Department of Decision Science

Quantitative Techniques in Management

Case Problems / Numerical

Note: Do all the numerical by Minitab, SPSS and Excel except the numerical of probability and
probability distributions. The data files are given in excel, you are advised to learn to import data
in SPSS and Minitab. Wherever data files are not given you are advised to enter the data manually
in the software.

1. Mid term.xls Students who miss the midterm test in a statistics course have the opportunity to write
a deferred test provided that they have a valid reason. The students who requested to write the
deferred test over the last four years were categorized as giving one of the following reasons:
1. Sickness
2. Marriage in the family
3. Out of town because of the university team game
4. Forgot the date or time of the midterm test
The responses were recorded using the numerical codes shown.
a. Produce a frequency distribution and a relative frequency distribution.
b. Draw an appropriate graph to summarize the data. What does the graph tell you?
2. software.xls An increasing number of statistics courses use a computer and software rather than
manual calculations. A survey of statistics asked each to report the software his or her courses uses.
The responses are
1. Excel, 2. Minitab, 3. SAS 4. SPSS, and 5. Other
a. Produce a frequency distribution.
b. Graphically summarize the data so that the proportions are depicted.
c. What do the charts tell you about the software choices?
3. To help determine the need for more golf courses, a survey was undertaken. A sample of 75 self
declared golfers was asked how many rounds of golf they played last year. These data are as follows
18 26 16 35 30 15 18 15 18 19 25
30 35 14 20 18 24 21 25 18 29 23
15 19 27 28 9 17 28 25 23 20 24
28 36 20 30 26 12 31 13 26 22 30
29 26 17 32 36 24 29 18 38 31 36
24 30 20 13 23 3 28 5 14 24 13
18 10 14 16 28 19 10 42 22
a. Draw a histogram.
b. Draw a stem-and-leaf display.
c. Draw an ogive.
d. Describe what you have learned.

4. Return of invetments.xls Comparing Returns on Two Investments: Suppose that you are
facing a decision about where to invest that small fortune that remains after you have deducted the

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 anticipated expenses for the next year from the earnings from your summer job. A friend has
suggested two types of investment, and to help make the decision you acquire some rates from each
type. You would like to know what you can expect by way of the return on your investment, as well
as other type of information, such as whether the rates are spread out over a wide range (making the
investment risky) or are grouped tightly together (indicating relatively low risk). Do the data
indicate that it is possible that you can do extremely well with little likelihood of a large loss? Is it
likely that you could lose money (negative rate of return)?
The return for the two type of investment are listed in the attached excel file.
a. Draw histograms for each set of return by using MS Excel, Minitab and; SPSS and report your
findings. Which investment would you choose and why?
b. Also write your interpretation using the numerical measures viz. mean. Median, variance and
standard deviation.
5. Telephone Calls.xlsx Analysis of Long Distance Telephone Bills: Following
deregulation of telephone service, several new companies were created to compete in the business of
providing long-distance telephone service. In almost all cases these companies compete on price since
the service each offered is similar. Pricing a service or a product in the face of stiff competition is very
difficult. Factors to be considered include supply, demand, price elasticity, and the actions of
competitors. Long distance packages may employ per-minute charges, a flat monthly rate, or some
combination of the two. Determining the appropriate rate structure is facilitated by acquiring
information about the behaviors of customers and in particular the size of monthly long-distance bills.
As part of a larger study, a long-distance telephone company wanted to acquire information about
the monthly bills of new subscribers in the first month after signing with the company. The
company’s marketing manager conducted a survey of 200 new residential subscribers wherein the
first month’s bills were recorded.
a. Find the Mean long-distance telephone bill.
b. Find the median for the data
c. Find the Mode for the data
d. Determine the interquartile range for the data.
e. Draw a Box plot of long distance telephone bills.
6. Salaries.xls The career counseling center at a university wanted to learn more about the starting
salaries of the university’s graduates. They asked each graduate to report the highest salary offer
received. The survey also asked each graduate to report the degree and starting salaries. Draw box
plots to compare the four groups of starting salaries. Report your findings.
7. Applications in Operations Management: The number of trucks crossing at the Gurgaon
Expressway, NH 8 is Poisson distributed with a mean of 1.5 per minute.
a. What is the probability that in any 1 minute time-span two or more trucks will cross the bridge?
b. What is the probability that fewer than four trucks will cross the bridge over the next 4 minutes?
8. Cars arriving for petrol at a particular station follow a Poisson distribution with a mean of 5 per
hour.
a. Determine the probability that over the next hour only one car will arrive.

