Download The Quantitative Analysis Approach

Presentation Graphics for
Quantitative Analysis for
Management, 8th Edition
Render/Stair/Hanna
Prepared by John
Swearingen
To accompany Quantitative Analysis
for Management, 8e
by Render/Stair/Hanna
1-1
© 2003 by Prentice Hall, Inc.
Upper Saddle River, NJ 07458
Chapter 1
Introduction to
Quantitative
Analysis
To accompany Quantitative Analysis
for Management, 8e
by Render/Stair/Hanna
1-2
© 2003 by Prentice Hall, Inc.
Upper Saddle River, NJ 07458
Learning Objectives
Students will be able to:
Describe the quantitative analysis
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 breakeven analysis
To accompany Quantitative Analysis
for Management, 8e
by Render/Stair/Hanna
1-3
© 2003 by Prentice Hall, Inc.
Upper Saddle River, NJ 07458
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, 8e
by Render/Stair/Hanna
1-4
© 2003 by Prentice Hall, Inc.
Upper Saddle River, NJ 07458
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, 8e
by Render/Stair/Hanna
1-5
© 2003 by Prentice Hall, Inc.
Upper Saddle River, NJ 07458
The Evolution of QA
1990
1980
1970
1960
1950
1940
1930
1920
1910
1900
Expert Systems and Artificial
Intelligence
Decision Support
Information System
Goal Programming
Decision Theory
Network Models
Dynamic Programming
Game Theory
Transportation
Assignment Technique
Inventory Control
Queuing Theory
Markov Analysis
To accompany Quantitative Analysis
for Management, 8e
by Render/Stair/Hanna
1-6
© 2003 by Prentice Hall, Inc.
Upper Saddle River, NJ 07458
The Decision-Making
Process
Quant.Analysis
Problem
Logic
Historic Data
Marketing
Research
Scientific Analysis
Modeling
?
To accompany Quantitative Analysis
for Management, 8e
by Render/Stair/Hanna
Decision
Qual. Analysis
Weather
State and federal
legislation
New
technological
breakthroughs
Election outcome
1-7
© 2003 by Prentice Hall, Inc.
Upper Saddle River, NJ 07458
Overview of
Quantitative Analysis
• Scientific Approach to Managerial
Decision Making
• Consider both Quantitative and
Qualitative Factors
Raw Data
Quantitative
Analysis
To accompany Quantitative Analysis
for Management, 8e
by Render/Stair/Hanna
1-8
Meaningful
Information
© 2003 by Prentice Hall, Inc.
Upper Saddle River, NJ 07458
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
To accompany Quantitative Analysis
for Management, 8e
by Render/Stair/Hanna
1-9
© 2003 by Prentice Hall, Inc.
Upper Saddle River, NJ 07458
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, 8e
by Render/Stair/Hanna
1-10
© 2003 by Prentice Hall, Inc.
Upper Saddle River, NJ 07458
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
To accompany Quantitative Analysis
for Management, 8e
by Render/Stair/Hanna
1-11
© 2003 by Prentice Hall, Inc.
Upper Saddle River, NJ 07458
Develop the Model
• Model: representation of a situation
• Models: physical, logical, scale,
schematic or mathematical
• Models: variables (controllable or
uncontrollable) and parameters
• Controllable variables  decision
variables
• Models must be:
•
•
•
•
solvable
realistic
easy to understand
easy to modify
To accompany Quantitative Analysis
for Management, 8e
by Render/Stair/Hanna
1-12
© 2003 by Prentice Hall, Inc.
Upper Saddle River, NJ 07458
Acquire Data
• Accurate data is essential (GIGO)
• Data from:
• company reports
• company documents
• interviews
• on-site direct measurement
• statistical sampling
To accompany Quantitative Analysis
for Management, 8e
by Render/Stair/Hanna
1-13
© 2003 by Prentice Hall, Inc.
Upper Saddle River, NJ 07458
Develop a Solution
• Manipulate the model, find the
“best” solution
• Solution:
• practical
• implementable
• Various methods:
• solution of equation(s)
• trial and error
• complete enumeration
• implementation of algorithm
To accompany Quantitative Analysis
for Management, 8e
by Render/Stair/Hanna
1-14
© 2003 by Prentice Hall, Inc.
Upper Saddle River, NJ 07458
Test the Solution
• Must test both
• Input data
• Model
• Determine:
• Accuracy
• Completeness of input data
• collect data from a different sources
and compare
• Check results for consistency
• Do they make sense?
• Test before analysis!
To accompany Quantitative Analysis
for Management, 8e
by Render/Stair/Hanna
1-15
© 2003 by Prentice Hall, Inc.
Upper Saddle River, NJ 07458
Analyze the Results
• Understand the actions implied
by the solution
• Determine the implications of
the 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)
To accompany Quantitative Analysis
for Management, 8e
by Render/Stair/Hanna
1-16
© 2003 by Prentice Hall, Inc.
