel, Word, and WordPerfect. It too can be customized, moved, hidden, or
floated.
There is one more toolbar, and its default location is at the bottom of the screen. This bar
is a utility bar and it contains six tools. The tool on the left is named MODULE. A
module list can appear in two ways - either by using this tool or the Module option on the
main menu. The next tool is named PRINT SCREEN, and it is there to emulate the old
print screen function in DOS. The next two tools will load files in alphabetical order
either forward or backwards. This is very useful when reviewing a number of problems in
one chapter such as the sample files that accompany this manual. The two remaining
tools allow files to be saved as Excel or HTML files.
In the center are two areas, one of which is the main data table. The table contains a
heading or title and then simply rows and columns. The number of rows and columns
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depends on the module, problem type, and specific problem. The large area with no grid
is the table background. The caption colors, table colors and background color can be
changed by using Format, Colors, as explained in Chapter 3.
Above the data table is an area named the extra data bar for placing extra problem
information. Sometimes it is necessary to indicate whether to minimize or maximize,
sometimes it is necessary to select a method, and sometimes some value must be given.
These generally appear above the data. On the right of the extra data panel is an
instruction panel. There is always an instruction here to help you to figure out what to do
or what to enter. When data is to be entered into the data table, this instruction will
explain what type of data (integer, real, positive, etc.) is to be entered. The instruction
location can be changed by using the View option.
There also is a form for annotating problems. A comment

may be placed here. When the file is saved, the information
will be saved; when the file is loaded, the information will
appear and the annotation may be printed if so desired.
The Data Screen
The data screen was described briefly in Chapter 1. It has a

data table and, for many models, there is extra information that appears above the data
table as shown in the figure below.
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The Solution Screen
An important thing to notice is that there is more solution information available than the
one table displayed. This can be seen by the icons given at the bottom. Click on these to
view the information.
Alternatively, when you solve the problem, the form below can be set to appear on top of
the solution through Help, User Information.
If you click on the OPTIONS button then you can set up the behavior of the software
when a problem is solved. The options are as follows:
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ASSIGNMENT PROBLEM
The assignment model is used to solve the traditional one-to-one assignment problem of
assigning employees to jobs, employees to machines, machines to jobs, etc. The model is
a special case of the transportation method. In order to generate an assignment problem, it
is necessary to provide the number of jobs and machines and to indicate whether the
problem is a minimization or maximization problem. The number of jobs and number of
machines do not have to be equal but usually they are.
Objective function. The objective can be to minimize or to maximize. This is set at the
creation screen but can be changed in the data screen.
Example
The table below shows data for a 7-by-7 assignment problem. Our goal is to assign each
salesperson to a territory at minimum total cost. There must be exactly one salesperson
per territory and exactly one territory per salesperson.
Mort Cippy Bruce Beth Lauren Eddie Brian
Pennsylvania 12 54 * 87 54 89 98
New Jersey 33 45 87 27 34 76 65
New York 12 54 76 23 87 44 62
Florida 15 37 37 65 26 96 23
Canada 42 32 18 77 23 55 87
Mexico 40 71 78 76 82 90 44
Europe 12 34 65 23 44 23 12
* Bruce is not allowed to work in the state of Pennsylvania.
The data structure is nearly identical to the structure for the transportation model. The
basic difference is that the assignment model does not display supplies and demands
since they are all equal to one.
NOTE: To try to preclude an assignment from being made, such as Bruce to

Pennsylvania in this example, enter a very large cost. If you type ‘x’, the program will
place a cost of 9,999 for minimization problems or a profit of -9,999 for maximization
problems in that cell.
The Solution
Assignments. The “Assigns” in the main body of the table are the assignments that are to
be made. In the example, Mort is to be assigned to Pennsylvania, Cippy to Florida, Bruce
to Canada, Beth to New York, Lauren to New Jersey, Eddie to Europe, and Brian to
Mexico.
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Total cost. The total cost appears in the upper left cell, $191 in this example.
The assignments can also be given in list form, as shown in the screen below.
The marginal costs can be displayed also. For example, if we want to assign Mort to New
Jersey, the total will increase by $30 to $221.
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NETWORKING MODELS (or) PROJECT SCHEDULING MODELS

