Quantitative

Methods
RISHAB

Introduction to Quantitative Method

Why should I care to study this subject?

What is your view on this?

What are we dealing with?

QM in Business
QM helps managers to
Identify, Collect, Interpret, Analyze, and Manipulating Data
Why?
Because managers need answers.
Why managers need answers?
Because managers have to take decisions.
Why managers need to take decisions?

TO REMAIN IN THE BUSINESS

Some more questions about QM

Do managers really need QM to take decisions?
Do managers use mathematics while thinking about a
problem and finding the solution and then take the
decision?
Yes or No
Most of the problems require quick solutions and many a
times a manager has to take a shot based on intuition.

How does QM help managers to take quick decisions?

By mastering the skill of quick decision making
How does one master this skill?
Use QM.

Some applications of quantitative

methods
Marketing
Electronic point-of-sale scanners at retail checkout counters are
used to collect
data for a variety of marketing research applications.
Production
A variety of statistical quality control charts are used to monitor
the output of a production process.
Finance
Financial advisors use price-earning ratios and dividend yields to
guide their investment recommendations.

Syllabus
Scales of Measurement: Nominal, Ordinal, Interval, and Ratio
Scale
Probability: Fundamentals, Addition Theorem, Multiplication
Theorem, Bayes Theorem, Random Variable
Probability Distributions: Binomial, Poisson and Normal
Distribution
Sampling and Sampling Distributions: Population, Sample, Types
of Sampling, Sampling Distributions, Standard Errors, Sampling from
Normal and Non-normal Population, Central Limit Theorem, Finite
Population Parameters

Syllabus
Estimation:
Point and Interval Estimation, Confidence Intervals, Interval
estimates of Mean and Proportion from Large Samples, Interval
Estimation using t-distribution, Sample size for estimating means
and proportions
Hypothesis: Null, Alternate Hypothesis, Steps of Formulating
Hypotheses
Testing of Hypotheses: Basic Concepts, Type I and Type II
Errors, One Tailed and Two Tailed Tests, One Sample Tests,
Hypothesis Testing of Means when Population Standard
Derivation is Known and when Unknown, Hypothesis Testing of
Proportions for Large Samples. Two Sample Tests for Equality of

Coverage
Chi-Square: Chi Square Test of Independence. and Goodness of
fit.
Analysis of Variance (One Way ANOVA): Test for Equality of
Means. Inference about a population variance and about two
population variances.
Bivariate analysis: Bivariate correlation and regression,
Coefficient of determination, assumptions in the regression
model, tests of significance for the correlation and regression
coefficients.

Syllabus
Time Series Analysis: Components of Time Series, Trend AnalysisMoving Average, Fitting linear and second degree trends, Seasonal
Variation (Computing using Ratio to Trend Method), Cyclical Variation.
Irregular Variation, Problems Involving All Four Components of Time
Series.
Decision Trees: Decision Tree Analysis-Expected value under risk,
under perfect information, and under sample information.
Linear Programming, Transportation and Assignment
problems: Formulating Linear Programming Problems, Graphical
approach, Formulation of Transportation and Assignment problems,
Solutions using Excel solver and other software.

Case Studies
ICICI Banks Get up to 100% Cash Back offer Real Foods
Solnyx Pharmaceuticals: The Atoxeril Clinical Trial
Care Hygiene
Roja Silks

Hindustan Foods
Ram Publishers

Alexander Machine Company

Lakshmi Engines

Best Fibre

Text Books
1. Louise Swift and Sally Piff (2010), Quantitative Methods for
business, management and finance, 3rd Edition, Palgrave Macmillan.
2. Anderson, Sweeney and Williams (2011), Statistics for Business
and Economics, 9th Edition, Cengage Learning
3. Levine, Stephan, Krehbiel and Berenson (2010), Statistics for
Managers, 5th Edition, PHI

Scales of Measurement
Nominal Scale
Ordinal Scale
Interval Scale
Ratio Scale

Nominal Scale
Tag

Ordinal Scale
Rank

Interval Scale
Difference

Ratio Scale
Proportion
True Zero

Scales of Measurement

Introduction to Probability
Experiments, Counting Rules, and Assigning Probability
Events and their probabilities
Basic Relationships of Probability
Conditional Probability
Bayes Theorem

Probability : Measure of Chance

of Favorable Occurrence
Increasing Likelihood of Occurrence
Probability
:

0
The event
is very
unlikely
to occur.

.
5

The occurrence The event

is almost
of the event is
certain
just as likely as
to occur.
it is unlikely.

