INTRODUCTION TO

QUANTITATIVE &
STATISTICAL
METHOD
OBJECTIVES
Describe the quantitative analysis approach

Understand the application of quantitative

analysis in a real situation

Use computers and spreadsheet models to

perform quantitative analysis
OBJECTIVES
Understand the limitation of using Quantitative
Methods in Business Decision Making

Discuss possible problems using quantitative

analysis

Describe the essentials of statistics for business

CHAPTER OUTLINE
• Introduction of Quantitative Analysis?
• The Quantitative Analysis Approach
• The role of Computers and Spreadsheet Models in the Quantitative
Analysis Approach
• Possible problems in the Quantitative Analysis approach
• Limitation of using Quantitative Methods in Business Decision Making
• Applications of statistics in Business
What is Quantitative Analysis?
• Quantitative Analysis is the scientific approach to managerial decision
making.

• The approach starts with data.

• Data are manipulated or processed into information that is valuable

to people making decisions.
 In solving a problem, managers must consider both
qualitative and quantitative factors.
• For example: Considering the investment alternatives, including certificates of
deposit at a bank, investments in the stock market, and an investment in real
estate.
• We can use quantitative analysis to determine how much our investment will
be worth in the future when deposited at a bank at a given interest rate for a
certain number of years.
• Some real estate companies have developed computer programs that use
quantitative analysis to analyze cash flows and rates of return for investment
property.
• In addition to quantitative analysis , qualitative factors should also be
considered.

• For example: The weather, state and federal legislation, new

technological breakthroughs, the outcome of an election etc, may all
be factors that are difficult to quantify.
Quantitative Method
• ..is a research method that relies less on interviews, observations,
small numbers of questionnaires, focus groups, subjective reports and
case studies but is much more focused on the collection and analysis
of numerical data and statistics.

• The opposite to this type of research is qualitative research, which is

much more reliant upon, interviews and case studies and deals
generally with much smaller numbers.
Quantitative Analysis Approach
• The Quantitative Analysis Approach consists of :

Defining a problem, developing a model, acquiring input data,

developing a solution, analyzing the results, and implementing the
results.
 1. Defining problem 2. Developing a Model

7. Implementing the results 3. Acquiring input data

4. Developing a solution
6. Analyzing the results

5. Testing the solution

The role of Computers and Spreadsheet Models in the
Quantitative Analysis Approach

• Excel provides a wealth of functions for data management and

statistical analysis.
• It can be used to solve many problems from numerical calculations to
reporting of data.
• Finance, accounting and business works within Excel spreadsheets.
Quantitative Skills:
• Microsoft Excel
• Microsoft Access (large data – data mining)
• SPSS, SAS, R – Quantitative research & survey
• Programming softwares (SAP, Oracle – Accounting & Finance)
Possible problems in using quantitative analysis
Quantitative Possible problems
analysis approach
1. Defining -Conflicting viewpoint
problem -Impact on other
departments
-Beginning assumptions

-Solution outdated

2. Developing a -Fitting the Textbook

Model Models
-Understanding the Model
3. Acquiring Input -Using accounting data
Data -Validity of data

4. Developing a -Hard-to-understand
Solution Mathematics
-Only one answer is
limiting
5. Testing the -Complex models tend
Solution to give solutions that are
not intuitively obvious.
6. Analyzing the results -Any changes (small or
big) in organizations are
often difficult to bring
about.
7. Implementation – Not -Lack of Commitment
just the final step and resistance to
change
-Lack of commitment by
Quantitative Analysts
Limitation of using Quantitative Methods in Business Decision
Making

• Making decisions is an important part of business management.

