Noor Asiah Ramli

QMT425/429-Quantitative Business Analysis

Topic 1: Introduction to Quantitative Analysis

What is Quantitative Analysis (QA)?

QA is the scientific approach to managerial decision making.

Quantitative Analysis involves the application of mathematical method to develop a model

and then to develop a solution.

The techniques have been applied successfully in many areas such as business,
government, health care, education, bank and etc.

Quantitative Analysis also referred to as operations research, quantitative method,

management science and decision science.

History of QA:
First formal activities were initiated in England during World War II.
A team of British scientists set out to make a decision regarding the best utilization of
war material.
Following the end of the war, the ideas advanced in military operations were adapted
to improve efficiency and productivity in the civilian sector.

Major reason for the growth in the use of QA since World War II.
The development of numerous QA methods due to continued research.
Advancement in computing power through digital computers.

The decision-making process:

Quantitative Analysis:
The approach starts with data. Like data about raw material and workers for a
factory, these data are manipulated or processed into information to know how many
quantity of raw material should be purchase, how many workers we need and etc.

1|Introduction

Noor Asiah Ramli

QMT425/429-Quantitative Business Analysis

Topic 1: Introduction to Quantitative Analysis

The Quantitative Analysis Approach
Defining the problem
Developing a Model
Acquiring Input Data
Developing a Solution
Testing a Solution
Analyzing the results
Implementing the Results
First step: Defining the problem
The problem must be clearly and concisely defined.
Must identify the right problem.
May be the most difficult step.
May require specific, measurable objectives.
Improperly defining a problem can easily result in no solution or an inappropriate solution.
Second step: Developing a model
Model is a representation of a situation.
Models may be: iconic (look-alike the real entity), analog (explains a phenomenon by
reference to some other occurrence) e.g. thermometer, schematic (drawing and pictures)
e.g. map and mathematical (mathematical relationship).
Models contain variables (controllable or uncontrollable) and parameters.
Controllable variables are called decision variables.
Good model characteristics should be solvable, realistic, easy to understand and easy to
modify.
A QA model is an abstract representation of an existing problem in the form of graph or chart
but most frequently in mathematical relationships.
Third step: Acquiring input data
Obtain the data that are used in the model (input data).
Obtaining accurate data for the model is essential; even if the model is a perfect
representation of reality, improper data will result in misleading results.
Data may come from: company reports, company documents, interviews, on-site direct
measurement, and statistical sampling.

2|Introduction

Noor Asiah Ramli

QMT425/429-Quantitative Business Analysis

Topic 1: Introduction to Quantitative Analysis

Fourth step: Developing a solution
Involves manipulating the model to arrive at the best (optimal) solution to the problem.
Solution must be practical and implementable.
Various methods:
o solution of equation(s)
o trial and error
o complete enumeration
o implementation of algorithm
A QA solution technique usually applies to a specific type of model.
Fifth step: Testing the solution
Before a solution can be analyzed and implemented, it needs to be tested completely.
Because the solution depends on the input data and the model, both require testing.
Determine accuracy and completeness of input data: collect data from a different source and
compare.
Sixth step: Analyzing the result
Analyzing the results starts with determining the implications of the solution.
Sensitivity analysis determines how the solutions will change with a different model or input
data.
Final step: Implementing the results
Implement the results.
This is the process of incorporating the solution into the company.
Developing a QA Model
Example 1.1:
Aishah Bakery bakes a cupcake. Each cupcake cost RM8 to produce and sell for RM23 per
unit. Determine the profit if Aishah produce 300 unit of cupcakes.
Model:
Profit = 23X 8X; X = number of cupcake sold
If the company sell 300 unit of cupcakes, then the profit is = 23 (300) 8 (300) = RM4500
Finding Break-Even Point
Example 1.2:
Consider previous example. Let say the company also incurs fixed cost of RM10,000 per month.
Find the break-even point.
Model:
Profit = 23X 8X 10,000; X = number of cupcakes sold.
At Break-even point: Total Revenue = Total Cost (i.e. Profit = 0)
0 = 23X 8X 10,000
X = 666.7 unit of cupcakes.

3|Introduction

Noor Asiah Ramli

QMT425/429-Quantitative Business Analysis

Topic 1: Introduction to Quantitative Analysis

The Advantages of using QA in problem solving

1. Problem is solved using scientific method; there is a logical and systematic approach to
solving problem.
2. Most solutions obtained are optimal solution.
3. Save time if the problem is repetitious.
The Advantages of Mathematical Modeling
1. Models can accurately represent reality. If properly formulated, a model can be extremely
accurate.
2. Models can help a decision maker formulate problems.
3. Models can give us insight and information.
4.
Models can save time and money in decision making problem solving.
5. A model may be the only way to solve some large or complex problems in a timely fashion.
6. A model can be used to communicate problems and solutions to others.
Mathematical Models Categorized by Risk
There are two types of model:
1. Deterministic model all input variables are known and have constant values (not involved
chance and risk).
For example: the EOQ model in inventory control.
2. Stochastic model at least one input variable is uncertain and with value that varies. Also
known a probabilistic models (involves chance and risk).
For example: simulation model using Monte Carlo method
In QMT425/429,
Probabilistic technique - Decision Theory, Simulation
Linear Programming technique Graphical and Simplex Method, Transportation and
Assignment
Network technique Project Management
Other technique Inventory

4|Introduction

Noor Asiah Ramli

QMT425/429-Quantitative Business Analysis

Topic 1: Introduction to Quantitative Analysis

5|Introduction