Upper Saddle River, NJ 07458
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
To accompany Quantitative Analysis
for Management, 8e
by Render/Stair/Hanna
1-17
© 2003 by Prentice Hall, Inc.
Upper Saddle River, NJ 07458
Modeling in the Real
World
• Models are complex
• Models can be expensive
• Models can be difficult to sell
• Models are used in the real
world by real organizations to
solve real problems
To accompany Quantitative Analysis
for Management, 8e
by Render/Stair/Hanna
1-18
© 2003 by Prentice Hall, Inc.
Upper Saddle River, NJ 07458
How to Develop a QA
Model
Profit
Profits = Revenue - Expenses
Profits =
Revenue
(Price per Unit)  (Number Sold)
Expenses
- Fixed Cost
- (Variable Cost/Unit)  (Number Sold)
Profits = $10Q - $1,000 - $5Q
To accompany Quantitative Analysis
for Management, 8e
by Render/Stair/Hanna
1-19
© 2003 by Prentice Hall, Inc.
Upper Saddle River, NJ 07458
How to Develop a QA
Model
Breakeven Point
Q = quantity sold
F = fixed cost
V = variable cost/unit
Set Revenue = 0
PQ - F – VQ = 0
Then
F = PQ – VQ
And:
Q = F/(P – V)
Breakeven Quantity = F/(P-V)
To accompany Quantitative Analysis
for Management, 8e
by Render/Stair/Hanna
1-20
© 2003 by Prentice Hall, Inc.
Upper Saddle River, NJ 07458
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
To accompany Quantitative Analysis
for Management, 8e
by Render/Stair/Hanna
1-21
© 2003 by Prentice Hall, Inc.
Upper Saddle River, NJ 07458
Models
• Are less expensive and disruptive
than experimenting with real world
systems
• Allow “What if” questions to be
asked
• Are built for management problems
and encourage management input
• Enforce consistency in approach
• Require specific constraints and
goals
To accompany Quantitative Analysis
for Management, 8e
by Render/Stair/Hanna
1-22
© 2003 by Prentice Hall, Inc.
Upper Saddle River, NJ 07458
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, 8e
by Render/Stair/Hanna
1-23
© 2003 by Prentice Hall, Inc.
Upper Saddle River, NJ 07458
Models: The Down Side
Models
• May be expensive and timeconsuming 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, 8e
by Render/Stair/Hanna
1-24
© 2003 by Prentice Hall, Inc.
Upper Saddle River, NJ 07458
Using Models
(from Dr. J.N.D. Gupta)
Some Suggestions
• 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
To accompany Quantitative Analysis
for Management, 8e
by Render/Stair/Hanna
1-25
© 2003 by Prentice Hall, Inc.
Upper Saddle River, NJ 07458
Mathematical Models
Characterized by Risk
• Deterministic models - we know
all values used in the model
with certainty
• Probabilistic models - we know
the probability that parameters
in the model will take on a
specific value
To accompany Quantitative Analysis
for Management, 8e
by Render/Stair/Hanna
1-26
© 2003 by Prentice Hall, Inc.
Upper Saddle River, NJ 07458
QM For Windows
To accompany Quantitative Analysis
for Management, 8e
by Render/Stair/Hanna
1-27
© 2003 by Prentice Hall, Inc.
Upper Saddle River, NJ 07458
QM For Windows
To accompany Quantitative Analysis
for Management, 8e
by Render/Stair/Hanna
1-28
© 2003 by Prentice Hall, Inc.
Upper Saddle River, NJ 07458
Excel QM
To accompany Quantitative Analysis
for Management, 8e
by Render/Stair/Hanna
1-29
© 2003 by Prentice Hall, Inc.
Upper Saddle River, NJ 07458
Excel QM’s Main
Menu of Models
To accompany Quantitative Analysis
for Management, 8e
by Render/Stair/Hanna
1-30
© 2003 by Prentice Hall, Inc.
Upper Saddle River, NJ 07458
Possible Problems in
Using Models
• Define the
Problem
• Conflicting
viewpoints
• Departmental
impacts
• Assumptions
• Develop a
Model
• Fitting the
Model
• Understanding
the Model
To accompany Quantitative Analysis
for Management, 8e
by Render/Stair/Hanna
• Acquire Input
Data
• Accounting
Data
• Validity of Data
• Develop a
Solution
• Complex
Mathematics
• Only One
Answer is
Limiting
• Solutions
become quickly
outdated
1-31
© 2003 by Prentice Hall, Inc.
Upper Saddle River, NJ 07458
Possible Problems Continued
• Test the
Solution
• Implement the
Solution
• Identifying
appropriate
test procedures
• Selling the
solution to
others
• Analyze the
Results
• Holding all
other
conditions
constant
• Identifying
cause and
effect
To accompany Quantitative Analysis
for Management, 8e
by Render/Stair/Hanna
1-32
© 2003 by Prentice Hall, Inc.
Upper Saddle River, NJ 07458