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Mr. SHAHZAD CH.


Ahmer Khalid. 5382 (Group leader)
Iram Sadiq Khan. 5355
Mumtaz Sadiq Khan. 5356
Areej Humayun Malik. 5361
Waqar Ali. 5377 




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24 JULY, 2009



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'uantitative techniques are the powerful tools through which production can be
augmented, profits maximized, cost minimized and production methods can be
oriented for the accomplishment of certain pre-determined objectives. The study
of quantitative techniques is a relatively new discipline which has its wide range
of applications especially in field of agriculture and industry.

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'uantitative techniques are those statistical and operational research or

programming techniques which help in the decision making process especially
concerning business and industry. These techniques involve the introduction of
the element of quantities i.e. they involve the use of numbers, symbols and other
mathematical expressions. As such, 'uantitative techniques may be defined as
those techniques which provide the decision maker with the systematic and
powerful means of analysis and help, based on quantitative data, in exploring
policies for achieving pre-determined goals.

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'UANTITATIVE TECHNI'UES can broadly be put under two groups: (a) Statistical
techniques (b) Programming techniques.

STATISTICAL TECHNI'UES:

Statistical techniques are those which are used in conducting statistical inquiry
concerning a certain phenomenon. They include all statistical methods beginning
from the collection of data till the interpretation of collected data.

PROGRAMMING TECHNI'UES:

These are the model building techniques used by the decision makers in the
modern times. They include wide variety of techniques such as linear
programming, theory of games, simulation, net work analysis and many other
similar techniques.
The following steps are generally involved in the application of the programming
techniques:

1)÷ All quantifiable factors which are pertinent to the functioning of the
business system under consideration are defined in mathematical
language: variables and parameters or coefficients.
2)÷ Appropriate mathematical expressions are formulated which describe
inter-relations of all variables and parameters. This is what is known as
formulation of mathematical model.
3)÷ An optimum solution is determined on the basis of the various equations of
the model, satisfying the limitations and inter-relations of the business
system and at the same time, maximizing profits or minimizing costs.
4)÷ The solution values of the model, obtained as above, are then tested
against actual observations. If necessary, the model is modified in the light
of such observations and the whole process is repeated till a satisfactory
model is attained.
5)÷ Finally the solution is put to work.

The following chart enlists the names of important quantitative techniques:

'UANTITATIVE TECHNI'UES

Statistical techniques
programming techniques

1)÷ Methods of collecting data 1)

linear programming
2)÷ Classification and tabulation of data 2)
decision theory
3)÷ Probability theory and sampling analysis 3)
simulations:
4)÷ Correlation and regression analysis a)
Montecarlo technique
5)÷ Index numbers b)
Systems simulations
6)÷ Time series analysis 4)
Theory of games
7)÷ Interpolation and extrapolation 5)
'ueuing theory
8)÷ Survey techniques and methodology 6)
Inventory of planning
9)÷ Ratio analysis 7) Net
Work Analysis
10)÷ Statistical quality control 8)
Integrated production
11)÷ Analysis of variance 9)
Others
12)÷ Statistical inference and interpretation
13)÷ Theory of attributes

A brief mention of the meaning of various important quantitative

techniques are as under:

1)÷ Statistical techniques:

Some of the important statistical techniques often used in a business
and industry are as under:
a)÷ Probability theory and sample analysis. In many studies
concerning business problems, the consideration of time and cost
lead to examination of only a few items of the universe. But the
items selected should be the representative as possible of the
total population. The selection process is called sampling. Samples
are of two basic types:
Probability and non-probability.
 b)÷ Correlation and regression analysis. Correlation and regression
analysis is another important statistical technique often used in
business and industry. Regression analysis examines the past
trends of relationships between one variable e.g. sales volume
and one or more than one other variables e.g. advertising
expenditure and cost of sales men.
c)÷ Index numbers. Index number constitutes that statistical
technique which measures fluctuations in price, volume,
economic activity or other variables over a period of time.
d)÷ Time series analysis. Through statistical technique, series of data
over a period of time are analyzed as to their chief types of
fluctuations such as trend, cyclical and seasonal.
e)÷ Interpolation and extrapolation. Interpolation is a statistical
technique of estimating, under certain assumptions, the figures
missing amongst the given values of the variable itself whereas
extrapolation provides figures outside the given data.
f)÷ Ratio analysis. This technique is applied to business is a part of
whole process of analysis of financial statements of any business
or industrial concern to take credit decisions.
g)÷ Statistical quality control. This technique is used by almost all the
modern manufacturing industries. Under this technique the
control of the quality is ensured by the application of theory of
probability to the results of examination of samples. They
technique helps in separating the assignable causes from the
chance causes.

