Quantitative Techniques introduction

Decision making is one of the most fundamental functions of management professionals. Every manager has to take decisions pertaining to his field of work. Hence, it is an all-pervasive function of basic management. The process of decision making contains various methods. Quantitative techniques of decision making help make these methods simpler and more efficient.

The following are six such important quantitative techniques of decision making:

1. Linear programming

This technique basically helps in maximizing an objective under limited resources. The objective can be either optimization of a utility or minimization of a disutility. In other words, it helps in utilizing a resource or constraint to its maximum potential.

Managers generally use this technique only under conditions involving certainty. Hence, it might not be very useful when circumstances are uncertain or unpredictable.

2. Probability decision theory

This technique lies in the premise that we can only predict the probability of an outcome. In other words, we cannot always accurately predict the exact outcome of any course of action.

Managers use this approach to first determine the probabilities of an outcome using available information. They can even rely on their subjective judgment for this purpose. Next, they use this data of probabilities to make their decisions. They often use ‘decision trees’ or pay-off matrices for this purpose.

3. Game theory

Sometimes, managers use certain quantitative techniques only while taking decisions pertaining to their business rivals. The game theory approach is one such technique.

This technique basically simulates rivalries or conflicts between businesses as a game. The aim of managers under this technique is to find ways of gaining at the expense of their rivals. In order to do this, they can use 2-person, 3-person or n-person games.

4. Queuing theory

Every business often suffers waiting for periods or queues pertaining to personnel, equipment, resources or services.

For example, sometimes a manufacturing company might gather a stock of unsold goods due to irregular demands. This theory basically aims to solve such problems.

The aim of this theory is to minimize such waiting periods and also reduce investments on such expenses.

For example, departmental stores often have to find a balance between unsold stock and purchasing fresh goods. Managers in such examples can employ the queuing theory to minimize their expenses.

5. Simulation

As the name suggests, the simulation technique observes various outcomes under hypothetical or artificial settings. Managers try to understand how their decisions will work out under diverse circumstances.

Accordingly, they finalize on the decision that is likely to be the most beneficial to them. Understanding outcomes under such simulated environments instead of natural settings reduces risks drastically.

6. Network techniques

Complex activities often require concentrated efforts by personnel in order to avoid wastage of time, energy and money. This technique aims to solve this by creating strong network structures for work.

There are two very important quantitative techniques under this approach. These include the Critical Path Method and the Programme Evaluation & Review Technique. These techniques are effective because they segregate work efficiently under networks. They even drastically reduce time and money.

Scope

The scope of statistics was primarily limited in the sense that the ruling kings used to collect data so as to frame suitable military and fiscal policies only. Hence they heavily depended upon statistics. As time went on, statistics came to be regarded as a method of handling and analyzing the numerical facts and figures.

In recent years, the activities of the state have increased tremendously. Statistical facts and figures are of immense help in promoting human welfare. Today, the scope of statistics is so vast and ever expanding. It influences everybody’s life. Even an entry into the world and exit are systematically recorded.

There is no branch of human activity that can escape the attention of statistics. It is a tool of all sciences. It is indispensable for research and intelligent judgment. It has become a recognized discipline in its own right. A few specific areas of application are mentioned below.

• 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 programs.
• General Management: Decision Support System and Management of Information Systems, MIS, Organizational design and control, Software Process Management and Knowledge Management.