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Unit-I
LESSON
1
QUANTITATIVE TECHNIQUES INTRODUCTION
CONTENTS
1.0 Aims and Objectives 1.1 Introduction 1.2 Historical Development 1.3 About Quantitative Technique 1.4 Methodology of Quantitative Techniques 1.4.1 Formulating the Problem 1.4.2 Defining the Decision Variables and Constraints 1.4.3 Developing a Suitable Model 1.4.4 Acquiring the Input Data 1.4.5 Solving the Model 1.4.6 Validating the Model 1.4.7 Implementing the Results 1.5 Advantages of Mathematical Modelling 1.6 Scope of Quantitative Technique 1.7 Statistics : An Introduction 1.7.1 Origin and Growth of Statistics 1.7.2 Meaning and Definition of Statistics 1.7.3 Statistics as Data 1.7.4 Statistics as a Science 1.7.5 Statistics as a Science different from Natural Sciences 1.7.6 Statistics as a Scientific Method 1.7.7 Statistics as a Science or an Art 1.8 Let us Sum Up 1.9 Lesson-end Activities 1.10 Keywords 1.11 Questions for Discussion 1.12 Terminal Questions 1.13 Model Answers to Questions for Discussion 1.14 Suggested Readings
1.1 INTRODUCTION
Scientific methods have been mans outstanding asset to pursue an ample number of activities. It is analysed that whenever some national crisis, emerges due to the impact of political, social, economic or cultural factors the talents from all walks of life amalgamate together to overcome the situation and rectify the problem. In this chapter we will see how the quantitative techniques had facilitated the organization in solving complex problems on time with greater accuracy. The historical development will facilitate in managerial decision-making & resource allocation, The methodology helps us in studying the scientific methods with respect to phenomenon connected with human behaviour like formulating the problem, defining decision variable and constraints, developing a suitable model, acquiring the input data, solving the model, validating the model, implementing the results. The major advantage of mathematical model is that its facilitates in taking decision faster and more accurately. Managerial activities have become complex and it is necessary to make right decisions to avoid heavy losses. Whether it is a manufacturing unit, or a service organization, the resources have to be utilized to its maximum in an efficient manner. The future is clouded with uncertainty and fast changing, and decision-making a crucial activity cannot be made on a trial-and-error basis or by using a thumb rule approach. In such situations, there is a greater need for applying scientific methods to decision-making to increase the probability of coming up with good decisions. Quantitative Technique is a scientific approach to managerial decision-making. The successful use of Quantitative Technique for management would help the organization in solving complex problems on time, with greater accuracy and in the most economical way. Today, several scientific management techniques are available to solve managerial problems and use of these techniques helps managers become explicit about their objectives and provides additional information to select an optimal decision. This study material is presented with variety of these techniques with real life problem areas.
Explain with the help of example some of the important Quantitative Techniques used in modern business and in industrial unit.
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Contd....
Write your answer in the space given below. Please go through the lesson sub-head thoroughly you will get your answers in it. This Chek Your Progress will help you to understand the lesson better. Try to write answers for them, but do not submit your answers to the university for assessment. These are for your practice only.
Do you think the day will come when all decision in a business unit are made with assistance of quantitative techniques? Give reasons for your answer. Notes: (a) (b) Write your answer in the space given below. Please go through the lesson sub-head thoroughly you will get your answers in it.
Contd....
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(c)
This Chek Your Progress will help you to understand the lesson better. Try to write answers for them, but do not submit your answers to the university for assessment. These are for your practice only.
Figure 1.1
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: : :
How many units of x1, x2 and x3 are to be manufactured x1, x2 and x3 To maximize profit Machine hours
Decision variables :
Now, this mathematical model enables us to identify the real situation by understanding the model. The models can be used to maximize the profits or to minimize the costs. The applications of models are wide, such as:
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Linear Programming Model Integer Programming Sensitivity Analysis Goal Programming Dynamic Programming Non Linear Programming Queuing Theory Inventory Management Techniques
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PERT/CPM (Network Analysis) Decision Theory Games Theory Transportation and Assignment Models.
Quantitative Technique is a very powerful tools and analytical process that offers the presentation of an optimum solutions in spite of its limitations. Discuss. Notes: (a) (b) (c) Write your answer in the space given below. Please go through the lesson sub-head thoroughly you will get your answers in it. This Chek Your Progress will help you to understand the lesson better. Try to write answers for them, but do not submit your answers to the university for assessment. These are for your practice only.
Contd....
