1. Chapter 1 Introduction to Quantitative Analysis
Prepared by Lee Revere and John Large
To accompany Quantitative Analysis for Management, 9e
by Render/Stair/Hanna
1-1

2. Learning Objectives Students will be able to:
Describe the quantitative analysis (QA) 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 a break-even analysis.
To accompany Quantitative Analysis for Management, 9e
by Render/Stair/Hanna
1-2

3. 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, 9e
by Render/Stair/Hanna
1-3

4. 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, 9e
by Render/Stair/Hanna
1-4

5. Examples of Quantitative Analyses
Taco Bell saved over $150 million using forecasting and scheduling QA models.
NBC increased revenues by over $200 million by using QA to develop better sales plans.
Continental Airlines saved over $40 million using QA models to quickly recover from weather and other disruptions.
To accompany Quantitative Analysis for Management, 9e
by Render/Stair/Hanna
1-5

6. Overview of Quantitative Analysis
A scientific approach to managerial decision
making whereby raw data are processed and
manipulated resulting in meaningful information.
Quantitative
Analysis
Meaningful
Information
Raw Data
Qualitative Factors:
Information that may be difficult to quantify but can affect the decision-making process such as the weather, state, and federal legislation.
To accompany Quantitative Analysis for Management, 9e
by Render/Stair/Hanna
1-6

7. 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
To accompany Quantitative Analysis for Management, 9e
by Render/Stair/Hanna
1-7

8. Define the Problem Problem Definition:
A clear and concise statement that gives
direction and meaning to the subsequent QA steps
and requires specific, measurable objectives.
THIS MAY BE THE MOST DIFFICULT STEP!
…because true problem causes must be identified and the relationship of the problem to other organizational processes must be considered.
To accompany Quantitative Analysis for Management, 9e
by Render/Stair/Hanna
1-8

9. Develop the Model Quantitative Analysis Model:
A realistic, solvable, and understandable
mathematical statement showing the relationship
between variables.
revenues
y = mx + b
sales
Models contain both controllable (decision variables) and uncontrollable variables and parameters. Typically, parameters are known quantities (salary of sales force) while variables are unknown (sales quantity).
To accompany Quantitative Analysis for Management, 9e
by Render/Stair/Hanna
1-9

10. Acquire Data Model Data: =
Accurate input data that may come from a variety
of sources such as company reports, company
documents, interviews, on-site direct measurement,
or statistical sampling.
Garbage In
Garbage Out =
To accompany Quantitative Analysis for Management, 9e
by Render/Stair/Hanna
1-10

11. Develop a Solution Model Solution:
The best model solution is found by manipulating the model variables until a practical and implemental solution is obtained.
Manipulation can be done by solving the equation(s), trying various approaches (trial and error), trying all possible variables (complete enumeration), and/or implementing an algorithm (repeating a series of steps).
To accompany Quantitative Analysis for Management, 9e
by Render/Stair/Hanna
1-11

12. Test the Solution Model Testing:
The collection of data from a different source to validate the accuracy and completeness and sensibility of both the model and model input data ~ consistency of results is key!
To accompany Quantitative Analysis for Management, 9e
by Render/Stair/Hanna
1-12

13. Analyze the Results Results Analysis:
Understanding actions implied by the
solution and their implications, as well
as conducting a sensitivity analysis (a
change to input values or the model) to
evaluate the impact of a change in model
parameters.
Sensitivity analyses allow the “what-
ifs” to be answered.
To accompany Quantitative Analysis for Management, 9e
by Render/Stair/Hanna
1-13

14. Implement the Results Results Implementation:
The incorporation of the solution
into the company and the monitoring of
the results.
To accompany Quantitative Analysis for Management, 9e
by Render/Stair/Hanna
1-14

15. Modeling in the Real World
Real World Models can be:
Complex,
expensive, and
difficult to sell.
BUT…
Real world models are used in the real
world by real organizations to solve
real problems!
To accompany Quantitative Analysis for Management, 9e
by Render/Stair/Hanna
1-15

16. Possible Pitfalls in Using Models
Prior to developing and implementing models,
managers should be aware of the potential pitfalls.
Define the Problem
Conflicting viewpoints
Departmental impacts
Assumptions
Develop a Model
Fitting the model
Understanding the model
Acquire Input Data
Availability of data
Validity of data
To accompany Quantitative Analysis for Management, 9e
by Render/Stair/Hanna
1-16

17. Possible Pitfalls (Continued)
Develop a Solution
Complex mathematics
Solutions become quickly outdated
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
To accompany Quantitative Analysis for Management, 9e
by Render/Stair/Hanna
1-17

18. Bagels R Us QA Model Example
Assume you are the new owner of Bagels R Us and
you want to develop a mathematical model for your
daily profits and breakeven point. Your fixed overhead is $100 per day and your variable costs are 0.50 per bagel (these are GREAT bagels). You charge $1 per bagel.
Profits = Revenue - Expenses
(Price per Unit)  (Number Sold)
Fixed Cost - (Variable Cost/Unit)  (Number Sold)
Profits = $1Q - $100 - $.5Q
To accompany Quantitative Analysis for Management, 9e
by Render/Stair/Hanna
1-18

19. Bagels R Us QA Model Breakeven Example
Breakeven point occurs when
Revenue = Expenses
So,
$1Q = $100 + $.5Q
Solve for Q
$1Q - .5Q = => Q = 200
Where, Q = quantity of bagels sold
F = fixed cost per day of operation
V = variable cost/bagel
Breakeven Quantity = F/(P-V)
To accompany Quantitative Analysis for Management, 9e
by Render/Stair/Hanna
1-19

20. Conclusions Models can help managers:
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.
To accompany Quantitative Analysis for Management, 9e
by Render/Stair/Hanna
1-20

21. Conclusions (continued)
Models:
Are less expensive and disruptive than experimenting with real world systems, but may be expensive to develop and test.
Allow “What if” questions to be asked.
Are built for management problems and encourage input, but may be misunderstood due to the mathematical complexity.
Enforce consistency in approach.
Require specific constraints and goals, but tend to downplay qualitative information.
Help communicate problem solutions to others, but may oversimplify assumptions and variables.
To accompany Quantitative Analysis for Management, 9e
by Render/Stair/Hanna
1-21

22. 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 problems in a timely fashion.
To accompany Quantitative Analysis for Management, 9e
by Render/Stair/Hanna
1-22

23. 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 variables of the real world.
To accompany Quantitative Analysis for Management, 9e
by Render/Stair/Hanna
1-23

24. QM for Windows
To accompany Quantitative Analysis for Management, 9e
by Render/Stair/Hanna
1-24

25. QM for Windows
To accompany Quantitative Analysis for Management, 9e
by Render/Stair/Hanna
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26. Excel QM 1-26 To accompany Quantitative Analysis for Management, 9e
by Render/Stair/Hanna
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27. Excel QM’s Main Menu of Models
To accompany Quantitative Analysis for Management, 9e
by Render/Stair/Hanna
1-27

28. Excel QM’s Main Menu of Models continued
The highlighted area shows forecasting models
To accompany Quantitative Analysis for Management, 9e
by Render/Stair/Hanna
1-28