(PERT & CPM)
The networking models or the project scheduling models are used to find the (expected)
project completion time for either a PERT (activity on arc, AOA) network or a CPM
(activity on node, AON) network. For both networks, either one- or three-time estimate
problems can be represented or problems with means and standard deviations for each
activity may be entered.
There are five models that are common. These models can be changed without starting
anew by using the method box.
Single-Time Estimate and Triple-Time Estimate PERT

Consider a small project given by the following precedence diagram and the table of
times that follows the graph.
Task Start Node End Node Optimistic Most Likely Pessimistic

A 1 2 2 12 25
B 2 3 4 5 6
C 3 4 10 23 28
D 3 6 3 5 7
E 4 6 4 7 9
Data
The following screen contains a triple-time estimate PERT data screen for the example.
In PERT representations, the network is defined by giving the starting node and ending
node for each task. The network type is given in the box on the left above the data. In this
first example, the start node/end node representation for activities is used.
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The data consists of:
Activity name. Activities can be named. In PERT, the name is not used, while in CPM
(precedence list), the names are critical. In PERT, the “real” name of an activity is given
by its starting and ending node labels.
Starting node. The number of the node at which the activity starts is to be given here. We
remind you that the numbers in a PERT diagram serve as labels rather than numerical
values. The labeling is arbitrary. That is, the first node can be 1 or 2 or 90.
Ending node. The number of the node at which the activity ends is to be given here. The
number cannot be the same as the starting node number. Also, two activities cannot have
the same pair of starting and ending node numbers. Also, transitivity must be obeyed.
That is, an error will occur if laws of transitivity are violated, such as by the pairs (1, 2; 2,
3; 3, 1).
Time estimate. In the single-time problem, it is necessary to give only one time estimate
for each task.
Optimistic time. This appears only in the three-time estimate option from the submenu.
Most likely time. This time must be entered in either the one- or three-time estimate
version.
Pessimistic time. This appears only in the three-time estimate version.
The Solution
The exact solution screen depends on whether it is a one estimate or three estimate
problem. In the following screen, we present a sample three-estimate problem because
this contains all of the output information. The one-time estimate problem has less
information.
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Time. If the three- time estimate version is used, a single time estimate is computed and
printed for each activity. The formula used is the traditional formula of
t = (a + 4b + c)/6,
where a is the optimistic time, b is the most likely time, and c is the pessimistic time. For
example, in the screen the time used for activity 1-2 is
(2 + 4*12 + 25)/6 = 75/6 = 12.5.
Early start (ES). For each activity, its early start is computed. For example, the early start
for activity 3-6 is 17.5. The column named “time” is used for this computation.
Early finish (EF). For each activity, its early finish is computed. In the example, the early
finish for activity 3-6 is 22.5. The early finish is, of course, the early start plus the activity
time. For example, the early finish of 3-6 is its early start of 17.5 plus the 5 from the time
column.
Late start (LS). For each activity, its late start is computed. In the example, the late start
for activity 3-6 is 36.
Late finish (LF). For each activity, its late finish is computed.
Slack. For each activity, its slack (late start - early start or late finish - early finish) is
computed. In the example, the slack for activity 3-6 is:
41-22.5 = 18.5 or 36-17.5 = 18.5.
Standard deviation. For the three-time estimate model the standard deviation of each
activity is listed. The standard deviation is given by pessimistic-optimistic divided by 6.
In the example, the standard deviation of 3-6 is (7-3)/6=.67.
Project completion time. The (expected) time at which the project should be completed is
given. In the example, this time is 41.
Project standard deviation. If the three-time estimate module is chosen, the project
standard deviation is printed. It is computed as the square root of the project variance,
which is computed as the sum of the variances of all critical activities.
Note that in general there are problems in defining the variance of project completion
time. In addition, some books vary in the manner of computation. This program will
overestimate the standard deviation if there is more than one critical path. Your text
likely does not explain what to do when more than one critical path exists.
There is available a table that displays the computations of the tasks’ times, standard
deviations, and variances, as illustrated in the following screen:
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It is possible to display Gantt Charts for the project, as shown next:
CPM (Precedence list)
The critical path module has the data input in a fashion nearly identical to the assembly
line balancing module. Consider the example given in the following table:
Task Time Precedences
design 25
program 30 design
document 22 design
test 10 program
advertise 30 design
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The initial data screen appears as given below:
Task names. Tasks can be given names. The usual naming conventions are true. That is,
upper and lowercase do not matter but spaces within a name do.
Task times. The task times are entered here.
Predecessors. The predecessors are listed here. Enter one predecessor per spreadsheet
cell with up to seven predecessors per activity. It is sufficient to enter only the immediate
predecessors.
Rather than displaying the solution to this problem, we show the precedence graph that
the software can display. On the screen, the critical path is displayed in red.
Crashing
Following is an example of project management with crashing. The four columns of data
