Quantitative Analysis for Business Decisions

QA lectures

Prepared By: Prof. Maged Sedky Morcos

Professor of Engineering and Project Management

ESLSCA 2014

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 What is Management?

 Definitions of Management
 “ Management is the process of undertaken by one or more
individuals to coordinate the activities of others to achieve
results not achievable or possible by one individual acting alone.”

 Peter Drucker, a management pioneer, defined management as:

“the Process of making people more productive.” He
emphasizes:Performance, Quality and Service.

 Peter and Waterman, other management authors, defined

management as: “ The role of loving work and people,
communicating and inspiring people to get the job done”. They
emphasize Mentorship.
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Another general definition of Management :
“ Management is the process of efficient allocation and
utilization of the different 4 M’s Organizational Resources.”
i.e. M =4 M’s. These are as shown in next diagram:
 Manpower Resource: Human resources, employees,
labors, staff and other supporters..etc.
 Material Resource: all types of materials, papers,
documents, facilities, procedures and process..etc.
 Machine Resource: Computers, desks, tools and any
other technology..etc.
 Money Resource: Budget, Financial resources,and other
transactions needed to facilitate the work and harmony of the
above three resources.. etc..” 3
 Material Machine
Manpower Resource Resource Money
Resource Resource

M2 M3 M4
M1

The Empowered M = 4 M’s

Manager 4
The Effective Managers’ Main Tasks

Management Management
of Work & Environment
Organization

Management
Management
of Productivity
of People
& Operation
The Empowered
Manager with his three
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Fundamental tasks
The Main Functions of the Modern Manager

Function and Purpose of Communication in Organizations

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Integration of Managerial Approaches with the Managers’ Functions Management
Environment

Management of
Work &
Organization

Management of
Productivity & Management of
Operation People

The Empowered
Manager with his three
Fundamental tasks

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 Course Objectives
 Familiarize students, who are expected to be future effective
managers, with the important tools of quantitative methods and to
expose them to a variety of successful applications although this
does not mean that an effective manager must be mathematically
skilled or must personally develop models and solutions.

 Teach students that an effective manager must make good

choices. The ability to know where, when and how to use
quantitative methods to make optimal decisions gives them as
managers a definite advantage. As a minimum requirement, any
exposure to quantitative methods will teach future managers to ask
the right questions and to recognise when outside help may be28
useful.
 Benefits of the Course
Three advantages can be gained from exposure to quantitative
methods:
1- Quantitative methods should increase the student confidence as a
future decision maker, through using quantitative methods and
techniques in solving variety of managerial problems.
2- The study of quantitative methods creates problem-solving skills
that are extremely helpful when the decision maker(s) or manager(s)
encounter any an unsolved problem..
3- A final advantage will be the student’s (expected future manager)
ability to cope with decisions, as a manager, as an employee or in his
personal life.
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 Course Outline
Week Main Topic Chapt. No. Period per Group
No.

1 * General Introduction 1 3 Hours

* Introduction to Quantitative Analysis

2 Linear Programming (1): The Graphical Method 2 3 Hours

3 Linear Programming (2): Duality and Sensitivity Analysis 2 3 Hours

4 Transportation Method 7 3 Hours

5 Assignment Method 7 3 Hours

6 Mid-Term Exam 30% 2 Hours
7 Decision Analysis: First Part 14 3 Hours
8 Decision Analysis: Second Part 14 3 Hours
Bayes Theorem

9 Queuing Theory and Waiting Line Models 12 3 Hours

10 Monte Carlo Simulation 13 3 Hours
11 Project Scheduling 10 3 Hours
12 Participation or Case Studies 20%
13 Final Exam 40% 2 hours
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 Chapter(1):Introduction

 Problem Solving and Decision-making

 Quantitative Analysis and Decision Making
Process
 The Quantitative Analysis Process
 Implementation

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 Problem Solving and Decision-Making

 Problem Solving can be defined as:

“The process of identifying a difference between some actual and
some desired state of affairs and then taking action to resolve the
difference.”
 The Problem-solving process involves the following eight
steps:
1- Define the Problem
2- Identify the Alternatives
3- Determine the Decision Criteria
4- Evaluate the Alternatives
5- Choose the Alternative
6- Implement the Decision
7- Evaluate the Results
8- Monitor the success or failure of the chosen alternative 12
 Define the Problem
Identify the Alternative
Determine the Criteria Decision Making
Evaluate the Alternatives
Problem Solving
Choose an Alternative

Implement the Decision

Evaluate the Results Decision

Monitor Results Suc/Fail

The Relationship between Problem solving and Decision making13

F Decision-Making can be defined as:
“The term generally associated with the first five steps of the
problem-solving process. Decision-making ends with the
choosing of an alternative, which is the act of making decision.”
 The Decision-Making process involves the following five steps:
1- Define the Problem
2- Identify the Alternatives
3- Determine the Decision Criteria
4- Evaluate the Alternatives
5- Choose the Alternative

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 Quantitative Analysis and Decision-Making Process

 A central theme in the quantitative approach to decision making

is a the appearance and orientation of a managerial problem.
 The manager responsible for making a decision or selecting a
course of action will probability make an analyze of the problem.
 This problem process includes:
 A statement of the specific goals or objectives
 A selection of the apparent “best” decision
 A solution for the problem
 This problem analysis process may take two basic forms:
 Qualitative: which is based upon managers’ judgement,
experience, intuition and feel. It is more an art than a science.
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  Quantitative: which is based upon mathematical models that
help managers to describe the objectives, constraints and
relationships that exist in the problem. It is more a science
that an art.
 Both Qualitative and Quantitative analysis of a problem provide
important information for the manager or decision maker.
 In any cases, a manager will draw upon both sources and a
thorough comparison and evaluation of the information make a
final decision.
 Problem Solving requires the use of an integrated approach of
qualitative and quantitative procedure for making rational
decisions. This can be illustrated as in the following flow-chart:

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 Qualitative
analysis based
upon managerial
experience and
judgement

Summary
Managerial and Decision
problem Evaluation

Quantitative
analysis based
upon mathematical
techniques

The Decision-Making Process

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 Structuring and Analyzing
Managerial Problems

 After illustrating the managerial functions and the level of

management with their roles in achieving the objectives of the
organization, it is important to structure the managerial
problem and analyze it in a formal and proper manner to
facilitate the rational solution to the problem.

 The following diagram illustrates an alternate classification of

the Decision making process which divide the it into two
frames:
1- Structuring the Problem, then
2- Analyzing the Problem

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 Analyzing the Problem
Structuring the Problem

Define Identify Determine Evaluate the Choose

the the the Alternative the
Problem Alternatives Criteria Alternative

An Alternate Classification of the Decision-Making Process

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 The following diagram illustrates how the problem analysis
can be divided further to include the basic forms of the
qualitative and quantitative approach to solving the problem:

Analyzing the Problem

Structuring the Problem
Qualitative
Analysis
Define Identify Determine Make the
the the the Summary &
Evaluation Decision
Problem Alternatives Criteria
Quantitative
Analysis

The Role of Qualitative and Quantitative Analysis in Analyzing the

Managerial Problem 20
 The Quantitative Analysis Process
 A manager can increase decision-making effectiveness by
learning more about Quantitative methodology and by better
understanding its contribution to the decision-making process.
 The quantitative approach to decision-making consists of the
following five steps procedure and as shown in the diagram in
the next slide:
1- Problem Definition
2- Model Development
3- Data Preparation
4- Model Solution
5- Report Generation
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 Problem Definition