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Finance and Accounting: Cash flow analysis, Capital budgeting, Dividend and Portfolio management, Financial planning. Marketing Management: Selection of product mix, Sales resources allocation and Assignments. Production Management: Facilities planning, Manufacturing, Aggregate planning, Inventory control, Quality control, Work scheduling, Job sequencing, Maintenance and Project planning and scheduling. Personnel Management: Manpower planning, Resource allocation, Staffing, Scheduling of training programmes. General Management: Decision Support System and Management of Information Systems, MIS, Organizational design and control, Software Process Management and Knowledge Management.
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From the various definitions of Quantitative Technique it is clear that scientific management hen got wide scope. In general, whenever there is any problem simple or complicated the scientific management technique can be applied to find the best solutions. In this head we shall try to find the scope of M.S. by seeing its application in various fields of everyday lift this include define operation too.
Check Your Progress 1.4
Discuss the significance and scope of Quantitative Techniques in modern business management. Notes: (a) (b) (c) Write your answer in the space given below. Please go through the lesson sub-head thoroughly you will get your answers in it. This Chek Your Progress will help you to understand the lesson better. Try to write answers for them, but do not submit your answers to the university for assessment. These are for your practice only.
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Among the noteworthy Indian scholars who contributed to statistics are P.C. Mahalnobis, V.K.R.V. Rao, R.C. Desai, P.V. Sukhatme, etc.
(iii) Numerical facts should be capable of being arranged in relation to each other. On the basis of the above features we can say that data are those numerical facts which have been expressed as a set of numerical figures related to each other and to some area of enquiry or research. We may, however, note here that all the characteristics of data are not covered by the above definition. 2. "By statistics we mean quantitative data affected to a marked extent by multiplicity of causes. - Yule & Kendall This definition covers two aspects, i.e., the data are quantitative and affected by a large number of causes. 3. "Statistics are classified facts respecting the conditions of the people in a stateespecially those facts which can be stated in numbers or in tables of numbers or in any other tabular or classified arrangement. - Webster "A collection of noteworthy facts concerning state, both historical and descriptive. - Achenwall Definitions 3 and 4, given above, are not comprehensive because these confine the scope of statistics only to facts and figures related to the conditions of the people in a state. However, as we know that data are now collected on almost all the aspects of human and natural activities, it cannot be regarded as a state-craft only. 5. "Statistics are measurements, enumerations or estimates of natural or social phenomena, systematically arranged, so as to exhibit their interrelations. - L.R. Connor This definition also covers only some but not all characteristics of data.
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"By statistics we mean aggregate of facts affected to a marked extent by a multiplicity of causes, numerically expressed, enumerated or estimated according to a reasonable standard of accuracy, collected in a systematic manner for a predetermined purpose and placed in relation to each other. - H. Secrist This definition can be taken as a comprehensive definition of statistics since most of the characteristics of statistics are covered by it.
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We may note here that if the area of investigation is large or the cost of measurement is high, the statistics may also be collected by examining only a fraction of the total area of investigation. When statistics are being obtained by measurement of units, it is necessary to maintain a reasonable degree or standard of accuracy in measurements. The degree of accuracy needed in an investigation depends upon its nature and objectivity on the one hand and upon time and resources on the other. For example, in weighing of gold, even milligrams may be significant where as, for weighing wheat, a few grams may not make much difference. Sometimes, a higher degree of accuracy is needed in order that the problem, to be investigated, gets highlighted by the data. Suppose the diameter of bolts produced by a machine are measured as 1.546 cms, 1.549 cms, 1.548 cms, etc. If, instead, we obtain measurements only up to two places after decimal, all the measurements would be equal and as such nothing could be inferred about the working of the machine. In addition to this, the degree of accuracy also depends upon the availability of time and resources. For any investigation, a greater degree of accuracy can be achieved by devoting more time or resources or both. As will be discussed later, in statistics, generalisations about a large group (known as population) are often made on the basis of small group (known as sample). It is possible to achieve this by maintaining a reasonable degree of accuracy of measurements. Therefore, it is not necessary to always have a high degree of accuracy but whatever degree of accuracy is once decided must be uniformly maintained throughout the investigation. 5. Statistics are collected in a systematic manner and for a predetermined purpose: In order that the results obtained from statistics are free from errors, it is necessary that these should be collected in a systematic manner. Haphazardly collected figures are not desirable as they may lead to wrong conclusions. Moreover, statistics should be collected for a well defined and specific objective, otherwise it might happen that the unnecessary statistics are collected while the necessary statistics are left out. Hence, a given set of numerical figures cannot be termed as statistics if it has been collected in a haphazard manner and without proper specification of the objective. Statistics should be capable of being placed in relation to each other: This characteristic requires that the collected statistics should be comparable with reference to time or place or any other condition. In order that statistics are comparable it is essential that they are homogeneous and pertain to the same investigation. This can be achieved by collecting data in identical manner for different periods or for different places or for different conditions. Hence, any set of numerical facts possessing the above mentioned characteristics can be termed as statistics or data. Example 1: Would you regard the following information as statistics? Explain by giving reasons. (i) (ii) The height of a person is 160 cms. The height of Ram is 165 cms and of Shyam is 155 cms.