• Managers must make choices regarding new business opportunities
and improving production output to increase the overall profitability
of their companies.
• A popular management tool for making business decisions is
quantitative analysis.
• This measurement uses a variety of statistical or mathematical
calculations to break down information and give managers additional
insight into the potential results of business decisions.
1. Facts

• Using quantitative analysis, managers often build statistical or

mathematical models for entering data relating to business
opportunities and goal setting/attaining.
• Common quantitative models include return on investment, decision
trees, game theory and net present value.
• Each model uses some form of business or financial information to
determine future cash flows or rates of return percentage on business
opportunities.
2. Features

• While quantitative analysis may give managers an in-depth look at

business decision opportunities, these methods usually require
copious amounts of information for setting up each calculation.
• The time spent gathering and manipulating data to fit specific
statistical or mathematical calculations may limit the amount of time
managers have to actually make the decision.
• Managers may also spend too much time gathering incorrect or
unimportant information relating to the business decision.
3. Effects

• Collecting unnecessary data or too much nonessential information for

business decisions can distort the outcome of quantitative analysis
methods.
• Statistical and mathematical business calculations often fall under the
theory "garbage in, garbage out."
• Using incorrect information in these methods may lead managers to
make unwise business decisions.
• Bad business decisions may overextend the economic resources of
the company and limit its ability to maximize profits.
4. Considerations

• A major drawback to quantitative analysis is the potential for

managers to fall into the trap of "paralysis of analysis,"
• Which is essentially the process of becoming so involved in analyzing
information and creating forecasting models for every situation that
little time is left for making decisions.
• Spending too much time on developing quantitative analysis methods
may also allow competing companies to make quicker business
decisions and benefit from new business opportunities.
5. Misconceptions

• Quantitative analysis methods may not be needed for all business

decisions.
• Managers may choose to use more subjective analysis methods or
personal judgments when making business decisions.
• Managers also may not be comfortable with standard statistical or
mathematical calculations for making important business decisions.
• Quantitative analysis may be difficult to use when making business
decisions where no hard facts or information is available from
business operations.
THE ESSENTIALS OF STATISTICS FOR BUSINESS.

Statistics : the art and science of collecting, analyzing, presenting, and

interpreting data.

• Particularly in business and economics, the information provided by

collecting, organizing, analyzing, presenting, and interpreting data
give managers and decision makers a better understanding of the
business and economic environment.
• Thus enables them to make more informed and better decisions.
 Quantitative Methods for Business Decisions

• Successful business decisions rely on quantitative methods to narrow

possibilities and help predict what options will have the greatest
chance of success.
• Whether you are making purchasing, marketing or financing
decisions, it is essential to obtain a quantitative foundation to assist in
the decision-making process.
• Using math and numbers to back up your business decisions helps
you make more informed choices and can help increase your
company's success.
Applications in Business and Economics

i. Accounting
ii. Finance
iii. Marketing
iv. Production
v. Economics
1. Probability

• Use probability to determine the long-term chance of profitability on

products you offer and to help allocate resources.
• For example, in the insurance field business decisions on rates can be
set by the probability of claims based on variables such as
demographic and geographic differences.
• You also can use probability to determine which of your products or
services have the greatest potential for profits.
• Make the business decision to allocate financial and employee
resources based on profit potential.
2. Forecasting

• Apply forecasting techniques such as moving average, exponential smoothing and

linear regression to predict future business events based on prior data.
• Most forecasting methods assume that future events will be similar to prior
events, given that no major changes occur.
• Forecasting can be used to help make financing decisions, product decisions and
even staffing decisions.
• Forecasting is one of the most powerful quantitative methods for assisting with
business decisions.
• Use forecasting information as a foundation and modify based on known changes
to increase business decision reliability.
3. Data Mining

