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© 2004 Thomson/South-Western© 2004 Thomson/South-Western

Body of KnowledgeBody of Knowledge

The body of knowledge involving quantitative The body of knowledge involving quantitative approaches to decision making is referred to as approaches to decision making is referred to as

• Management ScienceManagement Science

• Operations researchOperations research

• Decision scienceDecision science It had its early roots in World War II and is It had its early roots in World War II and is

flourishing in business and industry with the aid flourishing in business and industry with the aid of computersof computers

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7 Steps of 7 Steps of Problem SolvingProblem Solving

(First 5 steps are the process of (First 5 steps are the process of decision makingdecision making))

• Define the problem.Define the problem.

• Identify the set of alternative solutions.Identify the set of alternative solutions.

• Determine the criteria for evaluating alternatives.Determine the criteria for evaluating alternatives.

• Evaluate the alternatives.Evaluate the alternatives.

• Choose an alternative (make a decision).Choose an alternative (make a decision).

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• Implement the chosen alternative.Implement the chosen alternative.

• Evaluate the results.Evaluate the results.

Problem Solving and Decision MakingProblem Solving and Decision Making

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Quantitative Analysis and Decision MakingQuantitative Analysis and Decision Making

Potential Reasons for a Quantitative Analysis Potential Reasons for a Quantitative Analysis Approach to Decision MakingApproach to Decision Making

• The problem is complex.The problem is complex.

• The problem is very important.The problem is very important.

• The problem is new.The problem is new.

• The problem is repetitive.The problem is repetitive.

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Quantitative AnalysisQuantitative Analysis

Quantitative Analysis ProcessQuantitative Analysis Process

• Model DevelopmentModel Development

• Data PreparationData Preparation

• Model SolutionModel Solution

• Report GenerationReport Generation

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Model DevelopmentModel Development

ModelsModels are representations of real objects or are representations of real objects or situationssituations

Three Three forms of modelsforms of models are: are:

• Iconic modelsIconic models - physical replicas (scalar - physical replicas (scalar representations) of real objectsrepresentations) of real objects

• Analog modelsAnalog models - physical in form, but do not - physical in form, but do not physically resemble the object being modeledphysically resemble the object being modeled

• Mathematical modelsMathematical models - represent real world - represent real world problems through a system of mathematical problems through a system of mathematical formulas and expressions based on key formulas and expressions based on key assumptions, estimates, or statistical assumptions, estimates, or statistical analysesanalyses

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Advantages of ModelsAdvantages of Models

Generally, experimenting with models Generally, experimenting with models (compared to experimenting with the real (compared to experimenting with the real situation):situation):

• requires requires less timeless time

• is is less expensiveless expensive

• involves involves less riskless risk

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Mathematical ModelsMathematical Models

Cost/benefit considerationsCost/benefit considerations must be made in must be made in selecting an appropriate mathematical model. selecting an appropriate mathematical model.

Frequently a less complicated (and perhaps less Frequently a less complicated (and perhaps less precise) model is more appropriate than a more precise) model is more appropriate than a more complex and accurate one due to cost and ease complex and accurate one due to cost and ease of solution considerations.of solution considerations.

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Transforming Model Inputs into OutputTransforming Model Inputs into Output

Uncontrollable InputsUncontrollable Inputs(Environmental Factors)(Environmental Factors)

Uncontrollable InputsUncontrollable Inputs(Environmental Factors)(Environmental Factors)

ControllableControllableInputsInputs

(Decision(DecisionVariables)Variables)

ControllableControllableInputsInputs

(Decision(DecisionVariables)Variables)

OutputOutput(Projected(ProjectedResults)Results)

OutputOutput(Projected(ProjectedResults)Results)

MathematicalMathematicalModelModel

MathematicalMathematicalModelModel

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Quantitative Methods in PracticeQuantitative Methods in Practice

Linear ProgrammingLinear Programming Integer Linear Integer Linear

ProgrammingProgramming PERT/CPMPERT/CPM Inventory modelsInventory models Waiting Line ModelsWaiting Line Models SimulationSimulation

Decision AnalysisDecision Analysis Goal ProgrammingGoal Programming Analytic Hierarchy Analytic Hierarchy

ProcessProcess ForecastingForecasting Markov-Process Markov-Process

ModelsModels

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The Management ScientistThe Management Scientist Software Software

ModulesModules

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