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(iii) Ram is taller than Shyam. (iv) Ram is taller than Shyam by 10 cms. (v) The height of Ram is 165 cms and weight of Shyam is 55 kgs. Solution: Each of the above statement should be examined with reference to the following conditions:
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Whether information is presented as aggregate of numerical figures Whether numerical figures are homogeneous or comparable Whether numerical figures are affected by a multiplicity of factors
On examination of the given information in the light of these conditions we find that only the information given by statement (ii) can be regarded as statistics. It should be noted that condition (c) will be satisfied, almost invariably. In order to illustrate the circumstances in which this condition is not satisfied, we assume that a relation between quantity demanded and price of a commodity is given by the mathematical equation q = 100 - 10p and the quantity demanded at various prices, using this equation, is shown in the following table,
p q 1 90 2 80 3 70 4 60 5 50 6 40 7 30 8 20 9 10 10 0
The above information cannot be regarded as statistics because here quantity demanded is affected by only one factor, i.e., price and not by a multiplicity of factors. Contrary to this, the figures of quantity demanded obtained from a market at these very prices are to be regarded as statistics.
"Statistics is the science of measurement of social organism regarded as a whole in all its manifestations. - A.L. Bowley "Statistics is the science of estimates and probabilities. - Boddington All of the above definitions are incomplete in one sense or the other because each consider only one aspect of statistics. According to the first definition, statistics is the science of counting. However, we know that if the population or group under investigation is large, we do not count but obtain estimates. The second definition viz. statistics is the science of averages, covers only one aspect, i.e., measures of average but, besides this, there are other measures used to describe a given set of data. The third definition limits the scope of statistics to social sciences only. Bowley himself realised this limitation and admitted that scope of statistics is not confined to this area only. The fourth definition considers yet another aspect of statistics. Although, use of estimates and probabilities have become very popular in modern statistics but there are other techniques, as well, which are also very important. The following definitions covers some more but not all aspects of statistics.
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"The science of statistics is the method of judging collective, natural or social phenomena from the results obtained by the analysis or enumeration or collection of estimates. - W.I. King "Statistics or statistical method may be defined as collection, presentation, analysis and interpretation of numerical data. - Croxton and Cowden This is a simple and comprehensive definition of statistics which implies that statistics is a scientific method.
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"Statistics is a science which deals with collection, classification and tabulation of numerical facts as the basis for the explanation, description and comparison of phenomena. - Lovitt "Statistics is the science which deals with the methods of collecting, classifying, presenting, comparing and interpreting numerical data collected to throw some light on any sphere of enquiry. - Seligman The definitions given by Lovitt and Seligman are similar to the definition of Croxton and Cowden except that they regard statistics as a science while Croxton and Cowden has termed it as a scientific method. With the development of the subject of statistics, the definitions of statistics given above have also become outdated. In the last few decades the discipline of drawing conclusions and making decisions under uncertainty has grown which is proving to be very helpful to decision-makers, particularly in the field of business. Although, various definitions have been given which include this aspect of statistics also, we shall now give a definition of statistics, given by Spiegel, to reflect this new dimension of statistics.
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"Statistics is concerned with scientific method for collecting, organising, summarising, presenting and analysing data as well as drawing valid conclusions and making reasonable decisions on the basis of such analysis.
On the basis of the above definitions we can say that statistics, in singular sense, is a science which consists of various statistical methods that can be used for collection, classification, presentation and analysis of data relating to social, political, natural, economical, business or any other phenomena. The results of the analysis can be used further to draw valid conclusions and to make reasonable decisions in the face of uncertainty.
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In view of the uses of statistics in almost all the disciplines of natural as well as social sciences, it will be more appropriate to regard it as a scientific method rather than a science. Statistics as a scientific method can be divided into the following two categories: (a) Theoretical Statistics and (b) Applied Statistics (a) Theoretical Statistics: Theoretical statistics can be further sub-divided into the following three categories: (i) Descriptive Statistics: All those methods which are used for the collection, classification, tabulation, diagrammatic presentation of data and the methods of calculating average, dispersion, correlation and regression, index numbers, etc., are included in descriptive statistics. Inductive Statistics: It includes all those methods which are used to make generalisations about a population on the basis of a sample. The techniques of forecasting are also included in inductive statistics.
