Quantitative Analysis Chapter 1

What are the advantages of mathematical modeling?

1. Accurately represent reality 2. Can help a decision maker formulate problems 3. Give insight and information 4. Save money and time in decision making and problem solving 5. May be only way to solve large or complex problems in a timely fashion 6. Used to communicate problems and solutions to others

What are the four potential roadblocks in defining a problem?

1. Conflicting viewpoints 2. Impact on other departments 3. Beginning assumptions 4. Solution outdated

Quantitative Analysis Approach

1. Defining the Problem 2. Developing a Model 3. Acquiring Data 4. Developing a Solution 5. Testing the Solution 6. Analyzing the Results 7. Implementing the Results

Business Analytics

A data-driven approach to decision making that allows companies to make better decisions.

Parameter

A measurable input quantity that is inherent in a problem.

Variable

A measurable quantity that is subject to change.

Deterministic Model

A model in which all values used in the model are know with complete certainty.

Probabilistic Model

A model in which all values used in the model are not known with certainty but rather involve some chance or risk, often measured as a probability value.

Mathematical Model

A model that uses mathematical equations and statements to represent the relationships within the model.

Sensitivity Analysis

A process that involves determining how sensitive a solution is to changes in the formulation of a problem.

Model

A representation of reality or of a real-life situation.

Quantitative Analysis (or Management Science)

A scientific approach that uses quantitative techniques as a tool in decision making.

Algorithm

A set of logical and mathematical operations performed in a specific sequence.

Problem

A statement, which should come from a manager, that indicates a problem to be solved or an objective or a goal to be reached.

Input Data

Data that are used in a model in arriving at the final solution.

What does the input data and model determine?

Determines the accuracy of the solution.

Garbage in, Garbage out

Means that improper data with result in misleading results

Profit Model

Profit = Revenue - Expenses Revenue = (Selling price per unit)(Number of units sold) Expenses = Fixed cost + Variable cost

What is done before the results are analyzed?

Testing the data and model.

Break - Even Point Model

The BEP is the number of units sold that will result in $0 profits. 0 = sX - f - vX BEP = Fixed Cost / [(Selling price per unit) - (Variable cost per unit)]

Break-Even Point

The quantity of sales that results in zero profit.

Descriptive Analytics

The study and consolidation of historical data to describe how a company has performed in the past is performing now.

Prescriptive Analytics

The use of optimization methods to provide new and better ways to operate based on specific business objectives.

Predictive Analytics

The use of techniques to forecast how things will be in the future based on patterns of past data.