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© 2008 Prentice-Hall, Inc. To accompany Quantitative Analysis for Management, Tenth Edition, by Render, Stair, and Hanna Power Point slides created by Jeff Heyl IBM401 Quantitative Analysis in Business

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© 2008 Prentice-Hall, Inc. Question Doing Business effectively What do you need for this journey? …………………… Why do you study this subject? Ans. It is in this BBA.course. More from you….

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© 2008 Prentice-Hall, Inc.

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1. Course Code and Course Name IBM401 / Quantitative Analysis in Business 2.Credit (Lecture hour – Lab. Hour – Self Study) 3(3-0-6) 4.Coordinated Lecturer and Lecturer 4.1Coordinated Lecturer Asst.Prof. Dr W.Chalermkiat (WCK) 4.2Lecturer Asst. Prof. Dr. R. Rathavoot (RR) 4.3Lecturer Aj. P. Pongpat(PP) 4.4Lecturer (IE)

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1.Subject Purpose 1)Understand and know how to apply statistical and basic econometrics in evaluating business decisions 2)Describe the main assumptions associated with regression and time series models 3)Understand the effects of violation of importance assumptions underlying regression models 4)Able to detect and correct violations concerning the assumptions of regression and time series model

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1.Course Description The unit presents the basic statistical and econometric methodologies in model building and model evaluation in general, and the treatment of autocorrelation, lagged relationship, qualitative variables, multicollinearity and heteroskedasticity, in particular it covers estimation and evaluation of multiple regression models, and testing for the validity of various theories in the areas of business. It also introduces the recent literature on unit root and cointegration in business data analysis.

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1.Lesson plan WeekContent Description Study Perio d Learning Activities and Teaching aids media Lecturer 1 19/6 Overview Introduction to Quantitative Analysis 1Lecture Exercise Q&A, PowerPoint/Excel WCK 2 26/6 Basic Probability & Statistics /Linear Programming 2Lecture Exercise Q&A, PowerPoint/Excel IE 3 3/7 Linear Programming3Lecture Exercise Q&A, PowerPoint/Excel IE 4 10/7 Linear Programming4Lecture Exercise Q&A, PowerPoint/Excel IE 5 17/7 Linear Programming5Lecture Exercise Q&A, PowerPoint/Excel IE 6 24/7 Decision Theory /Project Management1 6Lecture Exercise Q&A, PowerPoint/Excel WCK 7 31/7 Project Management2 Test1 7Lecture Exercise Q&A, PowerPoint/Excel WCK 8Midterm8--

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1.Lesson plan WeekContent Description Study Period Learning Activities and Teaching aids media Lecturer 9 14/8 Regression Models9Lecture Exercise Q&A, PowerPoint/Excel WCK 10 21/8 Forecasting10Lecture Exercise Q&A, PowerPoint/Excel PP 1 28/8 Inventory Control Models 11Lecture Exercise Q&A, PowerPoint/Excel PP 12 4/9 Transportation and Assignment Model 12Lecture Exercise Q&A, PowerPoint/Excel RR 13 11/9 Network Models13Lecture Exercise Q&A, PowerPoint/Excel RR 14 18/9 Waiting Lines and Queuing Theory Models 14Lecture Exercise Q&A, PowerPoint/Excel RR 15 25/9 Simulation Modeling and Game Theory 15Lecture Exercise Q&A, PowerPoint/Excel RR 16 2/10 Presentation and Wrap Up/Test2 16PresentationWCK 17Final Examination17--

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2.Learning Evaluation Plan Learning Skill Evaluation Method Week of Evaluation Score (%) 1, 2, 3, 4, 5 Work assignment1620 1, 2, 3, 4 Class Participations , 2, 3, 5 Midterm Examination , 2, 3, 5 Final Examination1740

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1.Course Materials Textbook, Class notes (PowerPoint Slides), Internet Resources 2.Important Textbooks and References Render/Stair/Hana Quantitative Analysis for Management, 10 th edn, Pearson Prentice Hall 2009

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© 2008 Prentice-Hall, Inc. Chapter 1 To accompany Quantitative Analysis for Management, Tenth Edition, by Render, Stair, and Hanna Power Point slides created by Jeff Heyl Introduction to Quantitative Analysis Modified by WCK © 2009 Prentice-Hall, Inc.

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© 2009 Prentice-Hall, Inc. 1 – 12 Learning Objectives 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.Use computers and spreadsheet models to perform quantitative analysis(Road Show) 5.Discuss possible problems in using quantitative analysis 6.Perform a break-even analysis After completing this chapter, students will be able to:

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© 2009 Prentice-Hall, Inc. 1 – 13 Chapter Outline 1.1Introduction 1.2What Is Quantitative Analysis? 1.3The Quantitative Analysis Approach 1.4How to Develop a Quantitative Analysis Model 1.5The Role of Computers and Spreadsheet Models in the Quantitative Analysis Approach 1.6Possible Problems in the Quantitative Analysis Approach 1.7Implementation — Not Just the Final Step