An Experiment and its Sample

Space
An experiment is any process that generates well-defined outcomes
The sample space for an experiment is the set of all experimental outcomes
An experimental outcome is also called a sample point

Assigning Probability
Classical Method
Relative Frequency Method
Subjective Method

Classical Method
If an experiment has n possible outcomes, this method
would assign a probability of 1/n to each outcome.

Example
Experiment: Rolling a die
Sample Space: S = {1, 2, 3, 4, 5, 6}
Probabilities: Each sample point has a
1/6 chance of occurring

Relative Frequency Method

Each probability assignment is given by
dividing the frequency (number of days) by
the total frequency (total number of days).

Number of
Number
Polishers Rented of Days Probability
.10
4
0
.15
6
1
4/40
.45
18
2
.25
10
3
.05
2
4
1.00
40

Subjective Method
When economic conditions and a companys
circumstances change rapidly it might be
inappropriate to assign probabilities based solely on
historical data.
We can use any data available as well as our
experience and intuition, but ultimately a probability
value should express our degree of belief that the
experimental outcome will occur.
The best probability estimates often are obtained by
combining the estimates from the classical or relative
frequency approach with the subjective estimate.

Event and their Probabilities

An
An event
event is
is aa collection
collection of
of sample
sample points.
points.
The
The probability
probability of
of any
any event
event is
is equal
equal to
to the
the sum
sum of
of
the
the probabilities
probabilities of
of the
the sample
sample points
points in
in the
the event.
event.
IfIf we
we can
can identify
identify all
all the
the sample
sample points
points of
of an
an
experiment
experiment and
and assign
assign aa probability
probability to
to each,
each, we
we
can
can compute
compute the
the probability
probability of
of an
an event.
event.

Some Basic Probability

Relationships
There are some basic probability relationships that
can be used to compute the probability of an event
without knowledge of all the sample point probabilities.

Complement
Complement of
of an
an Event
Event
Union
Union of
of Two
Two Events
Events
Intersection
Intersection of
of Two
Two Events
Events
Mutually
Mutually Exclusive
Exclusive Events
Events

Compliment of an Event
The
The complement
complement of
of event
event AA is
is defined
defined to
to be
be the
the event
event
consisting
consisting of
of all
all sample
sample points
points that
that are
are not
not in
in A.
A.
cc
The
complement
of
A
is
denoted
by
A
The complement of A is denoted by A ..

Event A

Venn
Diagram

Ac

Sample
Space S

Union of Two Event

The
The union
union of
of events
events AA and
and BB is
is the
the event
event containing
containing
all
all sample
sample points
points that
that are
are in
in AA or
or BB or
or both.
both.
The
The union
union of
of events
events AA and
and BB is
is denoted
denoted by
by AA B
B

Event A

Event B

Sample
Space S

Intersection of Two Events

The
The intersection
intersection of
of events
events AA and
and BB is
is the
the set
set of
of all
all
sample
sample points
points that
that are
are in
in both
both AA and
and B.
B.
The
The intersection
intersection of
of events
events AA and
and BB is
is denoted
denoted by
by AA

Event A

Event B

Intersection of A and B

Sample
Space S

Addition Law
The
The addition
addition law
law provides
provides aa way
way to
to compute
compute the
the
probability
probability of
of event
event A,
A, or
or B,
B, or
or both
both AA and
and BB occurring.
occurring.
The
The law
law is
is written
written as:
as:
P(A B) = P(A) + P(B) P(A B

Mutually Exclusive Events

Two
Two events
events are
are said
said to
to be
be mutually
mutually exclusive
exclusive ifif the
the
events
events have
have no
no sample
sample points
points in
in common.
common.
Two
Two events
events are
are mutually
mutually exclusive
exclusive if,
if, when
when one
one event
event
occurs,
occurs, the
the other
other cannot
cannot occur.
occur.

Event A

Event B

Sample
Space S