Successful managers use quantitative techniques in decision making when: 1. The problem is complex.
2. The problem involves many variables.
3. There are data which describe the decision environment. 4. There are data which describe the value or utility of the different possible alternatives. 5. The goals of the decision maker or the organization can be described in quantitative terms. 6. Workable models are available for these situations.
Six steps towards making better decisions:
Process Activities Process StepsProcess Output
1. Site visitsObserve the problem Sufficient information Conferencesenvironmentand support to proceed
2. Define useAnalyze and defineClear grasp of need for
Define objectivesand nature of solution
3. MS/OR toolsDevelop a modelModel that works under
4. Internal/external dataSelect appropriate data Sufficient inputs to Factsinputoperate and test model
Computer data banks
5. TestingProvide a solution and Solution(s) that support Limitationstest its reasonablenesscurrent organizational Verificationobjectives
6. Behavioral issuesImplement the solution“Ownership” by management “Selling” the ideasufficient to support longer Management involve-run/operation of model
Roles of quantitative specialist and managerial generalist/decision maker:
Steps in Problem Recognition,Involvement: Quantitative specialist Formulation & Solutionor managerial generalist
1. Recognize from organizationalManagerial generalist
symptoms that a problem exists.
2. Decide what variables areManagerial generalist & quantitative involved; state the problemspecialist
in quantitative relationships
among the variables.
3. Investigate methods for solvingQuantitative specialist
the problem as stated above;
determine the appropriate
quantitative tools to be used.
4. Attempt solutions to the Quantitative specialist
problem; find various solutions;
state assumptions underlying
these solutions; test alternative
5. Determine which solutionManagerial generalist & quantitative is most effective becausespecialist
of practical constraints within
the organization; decide what
the solution means for the
6. Choose the solution to be used.Managerial generalist
7. “Sell” the decision to operatingManagerial generalist & quantitative managers; get their understanding specialist
Some applications of MS/OR:
Forecasting cash flows
Assigning audit teams effectively
Using samples to improve audit accuracy
Management of accounts receivables
Deciding which customers to give credit to and how much Improving the effectiveness of cost accounting
Resolving transfer pricing problems
Establishing costs for byproducts
Developing standard costs
Building cash management models
Allocating capital among various investment alternatives Managing an investment portfolio
Forecasting long range capital needs
Building financial planning models
Determining optimal times to replace equipment
Deciding on the most effective dividend policy
Determining the best product mix
Effectively allocating advertising among various media Finding the best time to introduce a new product
Locating warehouses to minimize distribution cost
Planning salespersons’ travel to minimize time and...