SQQP 5023

DECISION ANALYSIS
also known as OPERATIONS RESEARCH MANAGEMENT SCIENCE QUANTITATIVE ANALYSIS
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 Why do I need to take this subject ????? What use it will be for me ?????

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WHY STUDY THIS COURSE

The modeling techniques discussed in this course are used extensively in the business world Techniques such as forecasting, LP , etc. are very useful. Even if these techniques are not used directly on the job, the logical approach to problem solving, discussed in this course, is valuable for all types of jobs in all types of organizations.
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Introduction to Quantitative Analysis

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Introduction
Mathematical tools have been used for thousands of years QA can be applied to a wide variety of problems One must understand: the specific applicability of the technique, its limitations and its assumptions
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The Evolution of QA
1990 1980

1970
1960 1950 1940 1930 1920 1910 1900

Expert Systems and Artificial Intelligence Decision Support Information System Goal Programming Decision Theory Network Models Dynamic Programming Game Theory Transportation Assignment Technique Inventory Control Queuing Theory Markov Analysis

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The Decision-Making Process

Quantitative Analysis
Logic Historic Data Marketing Research Scientific Analysis Modeling

Problem

Decision

Qualitative Analysis
Weather State and federal legislation New technological breakthroughs Election outcome
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Overview of Quantitative Analysis

Scientific Approach to Managerial Decision Making Consider both Quantitative and Qualitative Factors
Quantitative Analysis Meaningful Information

Raw Data

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The Quantitative Analysis Approach

Define the problem Develop a model Acquire data Develop a solution Test the solution Analyze the results and perform sensitivity analysis Implement the results
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The QA Approach
Define the Problem Develop a Model Acquire Input Data Develop a Solution Test the Solution Analyze the Results Implement the Results
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Define the Problem

All else depends on this
Clear and concise statement required May be the most difficult step Must go beyond symptoms to causes Problems are related to one another Must identify the right problem May require specific, measurable objectives
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Developing the Model

Model is a representation of a situation Models may be: physical, logical, scale, schematic or mathematical Models contain variables (controllable or uncontrollable) and parameters Controllable variables are called decision variables Models should be solvable, realistic, easy to understand and easy to modify
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Acquire Data
Accurate data is essential (GIGO)
Data may come from: company reports, company documents, interviews, on-site direct measurement, and statistical sampling

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Develop a Solution
Manipulate the model to arrive at the best solution Solution must be practical and implementable Various methods:
solution of equation(s) trial and error complete enumeration implementation of algorithm

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Test the Solution

Must test both input data and model
Determine accuracy and completeness of

input data: collect data from a different

source and compare Check results for consistency - above all, do they make sense?
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Analyze the Results

Understand what action is implied by the solution Determine the implications of this action Conduct sensitivity analysis - change input value or model parameter and see what happens Use sensitivity analysis to help gain understanding of problem (as well as for answers)

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Implement the Results

Incorporate the solution into the company
Monitor the results

Use the results of the model and sensitivity analysis to help you sell the solution to management

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Modeling in the Real World

Models are complex
Models can be expensive

Models can be difficult to sell

Models are used in the real world by real organizations to solve real problems

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Developing a QA Model
Example: Western Clothing Company produce denim jeans. Each pair of denim jeans cost RM8 to produce and sells for RM23 per pair.

Model: Profit = 23X 8X; X = number of jeans sold

If the company sells 300 pairs of jeans, Profit = 23 (300) 8 (300) = RM4500

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Developing A QA Model (Finding Break-Even Point)

Example: Consider previous example. Let say the company also incurs fixed cost of RM10,000 per month. Model: Profit = 23X 8X 10,000; X = number of jeans sold. At Break-even point: Total Revenue = Total Cost (i.e. Profit = 0) 0 = 23X 8X 10,000 X = 666.7 pairs of jeans.
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Developing A QA Model (Finding Break-Even Point)

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Models Can Help Managers to

gain deeper insight into the nature of business relationships
find better ways to assess values in such relationships; and see a way of reducing, or at least understanding, uncertainty that surrounds business plans and actions
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Models
are less expensive and disruptive than experimenting with real world systems
allow What if questions to be asked are built for management problems and encourage management input enforce consistency in approach require specific constraints and goals
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Models Can
accurately represent reality help a decision maker understand the problem save time and money in problem solving and decision making help communicate problems and solutions to others provide the only way to solve large or complex problems in a timely fashion
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The Downside: Models

may be expensive and time-consuming to develop and test are often misused and misunderstood (and feared) because of their mathematical complexity tend to downplay the role and value of nonquantifiable information often have assumptions that oversimplify the variables of the real world
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Using Models: Some Suggestions (from Dr. J.N.D. Gupta)

Use descriptive models Understand why the managers involved decide things the way they do Identify managerial and organizational changes required by the model Analyze each situation in terms of its impact on management Prepare a realistic cost/benefit analysis of tradeoffs of alternate solutions
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Mathematical Models Characterized by Risk

Deterministic models - we know all values used in the model with certainty
Probabilistic models - we know the probability that parameters in the model will take on a specific value

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QM For Windows

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Main Menu of QM Models

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Possible Problems in Using Models

Define the Problem Conflicting viewpoints Departmental impacts Assumptions Develop a Model Fitting the Model Understanding the Model Acquire Input Data Accounting Data Validity of Data Develop a Solution Complex Mathematics Only One Answer is Limiting Solutions become quickly outdated

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Possible Problems, Continued

Test the Solution Implement the Solution Identifying Selling the solution to appropriate test others procedures Analyze the Results Holding all other conditions constant Identifying cause and effect
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