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QUANTITATIVE TECHNIQUES IN MANAGEMENT

Assignment A
Question 1: How has quantitative analysis changed the current scenario in the management
world today?
Answer: Quantitative analysis requires the representation of the problem using a mathematical
model. Mathematical modeling is a critical part of the quantitative approach to decision making.
Quantitative factors can be measured in terms of money or quantitative units. Examples are
incremental revenue, added cost, and initial outlay.
in decision making are the factors relevant to a decision that are difficult to
measure in terms of money. Qualitative factors may include: (1) effect on employee morale,
schedule and other internal elements; (2) relationship with and commitments to suppliers;
(3) effect on present and future customers; and (4) long-term future effect on profitability. In
some decision-making situations, qualitative aspects are more important than immediate
financial benefit from a decision.
Qualitative factors

Different Statistical Techniques


Measures of Central Tendency: For proper understanding of quantitative data, they should
be classified and converted into a frequency distribution. This type of condensation of data
reduces their bulk and gives a clear picture of their structure. If you want to know any specific

characteristics, of the given data or if frequency distribution of one set of data to be compared
with another, then it is necessary that the frequency distribution itself must be summarized and
condensed in such a manner that it must help us to make useful inferences about the data and
also provide yardstick for comparing different sets of data.
Measures of dispersion would tell you the number of values, which
are substantially different from the mean, median or mode. The commonly used measures of
dispersion are range, mean deviation and standard deviation.
Measures of Dispersion:

Correlation coefficient measures the degree to which the change in one variable
(the dependent variable) is associated with change in the other variable (Independent one). For
example, as a marketing manager, you would like to know if there is any relation between the
amounts of money you spend on advertising and the sales you achieve. Here, sales are the
dependent variable and advertising budget is the independent variable. Correlation coefficient, in
this case, would tell you the extent of relationship between these two variables, whether the
relationship is directly proportional (i.e. increase or decrease in advertising is associated with
increase or decrease in sales) or it is an inverse relationship (i.e. increasing advertising is
associated with decrease in sales and vice-versa) or there is no relationship between the two
variables.
Correlation:

Regression analysis includes any techniques for modeling and analyzing


several variables, when the focus is on the relationship between a dependent variable and one or
more independent variables. Using this technique you can predict the dependent variables on the
basis of the independent variables. In 1970, NCAER (National Council of Applied and Economic
Research) predicted the annual stock of scooters using a regression model in which real personal
Regression Analysis:

disposable income and relative weighted price index of scooters were used as independent
variable.
With time series analysis, you can isolate and measure the separate
effects of these forces on the variables. Examples of these changes can be seen, if you start
measuring increase in cost of living, increase of population over a period of time, growth of
agricultural food production in India over the last fifteen years, seasonal requirement of items,
impact of floods, strikes, and wars so on.
Time Series Analysis:

An index number is an economic data figure reflecting price or quantity


compared with a standard or base value. The base usually equals 100 and the index number is
usually expressed as 100 times the ratio to the base value. For example, if a commodity costs
twice
as much in 1970 as it did in 1960, its index number would be 200 relative to 1960. Index
numbers are used especially to compare business activity, the cost of living, and employment.
They enable economists to reduce unwieldy business data into easily understood terms.
Index Numbers:

Sampling and Statistical Inference: In many cases due to shortage of time, cost or non
availability of data, only limited part or section of the universe (or population) is examined
to (a) get information about the universe as clearly and precisely as possible, and (b)
determine the reliability of the estimates. This small part or section selected from the
universe is called the sample, and the process of selections such a section (or past) is called
sampling.

Example: Site selection process (quantitative and qualitative factors)


While quantitative factors have been and will continue to be very important in the site selection
process, qualitative factors are also critical in order to ensure that the company makes the best
decision. What are the most important quantitative and qualitative factors evaluated by site
selection advisors and companies when making a decision regarding the location of a new or
expanded operation? The list will vary depending on type of facility (i.e. manufacturing,
logistics, research & technology, office), but most factors apply to all forms of projects. Below is
a summary of the most important quantitative and qualitative factors considered by companies.
Quantitative Factors
1.Property Tax Rates
2.Corporate Income Tax Rates
3.Sales Tax Rates
4.Real Estate Costs
5.Utility Rates
6.Average Wage/Salary Levels
7.Construction Costs
8.Workers Compensation Rates
9.Unemployment Compensation Rates
10.Personal Income Tax Rates
11.Industry Sector Labor Pool Size
12.Infrastructure Development Costs
13.Education Achievement Levels
14.Crime Statistics
15.Frequency of Natural Disasters
16.Cost of Living Index

17.Number of Commercial Flights to Key Markets


18.Proximity to Major Key Geographic Markets
19.Unionization Rate/Right to Work versus Non-Right
20.Population of Geographic Area

to Work State

Qualitative Factors

1.Level of Collaboration with Government, Educational and Utility Officials


2.Sports, Recreational and Cultural Amenities
3.Confidence in Ability of All Parties to Meet Companys Deadlines
4.Political Stability of Location
5.Climate
6.Availability of Quality Healthcare
7.Chemistry of Project Team with Local and State Officials
8.Perception of Quality of Professional Services Firms to Meet the Companys Needs
9.Predictability of Long-term Operational Costs
10.Ability to Complete Real Estate Due Diligence Process Quickly

