Presentation Graphics for Quantitative Analysis for Management, 8th Edition

Render/Stair/Hanna

Prepared by John Swearingen

To accompany Quantitative Analysis for Management, 8e by Render/Stair/Hanna

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2003 by Prentice Hall, Inc. Upper Saddle River, NJ 07458

Chapter 1

Introduction to Quantitative Analysis

To accompany Quantitative Analysis for Management, 8e by Render/Stair/Hanna

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2003 by Prentice Hall, Inc. Upper Saddle River, NJ 07458

Learning Objectives
Students will be able to:

Describe the quantitative analysis approach

Understand the application of QA in a real situation Describe the use of modeling in QA

Use computers and spreadsheet models to perform QA

Discuss possible problems in using quantitative analysis Perform breakeven analysis

To accompany Quantitative Analysis for Management, 8e by Render/Stair/Hanna

1-3

2003 by Prentice Hall, Inc. Upper Saddle River, NJ 07458

Chapter Outline
1.1 Introduction 1.2 What is Quantitative Analysis (QA) 1.3 The QA Approach 1.4 How to Develop a QA Model 1.5 The Role of Computers and Spreadsheet Models in the QA Approach 1.6 Possible Problems in the QA Approach 1.7 Implementation - Not Just the Final Step
To accompany Quantitative Analysis for Management, 8e by Render/Stair/Hanna

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2003 by Prentice Hall, Inc. Upper Saddle River, NJ 07458

Introduction
Mathematical tools have been used for thousands of years QA can be applied to a wide variety of problems One must understand: the specific applicability of the technique, its limitations and its assumptions
To accompany Quantitative Analysis for Management, 8e by Render/Stair/Hanna

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2003 by Prentice Hall, Inc. Upper Saddle River, NJ 07458

The Evolution of QA
1990
1980 1970 1960 1950 Expert Systems and Artificial Intelligence Decision Support Information System Goal Programming Decision Theory Network Models Dynamic Programming Game Theory Transportation Assignment Technique Inventory Control Queuing Theory1-6 Markov Analysis
2003 by Prentice Hall, Inc. Upper Saddle River, NJ 07458

1940
1930 1920 1910

To accompany Quantitative Analysis for Management, 8e by Render/Stair/Hanna

The Decision-Making Process

Quant.Analysis
Logic Historic Data Marketing Research Scientific Analysis Modeling

Problem

Decision

?
To accompany Quantitative Analysis for Management, 8e by Render/Stair/Hanna

Qual. Analysis
Weather State and federal legislation New technological breakthroughs Election outcome
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Overview of Quantitative Analysis

Scientific Approach to Managerial Decision Making Consider both Quantitative and Qualitative Factors
Quantitative Analysis Meaningful Information

Raw Data

To accompany Quantitative Analysis for Management, 8e by Render/Stair/Hanna

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2003 by Prentice Hall, Inc. Upper Saddle River, NJ 07458

The Quantitative Analysis Approach

Define the problem Develop a model Acquire data

Develop a solution
Test the solution Analyze the results and perform sensitivity analysis
To accompany Quantitative Analysis for Management, 8e by Render/Stair/Hanna

Implement the results1-9

2003 by Prentice Hall, Inc. Upper Saddle River, NJ 07458

The QA Approach - Fig 1.1

Define the Problem Develop a Model Acquire Input Data Develop a Solution Test the Solution Analyze the Results Implement the Results
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To accompany Quantitative Analysis for Management, 8e by Render/Stair/Hanna

2003 by Prentice Hall, Inc. Upper Saddle River, NJ 07458

Define the Problem

All else depends on this

Clear and concise statement required

May be the most difficult step

Must go beyond symptoms to causes

Problems are related to one another

Must identify the right problem

May require specific, measurable objectives
To accompany Quantitative Analysis for Management, 8e by Render/Stair/Hanna

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2003 by Prentice Hall, Inc. Upper Saddle River, NJ 07458

Develop the Model

Model: representation of a situation Models: physical, logical, scale, schematic or mathematical Models: variables (controllable or uncontrollable) and parameters Controllable variables decision variables

Models must be:

solvable realistic easy to understand

To accompany Quantitative Analysis for Management, 8e by Render/Stair/Hanna

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2003 by Prentice Hall, Inc. Upper Saddle River, NJ 07458

Acquire Data
Accurate data is essential (GIGO)

Data from:
company reports

company documents
interviews on-site direct measurement statistical sampling
To accompany Quantitative Analysis for Management, 8e by Render/Stair/Hanna

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2003 by Prentice Hall, Inc. Upper Saddle River, NJ 07458

Develop a Solution
Manipulate the model, find the best
solution

Solution:
practical implementable

Various methods:
solution of equation(s)
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trial and error

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2003 by Prentice Hall, Inc. Upper Saddle River, NJ 07458

Test the Solution

Must test both
Input data
Model

Determine:
Accuracy Completeness of input data
collect data from a different sources and compare

Check results for consistency

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Do they make sense?