are the standard columns for this type of problem - the normal time and normal cost for
each activity as well as the crash time and crash cost for each activity. The crash time
must be less than or equal to the normal time, and the crash cost must be greater than or
equal to the crash cost.
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The results are as follows. The software finds the normal time of 16 days and the
minimum time of 12 days. For each activity the computer finds the cost of crashing per
period (crash cost-normal cost)/(normal time-crash time), which activities should be
crashed and by how much, and the prorated cost of crashing.
A day-by-day crash schedule is available.
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INVENTORY MODELS
These models use different variations of the economic order quantity (EOQ) model in
order to determine proper order or production quantities. Besides the standard EOQ
model, we include the economic production quantity (EPQ) model. For both the EOQ
and EPQ model, we allow shortages to be included. Finally, we allow quantity discounts
for the EOQ model.
A second type of model is ABC analysis.
The last two models are used for computing reorder points for Normal distributions and
discrete distributions.
EOQ-Type Models
The following screen contains an example that includes both the data and the solution.
The Data
Demand rate. The rate of demand or usage is to be entered here. Typically, this demand
rate is an annual rate but it does not need to be. The time units for this demand rate must
match the time units for the holding cost.
Setup cost. This is the fixed cost of placing each order or making each production run.
Holding cost rate. This is the cost of holding or carrying one unit of inventory for one
time period. This cost is either given as a particular dollar amount or given as a
percentage of the price of the item.
NOTE: If you want the holding cost to be a percentage of the unit cost, enter a percent
sign, “%”, after the number. For example, “20" means 20 dollars, but “20%” means 20
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percent of the unit cost. If the holding cost is a percentage of the unit cost, you must enter
the unit cost.
Unit cost. This is sometimes necessary, but many times, it is not because the EOQ is
independent of the unit cost.
Reorder point. The option box above the data enables us to calculate the reorder point.
Three lines of input are added in these cases. We must either enter a daily demand rate or
enter the number of days in the year so that the daily demand rate can be computed from
the annual demand rate. In addition, we must enter the number of days for the lead time.
Order quantity. Above the data is a textbox/scroll bar combination that allows you to
enter a value for the order quantity. If you enter a number other than 0, then two sets of
results will be displayed. One column will be for the EOQ, while the other column will
be for the specified order quantity.
The Solution
The output screen appears in the preceding screen. In Example 1, we have solved a
standard EOQ model and, in addition, found results when using an order quantity of 20
units. The model results are as follows:
Optimal order quantity. This is the most economical order quantity. If there is no quantity
discount, this is the EOQ. However, when a quantity discount is available (as in Example
3), this is either the EOQ or a discount point above the EOQ. In this example, the optimal
order quantity is 16.33 units per order.
Maximum inventory level. It is useful to know the largest amount that will be in
inventory. In the standard EOQ model, this is simply the amount that is ordered; in a
production or shortage model, this is less. In this example, the inventory will never
exceed 16.33 units when using the EOQ or 20 units if 20 is the order quantity.
Average inventory level. If there are no backorders, the average inventory is half of the
maximum inventory. Annual holding costs are based on the average inventory.
Orders per year. The assumed time period is one year, and the number of orders is
displayed. In this example, it is 12.25 for the EOQ and 10 for an order quantity of 20
units.
Unit costs. This is the total cost for ordering the units. In many instances, the individual
unit cost will be 0, and, therefore, the total unit costs will be 0.
Total costs. This is the total cost of both the inventory costs and the unit costs. This figure
is useful for checking work on problems with discounts.
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Reorder point. This is the product of the daily demand rate and the number of leadtime
days. In this example, we have a daily demand rate of .8 units and a lead time of 5 days,
which yields a reorder point of 4 units.
A graph of cost versus inventory is displayed next.
Example 2: Inventory with production
In the following example, we display data for a problem with production. The data
includes the usual parameters of demand rate, setup cost, holding cost, and unit cost. We
also are displaying results for a policy of producing 300 units per run. In this example we
have set the holding cost to 20% of the unit price. In addition, in this model, we are asked
for a daily production rate and either a daily demand rate or the number of days per year.
Notice in this example that we have set the days per year to 250. The program will
compute the daily demand rate as 10,000/250. Alternatively, we could have entered the
daily demand rate to compute the days per year.
The solution appears next. The daily demand rate has been found to be 40. The remaining
results are the same as in the first example. Notice that the holding cost has been
computed as $18 based on 20% of the $90 unit cost.
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Example 3: Quantity discounts
A screen for quantity discounts appears in the following illustration. The usual
information is placed at the top. In addition, the number of price ranges must be given at
the time of problem creation.
A detailed analysis of the order quantities and costs at each price range is available, as
shown below:
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SOLVING QUEUING THEORY PROBLEMS:

To get this window click on Start – Tora. You will get this window and to get the Main
Menu click on the button click here.
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This screen shows you how to enter the input for the given problem
After entering the input details click on solve menu.
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After clicking the scenario you want you will get the solution screen as shown.
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PROBLEMS ON TRANSPORTATION AND

ASSIGNMENT MODELS
(Refer Page No: 49 & 60)
1.1.Solve the following Transportation Problem using North West Corner

Rule
D1 D2 D3 D4
S1 6 8 8 5 30
S2 5 11 9 7 40
S3 8 9 7 13 50
35 28 32 25
1.2.Solve the following Transportation Problem using Least Cost Method
D1 D2 D3 D4
S1 48 60 56 58 140
S2 45 55 53 60 260
S3 50 65 60 62 360
S4 52 64 55 61 220
200 320 250 210 980
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1.3.Solve the following Transportation problem using VAM/Penalty Method
(Vogal’s Starting Solution)
D1 D2 D3 D4
S1 2 3 11 7 6
S2 1 5 6 1 4
S3 5 8 15 9 10
8 6 3 3
1.4.A sales manager has 4 sales person to allocate to 4 districts. They

estimated profit (Rs./day) for each salesman in each district as below
14 8 12 9
12 9 10 11
13 13 11 10
10 11 9 8
1.5.A manager has to allocate 4 different jobs to workers. The time taken per
job of each workmen is determined by optimal assignment.
5 12 9 5
7 12 10 14
10 12 10 16
10 14 11 9
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PROBLEMS ON NETWORK MODELS

(Refer Page No: 62)
1.6.Listed in the table are the activities and the sequencing requirements
necessary for the completion of a research project.
a. Draw the network diagram for this project.
b. Find the critical path and durations for the project.
c. Find the total, free and independent floats of various activities.
Activity Description Procedure Duration (week)

A Literature search - 6
B Formulation of hypothesis - 5
C Preliminary feasibility study B 2
D Formal disposal C 2
E Field analysis A,D 2
F Progress report D 1
G Formal research A,D 6
H Data collection E 5
I Data analysis G,H 6
J Conclusions I 2
K Rough draft G 4
L Final copy J,K 3
M Preparation of oral presentation L 1
1.7.Consider the following data for the activities of a project

Activity Immediate predecessors Duration (days)
A - 2
B A 3
C A 4
D B,C 6
E - 2
F E 8
a. Draw the network diagram for this project.

b. Find the critical path and durations for the project.
c. Find the total, free and independent floats of various activities.
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1.8. A project has the following time schedule:
Activity Duration (days)

1–2 2
1–3 2
1–4 1
2–5 4
3–6 8
3–7 5
4–6 3
5–8 1
6–9 5
7–8 4
8–9 3
Construct PERT network and compute

a. Total float, free and independent float for each activity.
b. Critical path and its duration.
c. Find the minimum number of cranes the project must have for its activities
2 – 5, 3 – 7 and 8 – 9 without delaying the project. Then, is there any
changes required in PERT network? If so, indicate the same.
1.9.For the network below, the estimate to, tm and tp are given in this order
for each of the activities. Find the probability of completing the project in
25 days.
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PROBLEMS ON QUEUING MODELS