(ii)
(iii) Inferential Statistics: It includes all those methods which are used to test certain hypotheses regarding characteristics of a population. (b) Applied Statistics: It consists of the application of statistical methods to practical problems. Design of sample surveys, techniques of quality control, decision-making in business, etc., are included in applied statistics.
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Why there is a need of statistics. Indicate one incidence of statistics application in your daily routine. How the statistics application had bring a paradigm shift.
1.10 KEYWORDS
Management science Model Analysis Decision-making Mathematical model Algorithm Problem
Briefly comment on the following statements: (a) (b) (c) (d) (e) Scientific management has got wide scope. Implementation involves translation/application of solutions. A model is a mathematical representation of a problem situation. It is necessary to clearly understand the problem situation. Scientific management techniques are available to solve managerial problem.
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Fill in the blanks: (a) (b) (c) (d) (e) Once the _________ in tested and validated, it is ready for implementation. Quantitative factors are considered in _________ Managerial science had _________ the organisation. Managerial criticism had become _________ Fredrich W. Taylor developed the _________ management principle.
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Distinguish between the following: (a) (b) (c) Quantitative Techniques and Management. Solving the model and validating the model translation. Translation & Application.
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Explain the methodology adopted in solving problems with the help of a flow chart diagram. What is a model? Explain with a suitable example. What is meant by validation of model? Explain the advantages of modelling with the help of a short example. Discuss the advantages and limitations of using results from a mathematical model to make decision as out operations. What are different type of models used in management science. What are some of the opportunities in management science? What are some of sources of input data?
10. What is implementation and why it is important? 12. Briefly trace the history of management science. 13. What is the Quantitative Techniques process? Give several examples of this process. 14. Give a brief account of the origin and development of statistics. 15. Define statistics and discuss its relationship with natural and other sciences. 16. Distinguish between statistical methods and statistics. Discuss the scope and significance of the study of statistics. 17. Who gave the following definitions of statistics? (i) (ii) Statistics is the science of counting. (Bowley, Boddington, King, Saligman) Statistics is the science of estimates and probabilities. (Webster, Secrist, Boddington, Yule & Kendall)
(iii) The science of statistics is the method of judging collective, natural or social phenomena from the results obtained by the analysis or enumeration or collection of estimates. (Achenwall, Marshall, W.I. King, Croxton & Cowden) 18. Statistics are numerical statements of facts, but all facts stated numerically are not statistics. Clarify this statement and point out briefly which numerical statements of facts are statistics. 19. Discuss briefly the utility of statistics in economic analysis and business. 20. Which of the following statements are true? (a) (b) (c) (d) Statistics is helpful in administration. Statistics is helpful in business. Statistics is helpful in economic analysis. Statistics is helpful in all of the above.
21. Statistics are the straws out of which I like other economists have to make bricks. Discuss. 22. Science without statistics bear no fruit, statistics without science have no roots. Explain the above statement. 23. It is usually said that statistics is science and art both. Do you agree with this statement? Discuss the scope of statistics. 24. Define Statistics and explain briefly the divisions of the science of statistics.
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25. Statistics is not a science, it is a scientific method. Discuss it critically and explain the scope of statistics.
26. Explain clearly the three meanings of the word 'Statistics' contained in the following statement : You compute statistics from statistics by statistics. [Hint : Mean, standard deviation, etc., computed from a sample are also known as statistics.] 27. Economics and statistics are twin sisters. Discuss. 28. Discuss the nature and scope of statistics. What are the fields of investigation and research where statistical methods and techniques can be usefully employed? 29. Explain the following statements : (a) (b) (c) (i) (ii) Statistics is the science of counting. Statistics is the science of estimates and probabilities. Statistics is the science of averages. Arun is more intelligent than Avinash. Arun got 75% marks in B.Sc. and Avinash got 70% marks in B.Com.
30. Explain by giving reasons whether the following are data or not:
(iii) Arun was born on August 25, 1974. (iv) The consumption function of a community is C = 1,000 + 0.8Y, therefore, the levels of consumption for different levels of income are :
Y C 0 1000 1000 1800 2000 2600 4000 4200 6000 5800 8000 7400
31. Statistics are aggregates of facts, affected to a marked extent by a multiplicity of causes. Discuss the above statement and explain the main characteristics of statistics. 32. Statistics are not merely heap of numbers. Explain. 33. Elucidate the following statement : Not a datum, but data are the subject-matter of statistics.
ANSWERS
(c) True
TO
(d) True
QUESTIONS
(e) False
FOR
(b) False
(b) decision-making