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2003 by Prentice Hall, Inc. Upper Saddle River, NJ 07458

Analyze the Results

Understand the actions implied by the

solution
Determine the implications of the action

Conduct sensitivity analysis - change input

value or model parameter and see what

happens
Use sensitivity analysis to help gain
To accompany Quantitative Analysis for Management, 8e by Render/Stair/Hanna

understanding of problem (as well as for 1-16

2003 by Prentice Hall, Inc. Upper Saddle River, NJ 07458

Implement the Results

Incorporate the solution into the company

Monitor the results

Use the results of the model and sensitivity analysis to help you sell the solution to management

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2003 by Prentice Hall, Inc. Upper Saddle River, NJ 07458

Modeling in the Real World

Models are complex

Models can be expensive

Models can be difficult to sell

Models are used in the real world by real

organizations to solve real problems

To accompany Quantitative Analysis for Management, 8e by Render/Stair/Hanna

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2003 by Prentice Hall, Inc. Upper Saddle River, NJ 07458

How to Develop a QA Model

Profit
Profits = Revenue - Expenses
Profits =
Revenue (Price per Unit) (Number Sold) Expenses - Fixed Cost - (Variable Cost/Unit) (Number Sold)

Profits = $10Q - $1,000 - $5Q

To accompany Quantitative Analysis for Management, 8e by Render/Stair/Hanna

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2003 by Prentice Hall, Inc. Upper Saddle River, NJ 07458

How to Develop a QA Model

Q = quantity sold F = fixed cost V = Set Revenue = 0 variable cost/unit PQ - F VQ = 0 Then F = PQ VQ And: Q = F/(P Quantity = F/(P-V) Breakeven V)
To accompany Quantitative Analysis for Management, 8e by Render/Stair/Hanna

Breakeven Point

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2003 by Prentice Hall, Inc. Upper Saddle River, NJ 07458

Models Can Help Managers to

Gain deeper insight into the nature of business

relationships
Find better ways to assess values in such relationships; and See a way of reducing, or at least understanding, uncertainty that surrounds business plans and
To accompany Quantitative Analysis for Management, 8e by Render/Stair/Hanna

actions

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2003 by Prentice Hall, Inc. Upper Saddle River, NJ 07458

Models
Are less expensive and disruptive than

experimenting with real world systems

Allow What if questions to be asked Are built for management problems and encourage management input Enforce consistency in approach Require specific constraints and goals
To accompany Quantitative Analysis for Management, 8e by Render/Stair/Hanna

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2003 by Prentice Hall, Inc. Upper Saddle River, NJ 07458

Models: The Up Side

Models
Accurately represent reality Help a decision maker understand the problem Save time and money in problem solving and decision making Help communicate problems and solutions to

others
Provide the only way to solve large or complex
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1-23 problems in a timely fashion

2003 by Prentice Hall, Inc. Upper Saddle River, NJ 07458

Models: The Down Side

Models
May be expensive and time-consuming to develop
and test Are often misused and misunderstood (and feared) because of their mathematical complexity Tend to downplay the role and value of

nonquantifiable information
Often have assumptions that oversimplify the
To accompany Quantitative Analysis for Management, 8e by Render/Stair/Hanna

variables of the real world

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2003 by Prentice Hall, Inc. Upper Saddle River, NJ 07458

Using Models (from Dr. J.N.D. Gupta)

Some Suggestions
Use descriptive models Understand why the managers involved decide things the way they do Identify managerial and organizational changes required by the model Analyze each situation in terms of its impact on management Prepare a realistic cost/benefit analysis of tradeoffs of alternate solutions
To accompany Quantitative Analysis for Management, 8e by Render/Stair/Hanna

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2003 by Prentice Hall, Inc. Upper Saddle River, NJ 07458

Mathematical Models Characterized by Risk

Deterministic models - we know all values used in the model with certainty Probabilistic models - we know the probability that parameters in the model will take on a specific value

To accompany Quantitative Analysis for Management, 8e by Render/Stair/Hanna

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2003 by Prentice Hall, Inc. Upper Saddle River, NJ 07458

QM For Windows

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2003 by Prentice Hall, Inc. Upper Saddle River, NJ 07458

QM For Windows

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2003 by Prentice Hall, Inc. Upper Saddle River, NJ 07458

Excel QM

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2003 by Prentice Hall, Inc. Upper Saddle River, NJ 07458

Excel QMs Main Menu of Models

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2003 by Prentice Hall, Inc. Upper Saddle River, NJ 07458

Possible Problems in Using Models

Define the Problem
Conflicting viewpoints Departmental impacts Assumptions

Develop a Model
Fitting the Model Understanding the Model

Acquire Input Data Accounting Data Validity of Data Develop a Solution Complex Mathematics Only One Answer is Limiting Solutions become quickly outdated

To accompany Quantitative Analysis for Management, 8e by Render/Stair/Hanna

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2003 by Prentice Hall, Inc. Upper Saddle River, NJ 07458

Possible Problems - Continued

Test the Solution
Identifying appropriate test procedures

Implement the Solution

Selling the solution to others

Analyze the Results

Holding all other conditions constant Identifying cause and effect
To accompany Quantitative Analysis for Management, 8e by Render/Stair/Hanna

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2003 by Prentice Hall, Inc. Upper Saddle River, NJ 07458