• Use data mining techniques such as averaging, stacking or meta-

learning to discover patterns or relationships in your business data.
• Look for customer buying patterns, feature preferences, seasonal
variations and any variable that can be used to pinpoint future
customer choices.
• Example: If you sell dresses, you may find that half of your customer
purchases are for black dresses and that sales spike at the beginning
of December.
• Armed with this information, you can make the business decision to
stock more black dresses and to increase your dress inventory in
December to maximize sales.
4. Time Analysis
• Apply time series analysis methods to make financial business decisions.
• Time value of money is a foundational concept in finance and helps you
determine what investments will be worth in the future.
• These methods can be used for standard financial instruments like bonds, but
also can be applied to capital investments like building decisions.
• Make business decisions by comparing the future value of a capital investment to
alternative investments.
• For example, you can compare the future value of a new production plant versus
investing in a high-yield bond to see if the plant investment would beat a
standard market return.
Summary
• Quantitative analysis is the scientific approach to decision making.
• The quantitative analysis approach includes defining a problem,
developing a model, acquiring input data, developing a solution,
analyzing the results, and implementing the results.
• In using this approach, however, there can be potential problems
such as conflicting viewpoints.
 Continue.
• The impact of quantitative analysis models on other departments, beginning
assumptions, outdated solutions, fitting textbook models, understanding the
models, acquiring good input data, hard-to-understand mathematics,
obtaining only one answer, testing the solution, and analyzing the results.
• In using the quantitative analysis approach, implementation is not the final
step.
• There can be a lack of commitment to the approach and resistance to change.
• Therefore, ongoing research is vital to overcome the situations.
KEY EQUATIONS

• Profits = sX – f – vX

• Break even point (BEP) = f / (s – v)

where
s = selling price per unit
f = fixed cost
v = variable cost per unit
X = number of units sold
Why a Manager Needs to
Know about Statistics

• To know how to properly present information

• To know how to draw conclusions about populations based on
sample information
• To know how to obtain reliable forecasts
 STATISTICS

Definition Types of statistics

Descriptive Inferential
Aspect of statistics

Theoretical Applied
What is Statistics?

A scientific method of collecting,

organizing, analyzing, presenting,
and interpreting data for the purpose of
decision making.
Aspects:

1. Theoretical: involve development, derivation & proof of

theorems, laws, formulas & rules.

2. Applied: involve the application of those theorems, laws,

formulas & rules to solve real-world problems.
Application Areas of Statistics

Accounting Management
 Auditing  Describe employees
 Costing  Quality improvement

Finance Marketing
 Financial trends  Consumer preferences
 Forecasting  Marketing mix effects
Type of statistics:

1. Descriptive:
A study dealing with a set of procedures of collecting,
summarizing and presenting data in a convenient and informative
way. It uses graphical techniques such as charts, graphs and
tables to present data, and numerical techniques such as
averages and percentages to summarize the data.

2. Inferential:
A study that concern with making a decision or arriving at a
conclusion about the population of interest based on the
properties obtain from a sample.
Type of Statistics
• Descriptive statistics
Collecting and describing data
• Inferential statistics
Drawing conclusions and making decisions concerning a
population based only on sample data
Descriptive Statistics
• Collect data
e.g. Survey
• Present data
e.g. Tables and graphs
• Characterize data
e.g. Sample mean = X i

n
Examples for Descriptive Statistics
Example 1:
• Every year, on average the death toll on the highway increases by 5%
during the festive seasons.

Example 2:
• According to the Consumer Report, Samsung washing machine
owners reported 9 problems per 100 machines in 2004.
 Inferential Statistics
• Estimation
e.g.: Estimate the population mean
weight using the sample mean weight
• Hypothesis testing
e.g.: Test the claim that the population
mean weight is 50 kg
Drawing conclusions and making decisions
concerning a population based on sample results.
Basic terms
Population (P) Collection of all element of interest

Specific subject of object about which the

Element (E)
information is collected

Sample (S) Selection of few elements from the population

Census An attempt to measure every item in the

population of interest

Sample A study on some selected portion of the

survey population
Reasons for Drawing a Sample
• Less time consuming than a census
• Less costly to administer than a census
• Less cumbersome and more practical to
administer than a census of the targeted
population
POPULATION VERSUS SAMPLE
E

S
 Basic terms

Parameter Characteristic of a population

Statistic Characteristic of a sample

A characteristic of the population that we

Variable want to study.

