AMET Journal of Management 71 Jan – June 2011

IMPORTANCE OF QUANTITATIVE TECHNIQUESIN MANAGERIAL DECISIONS

Abstract

The term ‘Quantitative techniques’refers to the methods used to quantifythe variables in any discipline. It meansthe application of subjects likemathematics and statistics, econometricsand operations research to understandand solve problems.. It is a study of theapplication of differential calculus,integral calculus and matrix algebra,measures of central tendencies,measures of averages, correlation andregression etc. It also includes theapplication of the techniques ofmanagement science such as Linearprogramming, Game theory, CPM andPERT analyses to business problems.The relevance and usefulness ofQuantitative Techniques in sevenfunctional areas of Management arediscussed in this paper.

Introduction:Truly, the importance of Quantitativeproficiency cannot be over emphasizedto Management Professionals! Thisbody of knowledge involvingquantitative approaches has been givenvarious names like- BusinessMathematics, Business Statistics,Operations Research, Decision Scienceand Management Science. All areconcerned with rational approaches todecision making based on the scientificmethod.

*P.Murugesan

For example, consider the followingsimple mathematical problem:

A) “A Mayor of a town wantsto improve the bus servicesbetween 2 destinations fallingwithin his district. Thedestinations are 1 hourjourney apart and he wants thebus services in such a way thata traveler need not wait formore than 20 minutes time, ateither side. So, how manybuses are totally required ?For convenience sake assumethat the buses will beoperational for 24 hourscontinuously and also ignorelunch breaks, tea breaks etc”

B) 10 black colour cards (bothsides black) and 20 greencolour cards (both sides green)are available in a box.Assuming you close your eyesand pick up the cards one byone, how many cards youshould pick up, before youhave 2 cards of the samecolour ?

(Answers are given at the end )

AMET Journal of Management 72 Jan – June 2011

Quantitative Techniques P. Murugesan

While a trained person willsolve this puzzle within a fewminutes, a person who is notequipped with Quantitativeinputs, will indeed struggle fora long time.

Two developments that occurred duringthe post-world war II period, led to thegrowth and use of quantitative methodsin nonmilitary applications.

• One, the most significantdevelopment was the discoveryof Linear programming byG.Danzig in 1947.

• Secondly, the computertechnology explosion.

It has been widely accepted that amanager should, to a certain extent befamiliar with techniques to deal withnumbers in order to make right decisionat the right time. Students ofmanagement are advised to have aworking knowledge of mathematics andstatistics applied to business problemsfor a successful career as a manager ofmultinational companies. Decisions canbe called scientific only when they arebacked by facts expressed numerically.In modern times, the managers areexposed to different software such asSPSS, EXCEL, SAS, SAP, EViews sothat the decision making processbecomes not only scientific but alsoreliable.Computers simplify the monotony ofdoing calculations.

Management science (MS) is an inter-disciplinary branch of appliedmathematics devoted to optimal decisionplanning with strong links witheconomics, business, engineering andother sciences. It uses various scientificresearch-based principles, strategies andanalytical methods includingmathematical modelling, statistics andnumerical algorithms to improve anorganisation's ability to enact rationaland meaningful management decisionsby arriving at optimal or near optimalsolutions to complex decision problems.

In short, management sciences helpbusinesses to achieve their goals usingthe scientific methods of operationalresearch. Management science isconcerned with developing and applyingmodels and concepts that may proveuseful in helping to elucidatemanagement issues and solve managerialproblems, as well as designing anddeveloping new and better models oforganisational excellence. Theapplication of these models within thecorporate sector became known asmanagement science. The problemsolving process involves the followingseven steps:

1.Identify and define the problem

2.Determine the set of alternativesolutions

3.Determine the criteria toevaluate the alternatives

4. Evaluate the alternatives

AMET Journal of Management 73 Jan – June 2011

Quantitative Techniques P. Murugesan

5. Choose an alternative

6.Implement the selectedalternative

7.Evaluate the results.

Let us analyse the importance ofquantitative methods in seven functionalareas of management.

1. Marketing

Quantitative marketing is about data,facts, information and knowledge. Wedefine quantitative marketing as theutilization of facts and knowledge tounderstand better the behavior ofconsumers across the marketingenterprise to maximize marketinginvestment.

2. Business Analytics

Business Analytics is a specializeddomain that has been growing at anannual rate of about 30 per cent.Companies incur significant expenditureon business intelligence. Besides the jobbeing challenging, diversified andrefreshing, the pay packet is quiteattractive. Analytics include complexstatistical analysis, computationalmodeling and data mining. The domainencompasses enterprise decisionmanagement, predictive science, strategyscience, fraud analytics, credit riskanalysis, marketing analytics, and soon. With the growing popularity ofBusiness Intelligence ) tools, thebusiness significance of analytics isgaining greater acceptance in industry

3. Marketing Engineering

Marketing engineering iscomputer assisted marketing analysisand planning. Marketing managers mustmake ongoing decisions about productfeatures, prices, distribution options andsales compensation plans. When makingthese decisions, managers choose fromamong alternative courses of action in acomplex and uncertain world. Marketingengineering provides managers with newconcepts, methods and technologies tomake decisions in increasingly data-intensive marketing environments.