2)÷ Programming technique:

Programming techniques are so-called sophisticated quantitative
techniques commonly known as operations research (OR) technique.
Operations research is a comparatively new science derived from any
disciplines such as mathematics, physics, engineering and economics.
Thus O.R. rests on inter disciplinary team approach. It developed in
1940͛sto tackle military and defense problems in Britain and USA but
is now being applied increasingly in solving the problems of business
all over the world.

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The various O.R techniques require a basic knowledge of statistics,
theory of probability and mathematics since the different phases of
such techniques usually cover the following:

1)÷ Formulation of the problem in quantitative terms.

2)÷ Constructing a mathematical model in which the various
components of the system under study and their inter-
relationship are expressed in symbols.
3)÷ Obtaining a solution from a model.
4)÷ Testing the validity of the model and the solution obtained from
it.
5)÷ Controlling the model and its solution.
6)÷ Implementing the model.

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Some of the important O.R techniques often used these days in
business and industry are as under:
1)÷ Linear programming. This technique is used in finding solutions
for optimizing a given objective such as profit maximizing
under certain constraints. This technique is primarily
concerned with the optimal allocation of limited sources for
optimizing a given function.
2)÷ Waiting line or queuing theory. It deals with the mathematical
study of queues. The queues are formed whenever the current
 demand for service exceeds the current capacity to provide
that service. This technique concerns itself with the random
arrival of customers at a service station where the facility is
limited.
3)÷ Inventory control. It aims at optimizing inventory levels.
Inventory may be defined as useful idle resource which has
economic value. E.g. raw material, spare parts etc. inventory
planning answers two questions viz. how much to buy and
when to buy?
4)÷ Game theory. It is used to determine the optimum strategy in
a competitive situation. Simplest possible competitive is that
of two persons playing zero sum game. I.e. situations under
which two persons are involved and one person wins exactly
what other lose.
5)÷ Decision theory. It concerns with making sound decisions
under conditions of certainty, risk and uncertainty.
6)÷ Net work analysis. It involves, the determination of an
optimum sequence of performing certain operations
concerning some jobs in order to minimize overall time and
cost.
7)÷ Simulation. It is a technique of testing a model which
resembles a real life situation. This technique is used to imitate
an operation prior to actual performance. Two methods of
simulations are there: a) Montecarlo method b) System
simulation method.
8)÷ Integrated production model. This technique aims at
minimizing cost with respect to workforce, production and
inventory. This technique is highly complex one and is used
only by big business units.

Role of quantitative techniques in business and industry

'uantitative techniques especially Operations Research
technique have gained increasing importance since World War
2 in the technology of business administration. These
techniques greatly help in tackling the intricate and complex
problems. 'uantitative techniques in decision making are, in
fact, the examples of the use of scientific method of
management. Their role can be well understood under the
following heads:

1)÷ They provide tool for scientific analysis. These techniques

provides the executives with more precise description of
the cause and effect relationship and risk underlying the
business operations in measurable terms and this
eliminates the conventional intuitive and subjective basis
on which management use to formulate their decisions,
decades ago.
2)÷ They provide solutions for various business problems. The
quantitative techniques are being used in the fields of
production, procurement, marketing, finance and other
allied fields.
3)÷ They enable proper deployment of resources. 'uantitative
techniques render valuable help in proper deployment of
resources. For example, Program Evaluation and Review
Technique (PERT) enable us to determine the earliest and
the latest times for each of the events and thereby help in
the identification of the critical path.
4)÷ They help in minimizing waiting and servicing costs. The
waiting line and queuing theory helps the management
men in minimizing the total waiting and servicing costs. This
technique also analyses the feasibility of adding facilities
and thereby helps the business people to take correct and
profitable decisions.
5)÷ They enable the management to decide when to buy and
how much to buy. The main object of the inventory
planning is to achieve balance between the costs and
benefits of stock holding.
6)÷ They assist in choosing an optimum strategy. Game theory
is specially used to determine the optimum strategy in a
competitive situation and enable the businessmen to
maximize profits.
7)÷ They render great help in optimum resource allocation.
Linear programming technique is used to allocate scarce
resources in an optimum manner in problems of
scheduling, product-mix and so on.
8)÷ They facilitate process of decision making. Decision theory
enables the businessmen to select the best course of action
when information is given in probabilistic form. Through
decision tree, technique, executive͛s judgment can
systematically be brought into the analysis of the problems.
9)÷ Through various quantitative techniques, management can
know the reactions of the integrated business systems. The
integrated production models technique is used to
minimize cost with respect to work force, production and
inventory. This technique is quite complex and is usually
used by the companies having detailed information
concerning their sales and costs statistics over a long
period.
10)÷ Statistical techniques are also of great help to
businessmen in more than one way. Some of the statistical
techniques are of considerable importance in sales
forecasting, whereas others facilitate comparisons between
the various phenomena overtime. Through statistical
quality control techniques it can be seen whether the
process is under control or not, and if the same is not under
 control, then corrective measures can be immediately be
thought of.

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From what have been stated above, we find that quantitative

techniques render a valuable service in the field of business
management. They help the directing authority in optimum
allocation of various limited resources to different competing
opportunities on an objective basis for achieving effectively
the goal of a business unit.

'uantitative techniques are useful to the production

management in 1) selecting the building site for plant,
scheduling and controlling its development and designing its
layout. 2) Locating within the plant and controlling the
movements of required production material and finished
goods inventories. 3) Scheduling and sequencing production by
adequate preventive maintenance with optimum number of
operatives by proper allocation of machines. 4) Calculating the
optimum product ʹmix.

'uantitative techniques are useful to the personnel

management to find out: 1) optimum manpower planning, 2)
the number f persons to be maintained on the permanent or
full time roll, 3) the number of persons to be kept in a work
pool intended for meeting the absenteeism. 4) the optimum
manner of sequencing and routing of personnel to a variety of
jobs, 5) in studying personnel recruiting procedures, accident
rates and labor turnover.
'uantitative techniques equally help the marketing
management to determine 1) where distribution points and
warehouses should be located, 2) the optimum allocation of
sales, 3) the choice of different media of advertising, 4) the
consumer preferences.

'uantitative techniques are also very useful in financial

management in 1) finding long range capital requirements as
well as how to generate these requirements.2) determine the
optimum replacement policies, 3) working out a profit plan for
the firm, 4) developing capital investment plans 5) estimating
credit and investment risks.

In addition to this, quantitative techniques provide the

business executives such an understanding of the business
operations which give them new insights and capability to
determine better solutions for several decision making
problems. When applied on the level of management, where
policies are formulated, the quantitative techniques assist the
executives in an advisory capacity.

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'uantitative techniques though are a great aid to

management but still they cannot be a substitute for decision
making. The choice of criterion as to what is actually best fro
the business enterprise is still that of an executive that has to
fall back upon his experience and judgment. This is so because
of the several limitations of quantitative technique. Important
limitations of this technique are as given below:
 1)÷ The inherent limitation concerning mathematical
expressions. 'uantitative techniques involve the use of
mathematical models, equations and similar other
mathematical expressions.
2)÷ High costs are involved in the use of quantitative
techniques. 'uantitative techniques usually prove very
expensive. Services of specialized persons are invariably
called for while using 'UANTITATIVE TECHNI'UES. As such
only big concerns can think of using such technique.
3)÷ 'uantitative technique does not take into consideration the
intangible factor i.e. non-measurable human factors.
'uantitative technique make no allowance for intangible
factor such as skill, attitude, vigour of the management
people in taking decision but in many instances success or
failure hinges upon the consideration of such non
measurable intangible factors.
4)÷ 'uantitative technique are just the tool of analysis and not
the complete decision making process. It should always be
kept in mind that quantitative techniques, whatsoever it
may be, alone cannot make the final decision.

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The above descriptions of meaning and use of various quantitative techniques

clearly explain the role of such technique in the field of business and industry.
Because of their usefulness, the study of quantitative techniques has gained
increasing importance especially in modern times. However, these techniques
should be taken only as an effective aid to decision making process: they can
never be substitute for human skills, experience and judgment.