Data The characteristic value of an element

 Qualitative
•Data in non-numeric form
•eg: gender, religion and
race

Discrete
•Data that can be measured precisely. One
Data way of obtaining discrete data is by counting
such as number of flower, number of pen
and number of students

Quantitative
•Data in numerical form Continuous
•eg: age, weight and
height •Data that can only be approximated
to some degree of accuracy using
measuring devices such as height,
temperature and time
 Why We Need Data
• To provide input to survey
• To provide input to study
• To measure performance of service or production process
• To evaluate conformance to standards
• To assist in formulating alternative courses of action
• To satisfy curiosity
 Scale of Measurement
• Nominal
Are categorical data. These data are not capable of manipulated arithmetically.
• Ordinal
Can be arranged in rank order and inequality signs can be used.
• Interval
If the difference between data values are meaningful but cannot be manipulated
with multiplication and division.
• Ratio
Difference between to values and ratio of two values are meaningful for this
measurement.
Scales of measurement
Ratio: ordered, constant
scale, with natural zero
eg: body weight and income
Interval: ordered, constant
scale, no natural zero
eg: temperature The strength
decrease
Ordinal: variables whose
values indicate only order or
ranking are measured
eg: education level, rate of
services and perception level

Nominal : used only for

identification or categories
eg: gender
Sources of data
Primary

 First hand data or raw data.

 The interviewer himself will carry out the research and obtained the data directly from his respondents.

Advantages:
 Primary data are more accurate, reliable and up-to-date.
 If the data needed by decision makers are not available from other sources (secondary data) then primary
data has to be gathered.
 Primary sources usually explain how the facts and figures were gathered and what limitations exist to their
use.
 Primary data usually satisfies the objectives of a research.

Disadvantages:
Data gathered from primary sources are very costly, time consuming and requires a lot of man power
…cont
Secondary

 Primary data that has been collected, processed and published for the use of other people.
 Can be obtained from newspapers, economic reports, annual report of companies, statistical abstract and
other sources.

Advantages:
 Require less time, cost, and effort.
 Always available.

Disadvantages:
 Secondary data may contain errors due to error in printing and also due to transcription from the primary
sources.
 Individuals who use secondary data do not know the conditions under which the data were collected and
summarized. Therefore, the intended user must first determine whether the data is relevant or not.
 Secondary data may not be able to fulfill the objectives of a research.
Method of collecting data
Methods of Collecting
Data

Others
Direct Telephone
Interview Direct
Interview
Mailed Observation
Questionnaire
Some hint Designing questionnaire
• What is questionnaire?

- A questionnaire is a written instrument that contains a series

of questions or items that attempt to collect information on
a particular subject.
 Some steps when designing a
questionnaire/survey
 Specify the information to be collected.
 Questionnaire should be as short as possible
 Questions must be kept simple and phrased to imply the same meaning to all
respondents.
 Questions should be organized systematically and should have some kind of natural
logical sequence that the respondent can appreciate.
 Avoid questions that need calculation especially for interview.
 Avoid questions on sensitive issue or may be private to the respondents.
 Begin with simple & less controversial questions first, put the more controversial
questions near the end.
 Sampling

Definition Advantages Sampling

Terminologies
Techniques

Probability Non-probability
sampling sampling
SAMPLING

SAMPLING ADVANTAGES
• Process of • Reduce cost and time
selecting a sample • Less work
from a population • Interviewer can give better
attention to the respondents
• Reduce non-sampling error
TERMINOLOGIES

SAMPLING UNIT SAMPLE SURVEY

SAMPLING FRAME
• The elements listed DESIGN
• List of individuals or
items from which the in the sampling frame • The procedure for
sample can be selecting the
obtained sample
TERMINOLOGIES

NON-SAMPLING ERROR
SAMPLING ERROR
•Error that arise because a • Error that occur from the
sample cannot give complete survey:
information on a population. 1. Non-response
2. Faulty measuring device
3. Respondents giving false
information
4. Error in writing &
analyzing data
SAMPLING (CONT…)

PROBABILITY SAMPLING
NON-PROBABILITY
Any method of sampling that SAMPLING
utilizes some form of random
selection. Does not involve random
selection.
In order to have a random
selection method, you must set Used when sampling frames
up some process or procedure are difficult to obtain.
that assures that the different Is considerably convenience,
units in your population have fast and low cost than doing
equal probabilities of being probability sampling, but the
chosen. results are of limited value.
SAMPLING TECHNIQUES SIMPLE
RANDOM
Choosing the ‘best method’ to select the sample and SAMPLING
the sample must be representative of the population. SYSTEMATIC
SAMPLING