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b. Compute the probability that in the next 3 hours WAITING LINES
more than 20 cars will arrive.
Everyone is familiar with waiting lines. We wait in line at
banks, groceries, and fast-food restaurants. There are
9. The number of users of an automatic banking also waiting lines in firms where trucks wait to load and
machine is Poisson distributed. The mean number unload and on assembly lines where stations wait for new
of users per 5-minure interval is 1.5. Find the parts. Management scientists have developed Statistical
probability of the following events. models that allow managers to determine the operating
a. No users in the next 5 minutes. characteristics of waiting lines. Some of the operating
b. 5 or fewer users in the next 15 minutes. characteristics are :
c. 3 or more users in the next 10 minutes
The probability that there are no units in the system

10. A large number of fast food restaurants with drive- The average number of units in the waiting
through windows offer drivers and their
The average time a unit spends in the waiting line
passengers the advantage of quick service. To
measure how good the service is, a marketing The probability that an arriving unit must wait for service
research firm planned a study wherein the amount
of time taken by a sample of drive-through The Poisson probability distribution is used extensively in
customers at five restaurants (Popeyes, Wendys, waiting line (also called queuing) models. Many models
assume that the arrival of units for service is Poisson dis-
McDonalds, Hardees and Jack in Box) was recorded.
tributed with a specific value of µ
The data were then entered in ‘Minitab’ and a
graphical output to conduct exploratory data
analysis was obtained.
Boxplot of Popeyes, Wendys, McDonalds, Hardees, Jack in Box
360
340
320
300
280
260
240
Data

220
200
180
160
140
120
100
80
Popeyes Wendys McDonalds Hardees Jack in Box

Compare the five sets of data using a box plot and interpret the results.

11. An investor believes that on a day when the SENSEX increases, the probability that the NIFTY also
increases is 77%. If the investor believes that there is 60% probability that SENSEX will increase
tomorrow, what is the probability that the NIFTY will increase as well?

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12. The NHAI gathers data concerning the causes of highway crashes where at least one fatality has
occurred. The following probabilities were determined form the 1998 annual study (BAC is blood-
alcohol-content).
P (BAC =0 I Crash with fatality) = .616
P (BAC is between .01 and .09 I Crash with fatality) = .300
P (BAC is greater than .09 I Crash with fatality) = .084
Suppose that, over a certain stretch of highway during a 1-year period, the probability of being
involved in a crash that results in at least one fatality is .01. It has been estimated that 12% of the
drivers in this highway drive while their BAC is greater than .09. Determine the probability of a crash
with at least one fatality if a driver drives while legally intoxicated (BAC greater than .09)

13. Three airlines serve Guwahati. Airline A has 50% of all the scheduled flights, airline B has 30%, and
airline C has the remaining 20%. Their on time rates are 80%, 655 and 40%, respectively. A plane
has just left on time. What is the probability that it was airline A?

14. Transplant operations have become routine. One common transplant operation is for kidneys. The
most dangerous aspect of the procedure is the possibility that the body may reject the new organ.
There are several new drugs available for such circumstances. And the earlier the drug is
administered, the higher the probability of averting rejection. The New England Journal of Medicine
recently reported the development of a new urine test to detect early warning signs that the body is
rejecting a transplanted kidney. However, like most other tests, the new test is not perfect. When the
test is conducted on someone whose kidney will be rejected, approximately one out of five tests will
be negative (i.e., the test is wrong). When the test is conducted on a person whose kidney will not be
rejected, 8% will show a positive test result (i.e. another incorrect result). Physicians know that in
about 35% of kidney transplants the body tries to reject the organ. Suppose that the test was
performed and the test is positive (indicating early warning of rejection). What is the probability that
the body is attempting to reject the kidney?

