Chapter 1

Introduction to
Quantitative Analysis

To accompany
Quantitative Analysis for Management, Eleventh Edition,
by Render, Stair, and Hanna
Power Point slides created by Brian Peterson
 Learning Objectives
After completing this chapter, students will be able to:

1. Describe the quantitative analysis approach

2. Understand the application of quantitative
analysis in a real situation
3. Describe the use of modeling in quantitative
analysis
4. Use computers and spreadsheet models to
perform quantitative analysis
5. Discuss possible problems in using
quantitative analysis
6. Perform a break-even analysis

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 Chapter Outline
1.1 Introduction
1.2 What Is Quantitative Analysis?
1.3 The Quantitative Analysis Approach
1.4 How to Develop a Quantitative Analysis
Model
1.5 The Role of Computers and Spreadsheet
Models in the Quantitative Analysis
Approach
1.6 Possible Problems in the Quantitative
Analysis Approach
1.7 Implementation — Not Just the Final Step

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 Introduction

 Mathematical tools have been used for

thousands of years.
 Quantitative analysis can be applied to
a wide variety of problems.
 It’s not enough to just know the
mathematics of a technique.
 One must understand the specific
applicability of the technique, its
limitations, and its assumptions.

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 Examples of Quantitative Analyses

 In the mid 1990s, Taco Bell saved over $150

million using forecasting and scheduling
quantitative analysis models.
 NBC television increased revenues by over
$200 million between 1996 and 2000 by using
quantitative analysis to develop better sales
plans.
 Continental Airlines saved over $40 million in
2001 using quantitative analysis models to
quickly recover from weather delays and other
disruptions.

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 What is Quantitative Analysis?

Quantitative analysis is a scientific approach

to managerial decision making in which raw
data are processed and manipulated to
produce meaningful information.

Quantitative Meaningful
Raw Data Analysis Information

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 What is Quantitative Analysis?

 Quantitative factors are data that can be

accurately calculated. Examples include:
 Different investment alternatives
 Interest rates
 Inventory levels
 Demand
 Labor cost

 Qualitative factors are more difficult to

quantify but affect the decision process.
Examples include:
 The weather
 State and federal legislation
 Technological breakthroughs.
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 The Quantitative Analysis Approach

Defining the Problem

Developing a Model

Acquiring Input Data

Developing a Solution

Testing the Solution

Analyzing the Results

Figure 1.1 Implementing the Results

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 Defining the Problem
Develop a clear and concise statement that
gives direction and meaning to subsequent
steps.
 This may be the most important and difficult
step.
 It is essential to go beyond symptoms and
identify true causes.
 It may be necessary to concentrate on only a
few of the problems – selecting the right
problems is very important
 Specific and measurable objectives may have
to be developed.

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 Developing a Model
Quantitative analysis models are realistic,
solvable, and understandable mathematical
representations of a situation.$ Sales

$ Advertising

There are different types of models:

Scale Schematic
models models
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 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?
 Uncontrollable variables are unknown
variables that I cannot control.
 Parameters are known quantities that are a
part of the model.
 What is the holding cost of the inventory?

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 Acquiring Input Data

Input data must be accurate – GIGO rule:

Garbage
In
Process
Garbage
Out

Data may come from a variety of sources such as

company reports, company documents, interviews,
on-site direct measurement, or statistical sampling.
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 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.
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 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.

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 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.
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 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.
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 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.

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