STRATIFIED
SAMPLING
NON- QUOTA CLUSTER
PROBABILITY SAMPLING SAMPLING
SAMPLING -
MULTISTAGE
JUDGEMENTAL SAMPLING
SAMPLING

CONVENIENT PROBABILITY
SAMPLING SAMPLING -
Simple Random Sampling

• A sample is selected in such a way that every item in a population has an equal chance to be selected.
• This method involves in the numbering of every individual in the population.
• SRS is used when the items are from a group of the same characteristic.
• SRS is not suitable if the population is divided into several heterogeneous groups because biasness may
occur.

How to select the sample?

• Small population (n < 300): - Using 'lottery method' where each item will be given a number on a piece of
paper and place in a box. Numbers will be selected one at a time.

• Large population (n  300): - using random number table.

Systematic Sampling
• a random sample in which the items are selected from the population at a ‘uniform interval’ of a listed order
providing that there is no regularity within the list.

• systematic sampling should have a complete sampling frame.

• method: - using equal interval method or constant skip method I = N / n where I = interval, N = population, n =
sample size.

• e.g. N = 300 and n = 30 , I = 300/30 = 10

• for every 10 item, only one item is selected.

• the first item will be selected at random between 1 to 10, e.g. no 5.

• the next item will be 5 + 10, 15 + 10….

• 5, 15, 25, 35…295 (until we reach the sample size of 30)

Stratified Sampling
•This method is used if the population is divided into suitable sub-
populations where between groups are heterogeneous and within groups
are homogenous.

•All the groups will be selected and item from each group will be selected
randomly using simple random sampling or systematic sampling.

•The same proportion of each group will be represented in correct

proportion using Proportional Stratified Sampling: - will increase the
accuracy of the sampling technique
Ni where ni = sample size needed for each group
ni  xn Ni = population size for each group
N N = population size
n = sample size
Cluster Sampling

• It is used if the population is divided into sub population where between groups are
homogenous and withigroup will be chosen

• e.g. consumer survey in large cities often employ Cluster Sampling

• n groups are heterogeneous

• The groups will be selected at random

• All the items in each group will be selected.

Multistage Sampling

• This method can cut down the survey area and reduce
the survey costs from very large population.

• e.g. an immunization survey of schoolchildren in a

particular state might entail 5 stages.
Quota Sampling

• Samples are selected on the basis of specific

guidelines about which items and / or how many
should be drawn.

• Quotas are set and interviewer is allowed to select

sample according to quota.

• It is not a method of random sampling and no

sampling frame is needed.
Continue Quota Sampling

Example:
An account officer is interested in knowing the types of people who invested at
the Kuala Lumpur Stock Exchange (KLSE) and the kinds of stock they invested in. He
selected respondents by interviewing twenty persons per day at a brokerage firm nearby
for ten days. The races Malay, Chinese, and others are represented by 45%, 50% and 5%
respectively. The interviews were done between 10.00 a.m. till 4.00 p.m.

This is a quota sampling because those selected as the samples are only those
who are at the brokerage firm between 10.00 a.m. till 4.00 p.m. Those who are not in the
brokerage firm between those hours will not be selected as samples.
Judgemental Sampling
• The researcher’s judgement is used to decide which population items will
be included in the sample.

Example:
Angkasa Board of directors has decided to sample opinions of other companies around the
country regarding the economic forecast for next year. The Company's President chooses those persons
to be interviewed by telephone.

This is a judgemental sample because the specific individuals to be called aren’t selected randomly;
rather, the President’s judgement is used in the selection process. If the company president is
experienced and personally selects a representative group to a sample – a good sample should result. On
the other hand, if the President talks only to friends who aren’t in a good position to assess economic
conditions, a misleading picture of the company’s operating environment could result.
Convenient Sampling
The most convenient items are selected for the sample.

Example:
A market research class has decided to sample student opinion on
several subjects for a class projects. The team leader assigns each student a
sample of 10 people and requests that interviews be completed in one week.