(Refer Page No: 71)
1.10. A self-service store employs one cashier at its counter. An average of nine
customers arrives every 5 minutes while the cashier can serve 10 customers in
5 minutes. Assuming Poisson distribution for arrival rate and exponential
distribution for service rate, find
a. Average number of customers in the system.
b. Average number of customers in queue or average length.
c. Average time a customer spends in the system.
d. Average time a customer waits before being served.
1.11. A supermarket has 2 girls ringing up sales at the counters. If the service
time for each customer is exponential with mean 4 minutes, and if people
arrive in Poisson fashion at the rate of 10 an hour, calculate
a. Probability of having to wait for service?
b. Expected % of idle time for each girl?
c. If a customer has to wait, what is the expected length of his waiting time?
1.12. A barber shop has 2 barbers and 3 chairs for customers. Assume that the
customers arrive in Poisson fashion at a rate of 5 per hour and that each barber
services customers according to an exponential distribution with mean of
15mins. Further if a customer arrives and there are no empty chairs in the
shop, he will leave. What is the probability that the shop is empty? What is the
expected number of customers in the shop?
1.13. There are 5 machines, each of which when running suffers breakdown at
an average rate of 2 per hour. There are two service men and only one man
can work on a machine at a time. If ‘n’ machines are out of order, where n>2,
then (n-2) of them wait until a service man is free. Once a service man starts
work on a machine, the time to complete the repair as an exponential
distribution with a mean 5 minutes. Find the distribution of the number of
machines out of action at a given time. Find also the average time and out of
action machine has to spend waiting for the repair to start.
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PROBLEMS ON INVENTORY MODELS

(Refer Page No: 67)
1.14. The annual demand is 3600 units with an average of 12 units per day. The
lead time is 10 days. Ordering cost per order is Rs.20 and the carrying cost is
25% of an value of inventory price is Rs3 per unit. What will be the EOQ?
Find the purchase cycle, total inventory cost. If safety stock is 100 units what
will be the reorder level.
1.15. Find the optimal order quantity for which the price breaks are given
below:
Quantity Unit Cost

0  Q1  800 1.00
800  Q2 0.98
Demand is 1600 per annum. Cost of placing an order is Rs.5 per order and
cost of storage is 10% per annum.
1.16. Find the optimal order quantity for which the price breaks are given
below:
Quantity Unit Cost

