# Quantitative Management

**Topics:**Decision making, Decision theory, Decision making software

**Pages:**7 (1417 words)

**Published:**November 27, 2008

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

Observation

Research

2. Define useAnalyze and defineClear grasp of need for

Define objectivesand nature of solution

Define limitationsrequested

3. MS/OR toolsDevelop a modelModel that works under

Interrelationshipsidentified limitations

Mathematical models

Known solutions

Research

4. Internal/external dataSelect appropriate data Sufficient inputs to Factsinputoperate and test model

Opinions

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

ment

Explanations

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

solutions.

5. Determine which solutionManagerial generalist & quantitative is most effective becausespecialist

of practical constraints within

the organization; decide what

the solution means for the

organization.

6. Choose the solution to be used.Managerial generalist

7. “Sell” the decision to operatingManagerial generalist & quantitative managers; get their understanding specialist

and cooperation

Some applications of MS/OR:

Accounting:

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

Finance:

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

Marketing:

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...

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