15. There are four activities along the critical path for a project. The expected values and variances of the
completion times of the activities are
listed here. Determine the expected APPLICATIONS IN OPERATIONS MANAGEMENT : PERT/CPM
value and variance for the completion PERT (Project Evaluation and Review Technique) and CPM (Critical Path Me
time of the project. are related management science techniques that help operations managers
control the activities and the amount of time it takes to complete a project.
techniques are based on the order in which the activities must be performe
Activity Expected Variance example, in building a house, the excavation of foundation must precede th
complet pouring of the foundation, which in turn precedes the framing. A path is de
ion as a sequence of related activities that leads from the starting point to the
Time completion of a project. In most projects there are several paths with differ
(Days) amounts of time needed for their completion. The longest path is called the
Critical Path because any delay in the activities along this path will result in
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delay in the completion of the project. In some versions of PERT/CPM, the a
2 12 5 completion times are fixed and the chief task of the operations manager is t
3 27 6 determine the critical path. In other versions each activity’s completion time
considered to be a random variable, where the mean and variance can be
4 8 2 estimated.

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16. The operations manager of a large plant wishes to overhaul a machine. After conducting a
PERT/CPM analysis, he has developed the following critical path.
1. Disassemble the machine
2. Determine parts that need replacing
3. Find needed part in inventory
4. Reassemble machine
5. Test machine
He has estimated the mean (in minutes) and variances of the completion times as follows.
Activity Mean Variance
1 35 8
2 20 5
3 20 4
4 50 12
5 20 2

Determine the mean and standard deviation of the completion time of the project.
17. Suppose that you are facing a decision about where to invest that small fortune that remains after
you have deducted the anticipated expenses for the next year from the earnings from your summer
job. A friend has suggested two types of investment, and to help make the decision you acquire some
rates from each type. You would like to know what you can expect by way of the return on your
investment, as well as other type of information, such as whether the rates are spread out over a
wide range or are grouped tightly together. Do the data indicate that it is possible that you can do
extremely well with little likelihood of a large loss? Is it likely that you could lose money? The
returns for the two types of investments were entered in SPSS and the descriptive statistics was
produced as given in the table below.
Statistics

Return A Return B
N Valid 50 50
Missing 0 0
Mean 10.9454 12.7602
Median 9.8800 10.7550
Mode 12.89 -38.47a
Std. Deviation 21.89401 28.04676
Variance 479.348 786.621
Range 84.95 106.47
Minimum -21.95 -38.47
Maximum 63.00 68.00
Sum 547.27 638.01
Percentiles 25 -7.4175 -1.2150
50 9.8800 10.7550
75 25.8625 31.3000
a. Multiple modes exist. The smallest value is shown

a. Use a graphical technique to present the score of those who repaid.

b. Use a graphical technique to present the scores of those who defaulted.
c. What have you learned about the scorecard?
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 Using the information in the table, decide, which investment will you choose and why. Write your
interpretation.

