INTRODUCTION

Management science, an approach to decision making based on the scientific method, makes extensive
use of quantitative analysis. A variety of names exists for the body of knowledge involving quantitative
approaches to decision making; in addition to management science, two other widely known and
accepted names are operations research and decision science. Today, many use the terms management
science, operations research, and decision science interchangeably.

PROBLEM SOLVING AND DECISION MAKING

Problem solving can be defined as the process of identifying a difference between the
actual and the desired state of affairs and then taking action to resolve the difference.
For problems important enough to justify the time and effort of careful analysis, the problem
solving process involves the following seven steps:
1. Identify and define the problem.
2. Determine the set of alternative solutions.
3. Determine the criterion or criteria that will be used to evaluate the alternatives.
4. Evaluate the alternatives.
5. Choose an alternative.
6. Implement the selected alternative.
7. Evaluate the results to determine whether a satisfactory solution has been obtained.

Decision making is the term generally associated with the first five steps of the problem
solving process. Thus, the first step of decision-making is to identify and define the problem. Decision
making ends with the choosing of an alternative, which is the act of making
the decision.

Let us consider the following example of the decision-making process. For the moment assume that you
are currently unemployed and that you would like a position that will lead to a satisfying career. Suppose
that your job search has resulted in offers from companies in Rochester, New York; Dallas, Texas;
Greensboro, North Carolina; and Pittsburgh, Pennsylvania. Thus, the alternatives for your decision
problem can be stated as follows:

1. Accept the position in Rochester.

2. Accept the position in Dallas.
3. Accept the position in Greensboro.
4. Accept the position in Pittsburgh.
The next step of the problem-solving process involves determining the criteria that will be used to
evaluate the four alternatives. Obviously, the starting salary is a factor of some importance. If salary
were the only criterion of importance to you, the alternative selected as “best” would be the one with
the highest starting salary. Problems in which the objective is to find the best solution with respect to
one criterion are referred to as single-criterion decision problems. Suppose that you also conclude that
the potential for advancement and the location of the job are two other criteria of major importance.
Thus, the three criteria in your decision problem are starting salary, potential for advancement, and
location. Problems that involve more than one criterion are referred to as multicriteria decision
problems. The next step of the decision-making process is to evaluate each of the alternatives with
respect to each criterion. For example, evaluating each alternative relative to the starting salary criterion
is done simply by recording the starting salary for each job alternative. Evaluating each alternative with
respect to the potential for advancement and the location of the job is more difficult to do, however,
because these evaluations are based primarily on subjective factors that are often difficult to quantify.
Suppose for now that you decide to measure potential for advancement and job location by rating each
of these criteria as poor, fair, average, good, or excellent. The data that you compile are shown in Table
1.1.

You are now ready to make a choice from the available alternatives. What makes this choice phase so
difficult is that the criteria are probably not all equally important, and no one alternative is “best” with
regard to all criteria. Although we will present a method for dealing with situations like this one later in
the text, for now let us suppose that after a careful evaluation of the data in Table 1.1, you decide to
select alternative 3; alternative 3 is thus referred to as the decision.

QUANTITATIVE ANALYSIS AND DECISION MAKING

Figure 1.3 shows that the analysis phase of the decision-making process may take two basic forms:
qualitative and quantitative. Qualitative analysis is based primarily on the manager’s judgment and
experience; it includes the manager’s intuitive “feel” for the problem and is more an art than a science. If
the manager has had experience with similar problems or if the problem is relatively simple, heavy
emphasis may be placed upon a qualitative analysis. However, if the manager has had little experience
with similar problems, or if the problem is sufficiently complex, then a quantitative analysis of the
problem can be an especially important consideration in the manager’s final decision.

When using the quantitative approach, an analyst will concentrate on the quantitative facts or data
associated with the problem and develop mathematical expressions that describe the objectives,
constraints, and other relationships that exist in the problem. Then, by using one or more quantitative
methods, the analyst will make a recommendation based on the quantitative aspects of the problem.

Although skills in the qualitative approach are inherent in the manager and usually increase with
experience, the skills of the quantitative approach can be learned only by studying the assumptions and
methods of management science. A manager can increase decision-making effectiveness by learning
more about quantitative methodology and by better understanding its contribution to the decision-
making process. A manager who is knowledgeable in quantitative decision-making procedures is in a
much better position to compare and evaluate the qualitative and quantitative sources of
recommendations and ultimately to combine the two sources in order to make the best possible
decision.

The box in Figure 1.3 entitled “Quantitative Analysis” encompasses most of the subject matter of this
text. We will consider a managerial problem, introduce the appropriate quantitative methodology, and
then develop the recommended decision. In closing this section, let us briefly state some of the reasons
why a quantitative approach might be used in the decision-making process:

1. The problem is complex, and the manager cannot develop a good solution without the aid of
quantitative analysis.

2. The problem is especially important (e.g., a great deal of money is involved), and the manager desires
a thorough analysis before attempting to make a decision.

3. The problem is new, and the manager has no previous experience from which to draw.

4. The problem is repetitive, and the manager saves time and effort by relying on quantitative
procedures to make routine decision recommendations.

QUANTITATIVE ANALYSIS

From Figure 1.3, we see that quantitative analysis begins once the problem has been structured. It
usually takes imagination, teamwork, and considerable effort to transform a rather general problem
description into a well-defined problem that can be approached via quantitative analysis. The more the
analyst is involved in the process of structuring the problem, the more likely the ensuing quantitative
analysis will make an important contribution to the decision-making process.

To successfully apply quantitative analysis to decision making, the management scientist must work
closely with the manager or user of the results. When both the management scientist and the manager
agree that the problem has been adequately structured, work can begin on developing a model to
represent the problem mathematically. Solution procedures can then be employed to find the best
solution for the model. This best solution for the model then becomes a recommendation to the
decision maker. The process of developing and solving models is the essence of the quantitative analysis
process.