4. Data Mining

Knowledge of advanced data miningtechniques enables marketers to gatherand organize data and address keybusiness questions, to learn how toleverage the growing volume ofcustomer data captured in the marketingprocess. Multiple regression analysis,logistic regression analysis, decisiontrees, factor analysis, cluster analysis,risk modeling, neural networks, Web loganalysis, and market basket analysis areused to organize, analyse and summarisethe data and make relevant inferencesabout the behaviour of differentsegments of customers.

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Quantitative Techniques P. Murugesan

5. Production

5.1 Facility location

Plant expansion and new facilityconstruction are among the most farreaching decisions an organisationfaces. Breakeven analysis can be donefor the selection of best location bycomparing alternative locations on aneconomic basis. Factor rating is ameans of assigning quantitativevalues to all the factors related to eachdecision and deriving a compositescore that can be used for comparison.Further linear programming can beapplied to find out the transportationcosts for raw materials and finishedgoods so that they can decide thelocation of a plant.

5.2 Product design

It is the structuring of components/parts or activities so that as a unit theycan provide a specified value.Computer Aided Design(CAD),Computer AidedManufacturing(CAM), Grouptechnology (GT), and ComputerIntegrated Manufacturing system(CIM) are designed to integrateproduct design and manufacturingactivities with both the suppliers ofmaterials and components as well asthe customers of the firm’s products.

5.3 Process planning

It consists of designing andimplementing a work system toproduce the desired goods or services

in the required quantities at theappropriate time and withinacceptable costs. Monte CarloSimulation can be done usingsoftware such SIMSCRIPT,GPSS,DYNAMO,SLAM,SIMAN etc.Assembly and flow-process chart canalso be used

5.4 Project management

A project is a unique set of activitiesthat must be completed to achieve aspecific objective within a limitedtime period by utilizing appropriateresources. The network modelsCritical –path method and programevaluation and review technique usedfor project scheduling

6. Human Resource

6.1 Performance Appraisal

Qualitative approaches like interviewsand questionnaires are not alwayssuitable. For example, if your aim isto compare jobs for pay purposes, youmay need to say that, in effect, Job Ais twice as challenging as Job B andso is worth twice the pay. To do this,we must be able to assign quantitativevalues to each job. The positionanalysis questionnaire and the USDepartment of Labor approach arepopular quantitative methods.

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Quantitative Techniques P. Murugesan

6.2 Position Analysis questionnaire(PAQ):

A questionnaire used to collectquantifiable data concerning theduties and responsibilities of variousjobs.It is a very structured jobanalysis questionnaire. The PAQcontains 194 items, each of which(such as written materials) representsa basic element that may or may notplay an important role in the job. Thejob analyst decides if each item playsa role and if so to what extent. Forexample, written materials received arating of 4, indicating that writtenmaterials (like books, reports, andoffice notes) play a considerable rolein this job. The analyst can do thisonline.

The advantage of the PAQ is that itprovides a quantitative score orprofile of any job in terms of how thatjob rates on five basic activities: (1)having decision making /communication / socialresponsibilities, (2) performingskilled activities, (3) being physicallyactive, (4) operating vehicles /equipment, and (5) processinginformation. The PAQ’s real strengthis thus in classifying jobs. In otherwords, it lets you assign a quantitativescore to each job based on its decisionmaking, skilled activity, physicalactivity, vehicle/equipment operation,and information processingcharacteristics. You can therefore usethe PAQ results to quantitativelycompare jobs and then assignappropriate pay levels for each job.

US Department of Labor (DOL) Jobanalysis procedure:

A standardized method by whichdifferent jobs can be quantitatively rated,classified, and compared based on datapeople and things scored.The USDepartment (DOL) job analysisprocedure also provides a standardizedmethod by which to quantitatively rate,classify and compare different jobs.

7. Finance

Financial markets and others generatevast amounts of data on asset returns,their volatility, and other financialvariables in long and high-frequencytime series. The ability to analyse marketbehaviour requires knowledge of theproperties of time series and appropriateestimation methods. Since the early1980s techniques for analysing timeseries which exhibit auto-regressionhave yielded important studies offinancial markets, increasing ourknowledge of financial variables'volatility. It examines techniques for thevaluation of different classes ofsecurities, analyses criteria for guidinginvestment decisions, considers themeasurement of asset risk and return anddiscusses statistical techniques offorecasting.

E - Views software is provided forregression analysis and diagnosticprocedures. It improves the confidenceand skill in the use of the mathematicaland statistical methods used in theanalysis of financial instruments andfinancial markets, including the

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Quantitative Techniques P. Murugesan

calculation of financial market yieldsand prices, frequency distributions, risk

and probability, correlation andregression analysis.

Answers to the puzzle:A) A simple problem of Logistics: Total requirement- 6 buses. 3 buses to be positionedon each side, in the beginning.B) A simple problem of Probability :2 or 3 cards

About the author:

Prof. P. Murugesan has 40 years ofexperience in teaching Quantitativesubjects, Research Methodology,Production Management & alliedSubjects

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