0  Q1  500 25
500  Q2  1500 24.80
1500  Q3 24.60
Demand is 500 units, cost of storage per unit per annum is 10% and the
ordering cost per order is Rs.180.
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1.17. A product is sold at the rate of 50 pieces per day and is manufactured at a
rate of 250 pieces per day. The set-up cost of the machines is Rs.1000 and the
storage cost is found to be Rs 0.0015 per piece per day. With labor charges of Rs
3.20 per piece, material cost at Rs 2.10 per piece and overhead cost of Rs 4.10 per
piece, find the minimum cost batch size if the interest charges are 8 per cent
(assume 300 working days in a year). Compute the optimal number of cycles
required in a year for the manufacture of this product.
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FINANCIAL FUNCTIONS IN EXCEL 2010
Listed below are the financial functions that are inbuilt with in the MS-Excel 2010.
FUNCTION DESCRIPTION
ACCRINT function Returns the accrued interest for a security that pays periodic interest
ACCRINTM Returns the accrued interest for a security that pays interest at maturity
function
AMORDEGRC Returns the depreciation for each accounting period by using a depreciation
function coefficient
AMORLINC Returns the depreciation for each accounting period
function
COUPDAYBS Returns the number of days from the beginning of the coupon period to the
function settlement date
COUPDAYS Returns the number of days in the coupon period that contains the
function settlement date
COUPDAYSNC Returns the number of days from the settlement date to the next coupon
function date
COUPNCD Returns the next coupon date after the settlement date
function
COUPNUM Returns the number of coupons payable between the settlement date and
function maturity date
COUPPCD Returns the previous coupon date before the settlement date
function
CUMIPMT Returns the cumulative interest paid between two periods
function
CUMPRINC Returns the cumulative principal paid on a loan between two periods
function
DB function Returns the depreciation of an asset for a specified period by using the
fixed-declining balance method
DDB function Returns the depreciation of an asset for a specified period by using the
double-declining balance method or some other method that you specify
DISC function Returns the discount rate for a security
DOLLARDE Converts a dollar price, expressed as a fraction, into a dollar price, expressed
function as a decimal number
DOLLARFR Converts a dollar price, expressed as a decimal number, into a dollar price,
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II Semester - MBA
function expressed as a fraction
DURATION Returns the annual duration of a security with periodic interest payments
function
EFFECT function Returns the effective annual interest rate
FV function Returns the future value of an investment
FVSCHEDULE Returns the future value of an initial principal after applying a series of
function compound interest rates
INTRATE function Returns the interest rate for a fully invested security
IPMT function Returns the interest payment for an investment for a given period
IRR function Returns the internal rate of return for a series of cash flows
ISPMT function Calculates the interest paid during a specific period of an investment
MDURATION Returns the Macauley modified duration for a security with an assumed par
function value of $100
MIRR function Returns the internal rate of return where positive and negative cash flows
are financed at different rates
NOMINAL Returns the annual nominal interest rate
function
NPER function Returns the number of periods for an investment
NPV function Returns the net present value of an investment based on a series of periodic
cash flows and a discount rate
ODDFPRICE Returns the price per $100 face value of a security with an odd first period
function
ODDFYIELD Returns the yield of a security with an odd first period
function
ODDLPRICE Returns the price per $100 face value of a security with an odd last period
function
ODDLYIELD Returns the yield of a security with an odd last period
function
PMT function Returns the periodic payment for an annuity
PPMT function Returns the payment on the principal for an investment for a given period
PRICE function Returns the price per $100 face value of a security that pays periodic interest
PRICEDISC Returns the price per $100 face value of a discounted security
function
PRICEMAT Returns the price per $100 face value of a security that pays interest at
function maturity
PV function Returns the present value of an investment
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II Semester - MBA
RATE function Returns the interest rate per period of an annuity
RECEIVED function Returns the amount received at maturity for a fully invested security
SLN function Returns the straight-line depreciation of an asset for one period
SYD function Returns the sum-of-years' digits depreciation of an asset for a specified
period
TBILLEQ function Returns the bond-equivalent yield for a Treasury bill
TBILLPRICE Returns the price per $100 face value for a Treasury bill
function
TBILLYIELD Returns the yield for a Treasury bill
function
VDB function Returns the depreciation of an asset for a specified or partial period by using
a declining balance method
XIRR function Returns the internal rate of return for a schedule of cash flows that is not
necessarily periodic
XNPV function Returns the net present value for a schedule of cash flows that is not
necessarily periodic
YIELD function Returns the yield on a security that pays periodic interest
YIELDDISC Returns the annual yield for a discounted security; for example, a Treasury
function bill
YIELDMAT Returns the annual yield of a security that pays interest at maturity
function
To illustrate Excel's most popular financial functions, we consider a loan with monthly payments, an annual
interest rate of 6%, a 20-year duration, a present value of $150,000 (amount borrowed) and a future value of
0 (that's what you hope to achieve when you pay off a loan).
We make monthly payments, so we use 6%/12 = 0.5% for Rate and 20*12 = 240 for Nper (total number of
periods). If we make annual payments on the same loan, we use 6% for Rate and 20 for Nper.
Pmt
Select cell A2 and insert the PMT function.
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II Semester - MBA
Advertisement
Note: The last two arguments are optional. For loans the Fv can be omitted (the future value of a loan
equals 0, however, it's included here for clarification). If Type is omitted, it is assumed that payments are due
at the end of the period.
Result. The monthly payment equals $1,074.65.
Tip: when working with financial functions in Excel, always ask yourself the question, am I making a
payment (negative) or am I receiving money (positive)? We pay off a loan of $150,000 (positive, we received
that amount) and we make monthly payments of $1,074.65 (negative, we pay).
Rate
If Rate is the only unknown variable, we can use the RATE function to calculate the interest rate.
Nper
Or the NPER function. If we make monthly payments of $1,074.65 on a 20-year loan, with an annual interest
rate of 6%, it takes 240 months to pay off this loan.
We already knew this, but we can change the monthly payment now to see how this affects the total number
of periods.
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II Semester - MBA
Conclusion: if we make monthly payments of $2,074.65, it takes less than 90 months to pay off this loan.
Pv
Or the PV (Present Value) function. If we make monthly payments of $1,074.65 on a 20-year loan, with an
annual interest rate of 6%, how much can we borrow? You already know the answer.
Fv
And we finish this chapter with the FV (Future Value) function. If we make monthly payments of $1,074.65
on a 20-year loan, with an annual interest rate of 6%, do we pay off this loan? Yes.
But, if we make monthly payments of only $1,000.00, we still have debt after 20 years.
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PROBLEMS ON FINANCIAL FORMULAS AND

