INTRODUCTION

TO
QUANTITATIVE
ANALYSIS
To accompany
Quantitative Analysis for Management, Twelfth Edition,
by Render, Stair, Hanna and Hale
Power Point slides created by Jeff Heyl

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LEARNING OBJECTIVES
Students will be able to:

1. Describe the quantitative analysis approach

2. Understand the application of quantitative
analysis in a real situation
3. Describe the use of modeling in quantitative
analysis
4. Perform a break-even analysis
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WHAT IS QUANTITATIVE
ANALYSIS?
Quantitative Analysis is a scientific
approach to managerial decision making in
which raw data are processed and manipulated
to produce meaningful information
Raw Data

Quantitative
Analysis

Meaningful
Information

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WHAT IS QUANTITATIVE
ANALYSIS?
Quantitative factors are data that can be
accurately calculated
Interest rates
Demand
Labor cost

Qualitative factors are more difficult to

quantify but affect the decision process
The weather
State and federal legislation
Technological breakthroughs

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WHAT IS QUANTITATIVE
ANALYSIS?
Qualitative Data
Overview: Deals with
descriptions.
Data can be observed but
not measured.
Colors, textures, smells,
tastes, appearance, beauty,
etc.
Qualitative Quality

Quantitative Data
Overview: Deals with
numbers.
Data which can be
measured.
Length, height, area, volume,
weight, speed, time,
temperature, humidity, sound
levels, cost, members, ages,
etc.
QuantitativeCopyright
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Quantity
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WHAT IS QUANTITATIVE
ANALYSIS?
Qualitative Data
Example 1:
Oil Painting

Quantitative Data
Example 1:
Oil Painting

blue/green color, gold frame

picture is 10" by 14"
smells old and musty
with frame 14" by 18"
texture shows brush strokes of oil weighs 8.5 pounds
paint
surface area of painting is 140
peaceful scene of the country
sq. in.
masterful brush strokes
cost $300
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THE QUANTITATIVE
ANALYSIS APPROACH
FIGURE 1.1

Defining the Problem

Developing a Model

Acquiring Input Data

Developing a Solution
Testing the Solution
Analyzing the Results
Implementing the Results

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STEP 1:DEFINING THE

PROBLEM
Develop a clear and concise statement of
the problem to provide direction and
meaning
This may be the most important and difficult
step
Go beyond symptoms and identify true causes
Concentrate on only a few of the problems
selecting the right problems is very important
Specific and measurable objectives may have
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to be developed
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 Models are realistic,

solvable, and
understandable
representations of a
situation

$ Sales

STEP 2:DEVELOPING A
MODEL

$ Advertising

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STEP 2:DEVELOPING A
MODEL

Different types of models

Schematic
models
Physical
/Scale
models

Verbal
models

Mathematical
models

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STEP 2:DEVELOPING A
MODEL
Mathematical model an abstract model that
uses mathematical language to describe the
behavior of a system.
Models generally contain variables and
parameters
Parameterknown quantity
Variable- unknown
and must be
quantity and must be
measurable
measurable
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STEP 3:ACQUIRING INPUT

DATA
INPUT DATA MUST BE ACCURATE GIGO RULE
Garbage
In
Process
Garbage
Out
Data may come from a variety of sources company

reports, documents, employee interviews, direct

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STEP 4:DEVELOPING A
SOLUTION
Manipulating the model to arrive at the best
(optimal) solution
Common techniques are
Solving equations
Trial and error trying various approaches and
picking the best result

Using an algorithm a series of repeating steps

to reach a solution
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STEP 5:TESTING THE

SOLUTION
Both input data and the model should be
tested for accuracy before analysis and
implementation
New data can be collected to test the model
Results should be logical, consistent, and
represent the real situation

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STEP 6:ANALYZING THE

RESULTS
Determine the implications of the solution
Implementing results often requires change in an
organization
The impact of actions or changes needs to be
studied and understood before implementation

Sensitivity analysis determines how much

the results will change if the model or input
data changes
Sensitive models should be very thoroughly tested
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STEP 7:IMPLEMENTING THE

RESULTS
Implementation incorporates the solution into
the company
Implementation can be very difficult
People may be resistant to changes
Many quantitative analysis efforts have failed
because a good, workable solution was not properly
implemented

Changes occur over time, so even successful

implementations must be monitored to
determine if modifications are necessary
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MODELS CATEGORIZED
BY RISK
Mathematical models that do not involve risk
or chance are called deterministic models
All of the values used in the model are known
with complete certainty

Mathematical models that involve risk or

chance are called probabilistic models
Values used in the model are estimates based
on probabilities
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QUANTITATIVE ANALYSIS
MODEL
A mathematical model of profit:

Profit = Revenue Expenses

Revenue and expenses can be expressed in
different ways

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QUANTITATIVE ANALYSIS
MODEL
Fixed Cost- rent,
insurance, equipment,
dues, payments on loans,
management fixed
monthly salaries and
advertising

Revenue= Price per unit

times # of units sold

Variable Cost- raw

materials, hourly
production wages, sales
commissions, packaging
supplies and shipping
costs