This could be called a convenience sample because each student will

presumably sample the 10 most convenience people in the absence of any
instructions.
1. Define each of the following terms:
i. Census ii. Sampling iii. Pilot Survey

2. Discuss the differences between:

i. Inferential Statistics and Descriptive Statistics
ii. Statistic and Parameter
iii. Qualitative data and Quantitative data
iv. Discrete and Continuous data
v. Primary data and Secondary data
vi. Random sample and non random sample
vii. Census and sample survey
viii. Sampling error and non-sampling error.
3. Give three steps that should be considered when designing a questionnaire.

4. Primary data are usually preferred to secondary data because primary data is more
meaningful and reliable that secondary data, but why do we sometimes use secondary data?

5. State the sampling techniques used in each of the following cases:

i. An auditor auditing the financial standings of a department by selecting every fifth file in
the cabinet.
ii. Students of a particular school is grouped according to their race. Then a random sample
from each race is selected.
iii. An interview selects anybody that passes his house to gather their view about privatization
of institutes of higher learning.
iv. A sociologist is interested in the mean income of households in an area of flat houses.
There are 12 blocks of flats in the area in which he chooses 3 blocks at random. All the household s
in the selected blocks are surveyed.
 Question 10 (case study 1)
a) All repair workshops for vehicles in Bandar J.
b) List of repair workshops for vehicles in Bandar J.
c) (i) income, expenses
(ii) type of services: air-cond, tyre, accessory, other
d) Stratified sampling: the sample will be more representative for
the whole population.
e) B : (35/190)*80 = 15, M : (50/190)*80 = 21, C : (85/190)*80 = 36,
H : (20/190)*80 = 8 , then use SRS to select the sample from
each type of workshop.
f) Direct interview - data are more accurate
- to obtain higher percentage rate
7. A research was conducted to study the effectiveness of ‘A computer for every home’. The study focused on
dwellers/ household of housing estates in town. Five housing estates were randomly selected from a total of
60 housing estates. Every household from the selected housing estates was studied on the effectiveness of the
campaign.

a. Was the data collected by the researchers primary or secondary data and state the reasons.
b. State the population for the above study.
c. State the sampling frame of the study.
d. What is the sampling technique used to select the household for the above research?
e. Explain briefly how 5 housing estates can be selected from 60 housing if the simple random sampling was
employed.
f. Explain briefly how 5 housing estates can be selected from 60 housing using systematic method.
g. Suggest the most appropriate data collection method for the above study and state 2 reasons for
 Question 7 (case study 2)
a) Primary data since the researchers collect the data directly from
the respondents.
b) All 60 housing estates in town.
c) List of housing estates in town.
d) Cluster sampling since only 5 housing estates were randomly
selected and every household from the selected housing estates
was studied.
e) Small P (n<300)-lottery method. Assign no. 1-60 to the housing
estates, write down each of the no. in a piece of paper (60 piece
of papers), put them in a box. Then draw 5 times.
f) EFFECTIVENESS OF COMPUTER, BRANDS OF COMPUTER ETC
GLOSSARY
Break-Even Point. The quantity of sales which results in zero profit.

Input Data. Data that are used in a model in arriving at the final
solution.

Mathematics Model. A model that uses mathematical equations and

statements to represent the relationships within the model
Model. A representation of reality or a real-life situation.

Problem. A statement, which should come from a manager, that

indicates a problem to be solved or an objective or goal to be
reached.

Variable. A measurable quantity that is subject to change.

 References
Lau, Phang, and Zainuddin (2009). Statistics, Oxford Fajar

Swift, Louise (2006). Business Basics and Quantitative Methods, London BPP Publishing Limited

Morris, Thanassoulis (2006) Essential Mathematics – A Refresher Course for Business and Social Studies,
London: Macmillan

Cameron, Sheila, (2005). The Business Students Handbook, Learning Skills for Study and Employment,
Prentice Hall, Harlow.

Lashley, C., and Best, W., (2005). 12 steps to study success, Continuum, London.

Morris, C., (2005), Quantitative Approaches in Business Studies, Prentice Hall, London.