FINANCIAL MODELS
(Refer Page No: 82)
1.1.Suppose we have availed a loan of Rs. 2,50,000 that is to be paid off in 48

monthly installments of rupees 7,000 each. Find out the rate of interest
charged on this loan.
1.2.You expect to receive Rs.750/- every month over next 24 months. If the
current discount rate is 15% per annum. What is the present value of
these future payments?
1.3.You are expected to get 5 monthly payments of Rs.500, 900, 550, 478, 950
respectively. At the discount rate of 10% per annum. Find the NPV(Net
Present Value).
1.4.ABC company made an EPS of Rs.20. confirm the above with the
following data.
 Sale of Rs.12,50,000,
 Expenses Rs.7,00,000,
 Fixed expenses Rs.1,25,000,
 Interest Rs.12,500 (10% of the fixed expenses)
 Tax 1,23,750(30%)
 Number of shares 1000
As the sales manager of the firm, you need to know what would be the effect
on sales on EAT and EPS. What would be your target for the sales force so
that the investors could earn an EPS Rs.50. also find out what will be the
effect of cost cutting measures that would result in 5% and 10% reduction in
the expenses respectively
1.5.Calculate EPS from the following information’s made available to you.
Capital structure:-
5,000 equity shares of 200 each – 10,00,000
14% debenture – 30,00,000

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II Semester - MBA
The expected EBIT of the company is estimated at Rs. 15,00,000 per

annum. The company is in the tax bracket of 25%.
1.6.With the following information’s available for a company, calculate

Weighted Average Cost of capital
Equity Share ----- 30,00,000
Debenture (14%) ----- 50,00,000
Pref. Share (13%) ----- 15,00,000
Retained earnings ----- 10,00,000
The expected dividend for the equity shares are estimates at Rs.5.50 for
the share issued. Rs 10/- the company’s tax rate is 45%.
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Intro to SPSS

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Intro to SPSS

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Panimalar Engineering College

Opening a new file:

Figure 1 – Opening new file

Figure 2 – Variable Type Dialog Box

• Width: the field width.

Figure 3 – Value Labels Dialog Box

INTRODUCTION TO MICROSOFT EXCEL 2010

Microsoft Excel is an example of a program called a “spreadsheet.” Spreadsheets are

Opening Microsoft Excel

Microsoft Excel Features

The Title Bar

The Ribbon Menu System

The File Menu

Quick Access Toolbar

The Home Tab

1. Backspace: This key deletes letters backwards .

STEPS FOR INCLUDING THE ADD-INs (SOLVER & DATA ANALYSIS)

To load the Analysis ToolPak add-in, execute the following steps.

3. Under Add-ins, select Analysis ToolPak and click on the Go button.

4. Check Analysis ToolPak and click on OK.

5. On the Data tab, you can now click on Data Analysis.

The following dialog box below appears.

6. For example, select Histogram and click OK to create a Histogram in Excel.

Load the Solver Add-in

To load the solver add-in, execute the following steps.

1. On the green File tab, click Options.

2. Under Add-ins, select Solver Add-in and click on the Go button.

3. Check Solver Add-in and click OK.

4. You can find the Solver on the Data tab.

1. On the Data tab, click Data Analysis.

2. Select Descriptive Statistics and click OK.

3. Select the range A2:A15 as the Input Range.

4. Select cell C1 as the Output Range.

5. Make sure Summary statistics is checked.

To perform a t-Test, execute the following steps.

2. On the Data tab, click Data Analysis.

3. Select t-Test: Two-Sample Assuming Unequal Variances and click OK.

7. Click in the Output Range box and select cell E1.

To perform an F-Test, execute the following steps.

1. On the Data tab, click Data Analysis.

5. Click in the Output Range box and select cell E1.

ANOVA (Analysis of Variance)

To perform a single factor ANOVA, execute the following steps.

1. On the Data tab, click Data Analysis.

2. Select Anova: Single Factor and click OK.

4. Click in the Output Range box and select cell E1.

CORRELATION USING EXCEL

- A correlation coefficient of +1 indicates a perfect positive correlation. As variable X

- A correlation coefficient of -1 indicates a perfect negative correlation. As variable X

- A correlation coefficient near 0 indicates no correlation.

1. On the Data tab, click Data Analysis.

2. Select Correlation and click OK.

3. For example, select the range A1:C6 as the Input Range.

4. Check Labels in first row.

5. Select cell A9 as the Output Range.

REGRESSION USING EXCEL

1. On the Data tab, click Data Analysis.

2. Select Regression and click OK.

6. Select an Output Range.

Excel produces the following Summary Output (rounded to 3 decimal places).

Significance F and P-values

To check if your results are reliable (statistically significant), look at Significance F