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Introduction To Quantitative Analysis

The document introduces quantitative analysis, which uses a scientific approach and mathematical modeling to help managers make informed decisions. It explains that quantitative analysis involves 7 steps: defining a problem, developing a model, acquiring data, finding a solution, testing the solution, analyzing results, and implementing the solution. The goal is to translate raw data into useful information that can help evaluate alternatives and optimize outcomes.

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Battle ALONE009
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207 views

Introduction To Quantitative Analysis

The document introduces quantitative analysis, which uses a scientific approach and mathematical modeling to help managers make informed decisions. It explains that quantitative analysis involves 7 steps: defining a problem, developing a model, acquiring data, finding a solution, testing the solution, analyzing results, and implementing the solution. The goal is to translate raw data into useful information that can help evaluate alternatives and optimize outcomes.

Uploaded by

Battle ALONE009
Copyright
© © All Rights Reserved
Available Formats
Download as PDF, TXT or read online on Scribd
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Chapter 1

Introduction to Quantitative Analysis

Quantitative Analysis:
Quantitative Analysis is the scientific approach to managerial decision making. This
field of studies has several different names as

 Quantitative Analysis
 Management Science
 Operation Research

This approach starts with data as row materials of a factory, these data are
processed into information that is valuable to people making decision. This
processing and manipulating of row data into meaningful information is the heart of
Quantitative Analysis.

Example 1: we might consider several different investment alternatives as

 Certificates of deposit at a bank


 Investment in the stock market
 An investment in real estate

We can use Quantitative Analysis to determine how much our investment will be
worth in future when deposited at bank at a given interest rate for a certain number
of years.

Example 2: Quantitative Analysis can also be used in computing financial ratios


from the balance sheet for several companies whose stock we are considering.
Quantitative Analysis Approach:
Quantitative Analysis Approach consists of seven steps as

1. Defining a problem
2. Developing a model
3. Acquiring input data
4. Developing a solution
5. Testing the solution
6. Analyzing the result and
7. Implementing the result.

1.Defining a problem
This statement will give direction and meaning to the following steps.

 The first step in the quantitative approach is to develop a clear, concise


statement of the problem.
 In many cases, defining the problem is the most important and the most
difficult step.
 It is essential to go beyond the symptoms of the problem and identify the true
causes.
 One problem may be related to other problem; solving one problem without
regard to other related problems can make the entire situation worse.

Thus, it is important to analyze how the solution to one problem affects other
problems or the situation in general.

2.Developing a model
Once we select the problem to be analyzed, the next step is to develop a model.
Simply stated, A model is the mathematical representation of a situation.

Of course, there are many other types of model as


 Architects use a physical model of a building
 Engineers develop scale model of chemical plants
 A schematic model is a picture, drawing, or chart of reality

A Mathematical Model is a set of mathematical relationship. In most cases, these


relationships are expressed in

 equation and inequalities


 In spreadsheet model that computes sums, average, or standard
deviation

Most of the models contain one or more variable and parameter

A variable is a measurable quantity that may vary. Example: How many inventory
items would be ordered?

Variable may be controllable or uncontrollable. A controllable variable is called


decision variable.

A parameter is a measurable quantity that is inherent in the problem. Example: the


cost of placing an order for more inventory item.

In most cases, variables are unknown quantities, while parameter that is already
known.

3.Acquiring input data:


Once we have developed a model, we must obtain the data that are used in model.
 Obtaining accurate data for the is essential because improper data will result
in misleading result.
 There are a number of sources that can be used in collecting data.
Example 1: Company reports and documents can be used to obtain the
necessary data
Example 2: Another source is interviews with employees or other persons
related to the firm.
These individuals can sometimes provide excellent information, and their
experience and judgement can be invaluable. For instance, a production
supervisor might be able to tell a great degree of accuracy the amount of time
it takes to produce a product.

4.Developing a solution:
Developing a solution involves manipulating the model to arrive at the best/optimal
solution to the problem.

 This requires that an equation be solved for the best decision


 We can use trial and error method, trying various approaches and picking the
one that results in the best decision.
 The complete enumeration method can be used as to try all possible values for
the variables in the model to arrive at best decision.

The input data and model determine the accuracy of the solution.

5.Testing the solution:


Testing the data and model is done before the result are analyzed
 Testing the input data and the model includes determining the accuracy and
completeness of the data used by model
 Inaccurate data will lead to an inaccurate solution
 One method of testing the data is to collect additional data from different
sources.
 If the original data were collected using interviews, perhaps some additional
data can be collected by direct measurement or sampling.
 This additional data can be compared with the original data and statistical
tests can be employed to determine whether there is difference in original data
and additional data
 If there are significant differences, more effort is required to obtain accurate
input data.

6. Analyzing the result and sensitivity analysis:


 Analyzing the result starts with determining the implication of the solution
 The sensitivity of the solution to changes in the model and input data is very
important part of analyzing the result
 Sensitivity analysis determines how much the solution will change if there are
changes in the model and input data
 When the solution is sensitive to changes in the input data and model
specification, additional testing should be performed to make sure that the
model and input data is accurate and valid.

If the model and input data are wrong, the solution could be wrong, resulting
financial losses.

7. Implementing the result:


The final step is to implement the result.
 This is the process of incorporating the solution in to the company’s
operations.
 This can be the much difficult because experience has shown that a large
number of quantitative analysis teams failed in their effort for failing to
implement a good, workable solution properly.
Assignment (Mid) Topic 1

Develop an example by using Quantitative Analysis Approach

(Hint: follow the example of [page 25] and try to develop a Quantitative analysis
model according to your own practical experience with precise explanation)

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