18. Credit Scorecard 1.xls A small bank that heretofore did not use a scorecard wanted to determine
whether a scorecard would be advantageous. The bank manager took a random sample of 300 loans
that were granted and scored each on a scorecard borrowed from a similar bank. This scorecard is
based on the responses supplied by the applicants to question such as age, marital status, and
household income. The cutoff is 650, which means that those scoring above are predicted to repay.
Two hundred twenty of the loans were repaid, the rest were not. The scores of those who repaid and
the scores of those who defaulted were
recorded. (Solve the question by importing Applications in Banking - Credit
the data in Minitab and SPSS) Scorecards: credit scorecards are used by
banks and financial institutions to determine
19. Credit Scorecard 2.xls Refer to the question whether applicants will receive loans. The
above. The bank decided to try another scorecard is the product of a statistical
scorecard, this one based not on the technique that converts questions about
responses of the applicants, but on credit income, residence, and other variables into a
score. The higher the score, the higher is the
bureau reports, which lists problems such as
probability is that the applicant will repay.
late payments and previous defaults. The The scorecard is a formula produced by a
scores using the new score card of those who statistical technique called logistic
repaid and the scores of those who did not regression. For example, a scorecard may
repay were recorded. The cutoff score is 650. score age categories in the following way.
a. Use a graphical technique to present the
score of those who repaid. Less than 25 20 points
b. Use a graphical technique to present the 25 to 39 24
scores of those who defaulted. 40 to 55 30
c. What have you learned about the Over 55 38
scorecard?
Other variables would be scored similarly.
d. Compare the results of this exercise with
The sum for all variables would be the
those of the above exercise. Which scorecard applicant’s score. A cutoff score would be
appears to be better? used to predict those who will repay and
20. An independent research group has been those who will default. Because no scorecard
studying the chances that an accident at a is perfect, it is possible to make two types of
nuclear power plant will result in radiation error: granting credit to those who will
leakage. The group considers that the only default and not lending money to those who
possible types of accidents at a reactor are would have repaid.
fire, mechanical failure, and human error,
and that two or more accident never occurs together. It has performed studies that indicate that if
there were a fire, a radiation leak would occur 50% of the time; and if there were a human error, a
radiation leak would occur 10% of the time. Its studies have also shown that the probability of
A fire and radiation leak occurring together is 0.0010
A mechanical failure and a radiation leak occurring together id 0.0015
A human error and a radiation leak occurring together is 0.0012.
What are the respective probabilities of a fire, mechanical failure, and human error?

21. A student majoring in Finance and Accounting is trying to decide on the number of firms to which he
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 should apply. Given his experience in handling financial data in MS – Excel and his CGPA, he can
expect to receive a job offer from 80% of the firms to which he applies. The student decides to apply
to only four firms. What is the probability he receives no job offers?

22. Major software manufacturers offer a help line that allows customers to call and receive assistance in
solving their problem. However, because of the volume of the calls, manufacturer claims that only
25% of callers are put on hold. Suppose that 100 customers call. What is the probability that more
than 25 of them are put on hold?

23. Applications in Finance - Probability of a Negative Return on Investment: Consider an

investment whose return is normally distributed with a mean of 10% and standard deviations of 5%.
a. Determine the probability of losing money.
b. Find the probability of losing money when the standard deviations are equal to 100.

24. During the spring the demand for electric fans at a large home improvement store is quite strong.
The company tracks inventories using a computer system so that it knows how many fans are in the
inventory at any time. The policy is to order a new shipment of 250 fans when the inventory level
falls to the reorder point, which is 100. However this policy has resulted in frequent shortages,
resulting in lost sales because both lead time and demand are highly variable. The manager would
like to reduce the incidence of shortage so that only 5% of orders will arrive after the inventory
drops to 0(resulting in a shortage). This policy is expressed as a 95% service level. From previous
periods, the company has determined that demand during lead time is normally distributed with a
mean of 200 and standard deviation of 50. Determine the reorder point.

25. A retailer of computing products sells a variety of computer related products. One of his most
popular products is an HP Laser Printer. The average weekly demand is 200. Lead time for a new
order from the manufacturer to arrive is 1 week. If the demand for printers were constant, the
retailer would reorder when there were exactly 200 printers in inventory. However, the demand is a
random variable. An analysis of previous weeks reveals that the weekly demand standard deviation
is 30. The retailer knows that if a customer wants to buy an HP Laser Printer but he has none
available, he will lose that sale plus possibly additional sales. He wants the probability of running
short in any week to be no more than 6%. How many HP Laser Printers should he have in stock when
he reorders from the manufacturer?

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