Variable Cost=
Variable Cost Per unit
times # of Units

Expenses= Fixed Cost

plus Variable Cost

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QUANTITATIVE ANALYSIS
MODEL
Profit = Revenue (Fixed cost + Variable cost)
Profit = (Selling price per unit)(Number of units
sold) [Fixed cost + (Variable costs per
unit)(Number of units sold)]
Profit =sX [f + vX]

Profit =sX f vX
where
s = selling price per unit
f = fixed cost

v = variable cost per unit

X = number of units sold
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QUANTITATIVE ANALYSIS
MODEL
The parameters
of this cost)
Profit = Revenue (Fixed
cost + Variable
model are f, v, and s as
Profit = (Selling price per unit)(Number of units
these are the inputs
sold) [Fixed cost + (Variable costs per
inherent in the model
unit)(Number of units sold)]
The decision variable of
Profit =sX [f + vX]
interest is X
Profit =sX f vX
where
s = selling price per unit
f = fixed cost

v = variable cost per unit

X = number of units sold
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QUANTITATIVE ANALYSIS
MODEL-Example 1
Bills company, Pritchetts Precious Time Pieces,
sells, buys, and repairs old clocks and clock parts.
Bill sells rebuilt springs for a price unit of $10. The
fixed cost of the equipment to build the springs is
$1000. The variable cost per unit is $5 for spring
material.
A.) How much will be the lost if X=0?

B.) How much will be the profit if there are 1000

units sold?
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QUANTITATIVE ANALYSIS
MODEL-Example 1
The company buys, sells, and repairs old clocks
Rebuilt springs sell for $8 per unit
Fixed cost of equipment to build springs is
$1,000
Variable cost for spring material is $3 per unit
s=8
f = 1,000 v = 3
Number of spring sets sold = X
PROFITS = $8X $1,000 $3X

If sales = 0, profits = f = $1,000

If sales = 1,000, profits = [($8)(1,000) $1,000 ($3)(1,000)]
= $4,000
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QUANTITATIVE ANALYSIS
MODEL-Example 1
Companies are often interested in the breakeven point (BEP), the BEP is the number of
units sold that will result in $0 profit
0 = SX F VX,

OR

0 = (S V)X F

Solving for X, we have

f = (s v)X
f
X= sv

Fixed cost
BEP =
(Selling price per unit) (Variable cost per unit)
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QUANTITATIVE ANALYSIS
MODEL-Example 1
Compute the BEP for Pritchetts Precious
Time Pieces (Example No.1)
BEP for Pritchetts Precious Time Pieces
BEP = $1,000/($8 $3) = 200 units
Sales of less than 200 units of rebuilt springs
will result in a loss
Sales of over 200 units of rebuilt springs
will
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result in a profit

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QUANTITATIVE ANALYSIS
MODEL-Example 2
Gina Fox has started her own company, foxy shirts, which
manufactures imprinted shirts for special occasions. Since
she has just begun this operation, she rents the equipment
from a local printing shop when necessary. The cost of using
the equipment is $350. The materials used in one shirt cost
$8, and Gina sell these for $15 each.

A.) If Gina sells 20 shirts, what will her total revenue be?
What will her total variable cost?
B.) How many shirts must Gina sell to break even? What is
the total revenue for this?
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QUANTITATIVE ANALYSIS
MODEL-Example 3

Golden age retirement planners specializes in providing

financial advice for people planning for a comfortable
retirement. The company offers seminars on the important
topic of retirement planning. For a typical seminar, the
room rental at a hotel is $1920 and the cost of advertising
and other incidentals is about $11000 per seminar. The cost
of the materials and special gifts for each attendee is $60
per person attending the seminar. The company charges
$250 per person to attend the seminar as this seems to be
competitive with other companies in the same business. (a)
How many people must attend each seminar for golden age
to break even? (b) How much will be the profit if 150
persons attended each seminar? (c) Construct a break-even
graph for the problem.
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QUANTITATIVE ANALYSIS
MODEL-Example 4
A couple of entrepreneurial business students at state
university decided to put their education into practice by
developing a tutoring company for business students. While
private tutoring was offered, it was determined that group
tutoring before tests in the large statistics classes would be
most beneficial. The students rented a room close to campus
for $300 for 3 hours. They developed handouts based on
past tests, and these handouts cost $5 each. The tutor was
paid $25 per hour, for a total of $75 for each tutoring
session.
a. If students are charged $20 to attend per session, how
many students must enroll for the company to break even?
b. A somewhat smaller room is available for $200 for 3 hours.
The company is considering this possibility. What will be
the new break even point?
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COMPUTERS AND
SPREADSHEET MODELS
POM-QM for
Windows

An easy to use
decision support
system for use in
POM and QM
courses
This is the main
menu of quantitative
models
An Excel add-in

PROGRAM 1.1 Main Menu

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COMPUTERS AND
SPREADSHEET MODELS

PROGRAM 1.2A Entering Data

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COMPUTERS AND
SPREADSHEET MODELS

PROGRAM 1.2B Solution Screen

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COMPUTERS AND
SPREADSHEET MODELS

PROGRAM 1.3 Excel Ribbon and Menu

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COMPUTERS AND
SPREADSHEET MODELS

PROGRAM 1.4 Entering Data

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COMPUTERS AND
SPREADSHEET MODELS

PROGRAM 1.5 Using Goal Seek

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