Model Development

Data Preparation

Model Solution

Report Generation

Steps of the Quantitative Analysis Process

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 1- Problem Identification
 This the most critical component in determining the success
or failure of any quantitative approach to decision-making.
 It usually takes:
* imagination
* teamwork
* effort to transform a general problem description into a
well-defined problem that can be approached quantitatively.
 When managers and their assistants agree that the problem has
been adequately defined, they begin to develop a model that
can represent the problem mathematically. Solution procedures
can then be developed to select the decision that “best” solves
the problem. 23
 2- Model Development
 Models are representation of real objects or situations.
 There are three types or classification of model exist:
 Iconic Models: These are physical replicas of real objects
e.g. scale model of airplane is a model of real airplane,
child’s toy truck is a model of a real truck.
 Analog Models: These are physical replicas of real objects
but without the same physical appearance.
e.g. A thermometer analog model representing temperature.
 Mathematical Models: These represent problems by a system
of symbols and mathematical relationships or expressions.
They are the models used in quantitative approach to solving
managerial problems. 24
 e.g. Total Profit from the sale of a product can be modeled as
follows: P = 10x where
P = Profit, x = the selling number of units with $10 per unit
 The purpose or value of any model is that it enable managers
to make inferences about the real situation by studying and
analyzing the model and presenting it in a form that facilitates
the understanding of all the parameters.
 In modeling the problem there are some uncontrollable factors
(outside the control of the Decision-maker) & other controllable
factors (within the control of the decision-maker).
 The model is described as either:
Deterministic Model (if all uncontrollable inputs are known exactly
and in advance) e,g. corporate income tax rates or. Probabilistic
(Stochastic) Model (if all uncontrollable inputs are not known or
uncertain) e.g. future production demand.
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 An example of production model illustrates the type of
uncontrollable and controllable inputs through the following
flowchart:

Uncontrollable Inputs
$10 Profit per unit
5 labor-hour per unit
40 labor-hour capacity

Value for the Max 10(8) Projected Profit and

production s.t. 5(8)<=40 Check on Produce.
Quantity (x) 8>=0 Time constraint
Controllable Inputs Controllable Inputs Output

Flowchart for the Production Model

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 3- Data Preparation
 Any model of a problem requires the preparation of the data.
 Data refer to the values of the uncontrollable inputs to the model.
 All uncontrollable inputs or data must be specified before we can
analyze the model and recommend a decision or solution for the
problem.
 For example in the production model, the data required are:
C = Profit per unit, a = production time in hour per unit
b = production capacity in hours.
The general notation of the model will be as follows:
Max. C = 10 x
s.t. ax <= b
x >= 0 27
 Managers would require the data from the various department
of the organization. e.g accounting, production & engineering
department who have to be consulted to provide the managers
with the required data variables, C, a and b respectively.

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 4- Model Solution
 The next step after preparation of the model with its data is the
solution of the model to reach the “best” output.
 Reaching Optimal Solution can be done by trial & error to solve
the model until a “best” solution is reached which does not violate
the constraints of the model. This is called Feasible Decision.
 If the result violates the constraints then it is called Infeasible
Decision and should not be recommended.
 After a model solution has been obtained, the manager and his
assistance should examine the validity of the model by conducting
small test problems before implementing the model in real
applications.

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 5- Report Generation and Implementation
 An important part of the problem analysis is the preparation of
managerial reports based on the model’s solution.
 It is essential that the results of the model can be easily
understood by the decision-maker.
 The report should include the recommended decision and other
important information about the model results that may be
helpful to the decision-maker.
 Successful implementation of the results is of critical importance
to the manager and his management scientists as it imitates the
real situation of the organizational problem.
 Finally, It is the responsibility of the manager to integrate the
qualitative and quantitative techniques in order to reach the
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“best” decision.
 Implementation

• The final action that the manager has to take after

generating a report is the implementation of the
information contained in the report.

• It is the responsibility of the manager to integrate the

quantitative solution with qualitative considerations in
order to make the best possible decision.

• After doing this, the manager must oversee the

implementation and follow-up evaluation of the decision.

• During the implementation and follow-up, the manager

should continue to monitor the contribution of the model.
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 Generally, All Managers (Juniors and Seniors) in any
organization have to Recognize the:

Importance of adopting quantitative approach in addition

to using their intuition, experience and judgement to
solving managerial problems and making rational
decisions.
 The result will definitely lead to achieving the organizational
main Objectives and improving the overall Performance
and Effectiveness of their organization.

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