1 - <#> 1

SQQP 5023

DECISION ANALYSISalso known as

OPERATIONS RESEARCH

MANAGEMENT SCIENCE

QUANTITATIVE ANALYSIS

SQQP5023 - INTRODUCTION 2

• Why do I need to take this subject ?????

• What use it will be for me ?????

QQP5023 - INTRODUCTION 3

WHY STUDY THIS COURSE

• The modeling techniques discussed in this course are used extensively in the business world

• Techniques such as forecasting, LP , etc. are very useful.

• Even if these techniques are not used directly on the job, the logical approach to problem solving, discussed in this course, is valuable for all types of jobs in all types of organizations.

QQP5023 - INTRODUCTION 4

Introduction to Introduction to Quantitative AnalysisQuantitative Analysis

QQP5023 - INTRODUCTION 5

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

QQP5023 - INTRODUCTION 6

19901980

1970

1960195019401930192019101900

Expert Systems and Artificial IntelligenceDecision SupportInformation SystemGoal ProgrammingDecision TheoryNetwork ModelsDynamic ProgrammingGame TheoryTransportationAssignment TechniqueInventory ControlQueuing TheoryMarkov Analysis

The Evolution of QA

QQP5023 - INTRODUCTION 7

Problem

Quantitative AnalysisLogicHistoric DataMarketing ResearchScientific AnalysisModeling

Qualitative AnalysisWeatherState and federal legislationNew technological breakthroughsElection outcome

Decision

?

The Decision-Making Process

QQP5023 - INTRODUCTION 8

• Scientific Approach to Managerial Decision Making

• Consider both Quantitative and Qualitative Factors

Raw DataQuantitative

AnalysisMeaningfulInformation

Overview of Quantitative Analysis

QQP5023 - INTRODUCTION 9

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• Implement the results

QQP5023 - INTRODUCTION 10

The QA ApproachDefine the Problem

Develop a Model

Acquire Input Data

Develop a Solution

Test the Solution

Analyze the Results

Implement the Results

QQP5023 - INTRODUCTION 11

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

QQP5023 - INTRODUCTION 12

Developing the Model

• Model is a representation of a situation• Models may be: physical, logical, scale, schematic

or mathematical• Models contain variablesvariables (controllable or

uncontrollable) and parametersparameters• Controllable variablesControllable variables are called decisiondecision

variablesvariables• Models should be solvable, realistic, easy to

understand and easy to modify

QQP5023 - INTRODUCTION 13

Acquire Data

• Accurate data is essential (GIGO)

• Data may come from: company reports,

company documents, interviews, on-site

direct measurement, and statistical sampling

QQP5023 - INTRODUCTION 14

Develop a Solution

• Manipulate the model to arrive at the “best” solution

• Solution must be practical and implementable• Various methods:

– solution of equation(s)

– trial and error

– complete enumeration

– implementation of algorithm

QQP5023 - INTRODUCTION 15

Test the Solution

• Must test both input datadata and modelmodel

• Determine accuracy and completeness of

input data: collect data from a different

source and compare

• Check results for consistency - above all, do

they make sense?

QQP5023 - INTRODUCTION 16

Analyze the Results

• Understand what action is implied by the solution• Determine the implications of this action• Conduct sensitivity analysis - change input value

or model parameter and see what happens• Use sensitivity analysis to help gain understanding

of problem (as well as for answers)

QQP5023 - INTRODUCTION 17

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

QQP5023 - INTRODUCTION 18

Modeling in the Real World

• Models are complex

• Models can be expensive

• Models can be difficult to sell

• Models are used in the realreal worldworld by realreal

organizationsorganizations to solve realreal problemsproblems

QQP5023 - INTRODUCTION 19

Developing a QA Model

Example:

Western Clothing Company produce denim jeans. Each pair of denim jeans cost RM8 to produce and sells for RM23 per pair.

Model:

Profit = 23X – 8X; X = number of jeans sold

If the company sells 300 pairs of jeans,

Profit = 23 (300) – 8 (300) = RM4500

QQP5023 - INTRODUCTION 20

Example:

Consider previous example. Let say the company also incurs fixed cost of RM10,000 per month.

Model:

Profit = 23X – 8X – 10,000; X = number of jeans sold.

At Break-even point: Total Revenue = Total Cost (i.e. Profit = 0)

0 = 23X – 8X – 10,000

X = 666.7 pairs of jeans.

Developing A QA Model (Finding Break-Even Point)

QQP5023 - INTRODUCTION 21

Developing A QA Model (Finding Break-Even Point)

QQP5023 - INTRODUCTION 22

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

actions

QQP5023 - INTRODUCTION 23

Models

• are less expensive and disruptive than

experimenting with real world systems

• allow “What ifWhat if” questions to be asked

• are built for management problems and encourage

management input

• enforce consistency in approach

• require specific constraints and goals

QQP5023 - INTRODUCTION 24

Models Can• 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 problems in a timely fashion

QQP5023 - INTRODUCTION 25

The Downside: 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 variables of the real world

QQP5023 - INTRODUCTION 26

Using Models: Some Suggestions(from Dr. J.N.D. Gupta)

• 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

QQP5023 - INTRODUCTION 27

Mathematical Models Characterized by Risk

• Deterministic modelsDeterministic models - we know all values used in the model with certainty

• Probabilistic modelsProbabilistic models - we know the probability that parameters in the model will take on a specific value

QQP5023 - INTRODUCTION 28

QM For Windows

QQP5023 - INTRODUCTION 29

Main Menu of QM Models

QQP5023 - INTRODUCTION 30

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

QQP5023 - INTRODUCTION 31

Possible Problems, Continued

• Test the Solution– Identifying

appropriate test procedures

• Analyze the Results– Holding all other

conditions constant– Identifying cause and

effect

• Implement the Solution– Selling the solution to

others