Another important part of the site selection evaluation process relates to the weighting of the key
quantitative and qualitative factors. Depending on the type of project, factors will be weighted
differently. As an example, for a new manufacturing facility project, issues such as utility rates,
real estate costs, property tax rates, collaboration with governmental entities, and average hourly
wage rates may be weighted more heavily. By contract, for a new office facility factors such as
real estate costs, number of commercial flights, crime statistics, climate and industry sector labor
pool size may be more important.
Every project is unique and must be evaluated based upon its own individual set of
circumstances.
Question 2: What are sampling techniques? Briefly explain the cluster sampling technique.
Answer:
A sample is a group of units selected from a larger group (the population). By studying the
sample, one hopes to draw valid conclusions about the larger group.
A sample is generally selected for study because the population is too large to study in its
entirety. The sample should be representative of the general population. This is often best
achieved by random sampling. Also, before collecting the sample, it is important that one
carefully and completely defines the population, including a description of the members to be
included.
A common problem in business statistical decision-making arises when we need information
about a collection called a population but find that the cost of obtaining the information is
prohibitive. For instance, suppose we need to know the average shelf life of current inventory. If
the inventory is large, the cost of checking records for each item might be high enough to cancel
the benefit of having the information. On the other hand, a hunch about the
average shelf life might not be good enough for decisionmakingpurposes. This means we must
arrive at a compromise that involves selecting a small number of items and calculating an
average shelf life as an estimate of the average shelf life of all items in inventory. This is a

compromise, since the measurements for a sample from the inventory will produce only an
estimate of the value we want, but at substantial savings. What we would like to know is how
"good" the estimate is and how much more will it cost to make it "better". Information of this
type is intimately related to samplingtechniques.

Clustersamplingcan be used whenever the population is homogeneous but can be partitioned.


In many applications the partitioning is a result of physical distance. For instance, in the
insurance industry, there are small" clusters" of employees in field offices scattered about the
country. In such a case, a random sampling of employee work habits might not required travel to
many of the" clusters" or field offices in order to get the data. Totally sampling each one of a
small number of clusters chosen at random can eliminate much of the cost associated with the
data requirements of management.
Question 3: What is the significance of Regression Analysis? How does it help a manager in the
decision making process?
Answer: Regression analysis is a powerful technique for studying relationship between
dependent variables (i.e., output, performance measure) and independent variables (i.e., inputs,
factors, decision variables). Summarizing relationships among the variables by the most
appropriate equation (i.e., modeling) allows us to predict or identify the most influential factors
and study their impacts on the output for any changes in their current values.
Unlike the deterministic decision-making process, such as linear optimization by solving systems
of equations, Parametric systems of equations and in decision making under pure uncertainty, the
variables are often more numerous and more difficult to measure and control. However, the steps
are the same. They are:
1.Simplification
2.Building a decision model
3.Testing the model
4.Using the model to find the solution:
It is a simplified representation of the actual situation
It need not be complete or exact in all respects
It concentrates on the most essential relationships and ignores the less essential ones.
It is more easily understood than the empirical (i.e., observed) situation, and hence permits the
problem to be solved more readily with minimum time and effort.

5. It can be used again and again for similar problems or can be modified.
Fortunately the probabilistic and statistical methods for analysis and decision making under
uncertainty are more numerous and powerful today than ever before. The computer makes
possible many practical applications. A few examples of business applications are the following:

An auditor can use random sampling techniques to audit the accounts receivable for clients.
A plant manager can use statistical quality control techniques to assure the quality of his production
with a minimum of testing or inspection.
A financial analyst may use regression and correlation to help understand the relationship of a
financial ratio to a set of other variables in business.
A market researcher may use test of significace to accept or reject the hypotheses about a group of
buyers to which the firm wishes to sell a particular product.
A sales manager may use statistical techniques to forecast sales for the coming year.

Case study
Please read the case study given below and answer questions given at the end.
Kushal Arora, a second year MBA student, is doing a study of companies going public for the
first time. He is curious to see whether or not there is a significant relationship between the sizes
of the offering (in crores of rupees) and the price per share after the issue. The data are given
below:
Size (in
crore of
rupees)
Price ( in
rupees)

108

3968.40

5110.40

4.40

12

1319

126.50

Question
You are required to calculate the coefficient of correlation for the above data set and comment
what conclusion Kushal should draw from the sample.
Answer:
N

XY

1
2
3
4
5
6
TOTALS

12
13
19
12
6.5
4
66.5

108
39
68.4
51
10.4
4.4
281.2

1296
507
1299.6
612
67.6
17.6
3799.8

X2

Y2

144
11664
169
1521
361 4678.56
144
2601
42.25
108.16
16
19.36
876.25 20592.08

6(3799.8) - (66.5)(281.2)

r=[6(876.25) - (66.5) 2[]6(20592.08) - (281.2)2

= 0.67

Conclusion: There is a positive correlation for the above set of data

ASSIGNMENT C
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