Chapter 1

Chapter 1
Introduction to
Quantitative Analysis
To accompany
Quantitative Analysis for Management, Eleventh Edition, Global Edition
by Render, Stair, and Hanna
Power Point slides created by Brian Peterson
What is Quantitative Analysis?
Quantitative analysis is a scientific approach

to managerial decision – where raw data are
processed and manipulated to produce
meaningful information.
Quantitative Meaningful
Raw Data Analysis Information
Copyright © 2012 Pearson Education 1-2

What is Quantitative Analysis?
◼ Quantitative factors are data that can be

accurately calculated.
◼ Qualitative factors are more difficult to

quantify but affect the decision process.

The Quantitative Analysis Approach
Defining the Problem
Developing a Model
Acquiring Input Data
Developing a Solution
Testing the Solution
Analyzing the Results
Implementing the Results

Figure 1.1
Defining the Problem
Develop a clear and concise statement -
direction and meaning to subsequent steps.
◼ This may be the most important and difficult
step.
◼ beyond symptoms and identify true causes.
◼ concentrate on only a few of the problems –

selecting the right problems is very important
◼ Specific and measurable objectives may have

to be developed.
Developing a Model
Quantitative analysis models are
realistic,
solvable, and
understandable mathematical
representations of a situation.

Developing a Model
Models generally contain variables

(controllable and uncontrollable) and
parameters.
◼ Controllable variables are the decision
variables and are generally unknown.
◼ How many items should be ordered for inventory?
◼ Parameters are known quantities that are a

part of the model.
◼ What is the holding cost of the inventory?

Acquiring Input Data
Input data must be accurate – GIGO rule:
Garbage
In
Process
Garbage
Out

Developing a Solution
The best (optimal) solution to a problem is

found by manipulating the model variables
until a solution is found that is practical
and can be implemented.
Common techniques are

◼ Solving equations.
◼ Trial and error – trying various approaches
and picking the best result.
◼ Complete enumeration – trying all possible
values.
◼ Using an algorithm – a series of repeating
steps to reach a solution.
Testing the Solution
Both input data and the model should be

tested for accuracy before analysis and
implementation.
◼ New data can be collected to test the model.
◼ Results should be logical, consistent, and

represent the real situation.

Analyzing the Results
Determine the implications of the solution:
◼ Implementing results often requires change in
an organization.
◼ The impact of actions or changes needs to be
studied and understood before
implementation.
Sensitivity analysis determines how much

the results will change if the model or
input data changes.
◼ Sensitive models should be very thoroughly
tested.
Implementing the Results
Implementation incorporates the solution
into the company.
◼ Implementation can be very difficult.
◼ People may be resistant to changes.
◼ Many quantitative analysis efforts have failed
because a good, workable solution was not
properly implemented.
Changes occur over time, so even

successful implementations must be
monitored to determine if modifications are
necessary.
Modeling in the Real World
Quantitative analysis models are used

extensively by real organizations to solve
real problems.
◼ In the real world, quantitative analysis
models can be complex, expensive, and
difficult to sell.
◼ Following the steps in the process is an

important component of success.

How To Develop a Quantitative
Analysis Model
A mathematical model of profit:
Profit = Revenue – Expenses

Advantages of Mathematical Modeling
Models can
1. accurately represent reality.
2. help a decision maker formulate problems.
3. give us insight and information.
4. save time and money in decision making and
problem solving.
5. communicate problems and solutions to others.
1. A model may be the only way to solve large

or complex problems in a timely fashion.

Models Categorized by Risk
◼ Mathematical models that do not involve

risk - deterministic models.
◼ All of the values used in the model are
known with complete certainty.
◼ Mathematical models that involve risk,

chance, or uncertainty - probabilistic
models.
◼ Values used in the model are estimates
based on probabilities.

Possible Problems in the
Quantitative Analysis Approach
Defining the problem
◼ Problems may not be easily identified.
◼ There may be conflicting viewpoints or impact
on other departments.
◼ Beginning assumptions may lead to a
particular conclusion.
◼ The solution may be outdated.
Developing a model
◼ There is a trade-off between complexity and
ease of understanding.

Possible Problems in the
Quantitative Analysis Approach
Acquiring accurate input data
◼ The validity of the data may be suspect.
Developing an appropriate solution
◼ The mathematics may be hard to understand.
◼ Having only one answer may be limiting.
Testing the solution for validity
Analyzing the results in terms of the whole
organization

Implementation –
Not Just the Final Step
There may be an institutional lack of
commitment and resistance to change.
◼ Management may fear the use of formal
analysis processes will reduce their
decision-making power.
◼ Action-oriented managers may want
“quick and dirty” techniques.
◼ Management support and user
involvement are important.

Implementation –
Not Just the Final Step
There may be a lack of commitment
by quantitative analysts.
◼ Analysts should be involved with the
problem and care about the solution.
◼ Analysts should work with users and
take their feelings into account.

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Chapter 1

Quantitative analysis is a scientific approach

Copyright © 2012 Pearson Education 1-2

◼ Quantitative factors are data that can be

◼ Qualitative factors are more difficult to

Copyright © 2012 Pearson Education 1-3

Defining the Problem

Acquiring Input Data

Testing the Solution

Analyzing the Results

Implementing the Results

◼ beyond symptoms and identify true causes.

◼ concentrate on only a few of the problems –

◼ Specific and measurable objectives may have

Copyright © 2012 Pearson Education 1-6

Models generally contain variables

◼ Parameters are known quantities that are a

Copyright © 2012 Pearson Education 1-7

Input data must be accurate – GIGO rule:

Copyright © 2012 Pearson Education 1-8

The best (optimal) solution to a problem is

Common techniques are

Both input data and the model should be

◼ New data can be collected to test the model.

◼ Results should be logical, consistent, and

Copyright © 2012 Pearson Education 1-10

Sensitivity analysis determines how much

Changes occur over time, so even

Quantitative analysis models are used

◼ Following the steps in the process is an

Copyright © 2012 Pearson Education 1-13

A mathematical model of profit:

Profit = Revenue – Expenses

Copyright © 2012 Pearson Education 1-14

1. A model may be the only way to solve large

Copyright © 2012 Pearson Education 1-15

◼ Mathematical models that do not involve

◼ Mathematical models that involve risk,

Copyright © 2012 Pearson Education 1-16

Copyright © 2012 Pearson Education 1-17

Copyright © 2012 Pearson Education 1-18

Copyright © 2012 Pearson Education 1-19

Copyright © 2012 Pearson Education 1-20

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