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© 2009 Prentice-Hall, Inc. 1 – 14 Introduction Mathematical tools have been used for thousands of years Quantitative analysis can be applied to a wide variety of problems It’s not enough to just know the mathematics of a technique One must understand the specific applicability of the technique, its limitations, and its assumptions

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© 2009 Prentice-Hall, Inc. 1 – 15 Examples of Quantitative Analyses Taco Bell saved over $150 million using forecasting and scheduling quantitative analysis models NBC television increased revenues by over $200 million by using quantitative analysis to develop better sales plans Continental Airlines saved over $40 million using quantitative analysis models to quickly recover from weather delays and other disruptions

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© 2009 Prentice-Hall, Inc. 1 – 16 Meaningful Information Quantitative Analysis Quantitative analysis Quantitative analysis is a scientific approach to managerial decision making whereby raw data are processed and manipulated resulting in meaningful information Raw Data What is Quantitative Analysis?

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© 2009 Prentice-Hall, Inc. 1 – 17 Quantitative factors Quantitative factors might be different investment alternatives, interest rates, inventory levels, demand, or labor cost Qualitative factors Qualitative factors such as the weather, state and federal legislation, and technology breakthroughs should also be considered Information may be difficult to quantify but can affect the decision-making process What is Quantitative Analysis?

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© 2009 Prentice-Hall, Inc. 1 – 18 Implementing the Results Analyzing the Results Testing the Solution Developing a Solution Acquiring Input Data Developing a Model The Quantitative Analysis Approach Defining the Problem Figure 1.1

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© 2009 Prentice-Hall, Inc. 1 – 19 Defining the Problem Need to develop a clear and concise statement that gives direction and meaning to the following steps This may be the most important and difficult step It is essential to go beyond symptoms and identify true causes May be necessary to concentrate on only a few of the problems – selecting the right problems is very important Specific and measurable objectives may have to be developed

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© 2009 Prentice-Hall, Inc. 1 – 20

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© 2009 Prentice-Hall, Inc. 1 – 21

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© 2009 Prentice-Hall, Inc. 1 – 22 Developing a Model Quantitative analysis models are realistic, solvable, and understandable mathematical representations of a situation There are different types of models $ Advertising $ Sales Y = b 0 + b 1 X Schematic models Scale models

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© 2009 Prentice-Hall, Inc. 1 – 23 Developing a Model Models generally contain variables (controllable and uncontrollable) and parameters Controllable variables are generally the decision variables and are generally unknown Parameters are known quantities that are a part of the problem

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© 2009 Prentice-Hall, Inc. 1 – 24 Acquiring Input Data Input data must be accurate – GIGO rule Data may come from a variety of sources such as company reports, company documents, interviews, on-site direct measurement, or statistical sampling Garbage In Process Garbage Out

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© 2009 Prentice-Hall, Inc. 1 – 25 Developing a Solution The best (optimal) solution to a problem is found by manipulating the model variables until a solution is found that is practical and can be implemented Common techniques are Solving Solving equations Trial and error Trial and error – trying various approaches and picking the best result Complete enumeration Complete enumeration – trying all possible values algorithm Using an algorithm – a series of repeating steps to reach a solution

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© 2009 Prentice-Hall, Inc. 1 – 26 How many should apples be in Balance C? Apple

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© 2009 Prentice-Hall, Inc. 1 – 27 How many apples are there? A = Apple B = Banana C = Tomato a : A+B = 6C ………….[1] b : B = A+2C……….[2] c : B+2C = XA………….[3] [1]-[2]; A =6C-A-2C 2A = 4C A = 2C [2],[4]; B = 2C+2C =4C = 2A 2A+A =XA 3A =XA Find X = 3

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© 2009 Prentice-Hall, Inc. 1 – 28 Math. Model 1 The objective of Business Profit = ? More detail…..

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© 2009 Prentice-Hall, Inc. 1 – 29 Math. Model 2 In AAA Shop A Boy has 10 Baht. He buys a toy that cost is 4 Baht. How much is the change? Pls. answer.

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© 2009 Prentice-Hall, Inc. 1 – 30 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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© 2009 Prentice-Hall, Inc. 1 – 31 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 Sensitivity analysis determines how much the results of the analysis will change if the model or input data changes Sensitive models should be very thoroughly tested

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© 2009 Prentice-Hall, Inc. 1 – 32 Implementing the Results Implementation incorporates the solution into the company Implementation can be very difficult People can resist 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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© 2009 Prentice-Hall, Inc. 1 – 33 Modeling in the Real World Quantitative analysis models are used extensively by real organizations to solve real problems In the real world, quantitative analysis models can be complex, expensive, and difficult to sell Following the steps in the process is an important component of success

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© 2009 Prentice-Hall, Inc. 1 – 34 How To Develop a Quantitative Analysis Model An important part of the quantitative analysis approach Let’s look at a simple mathematical model of profit Profit = Revenue – Expenses

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© 2009 Prentice-Hall, Inc. 1 – 35 How To Develop a Quantitative Analysis Model Expenses can be represented as the sum of fixed and variable costs and variable costs are the product of unit costs times the number of units 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 v = variable cost per unit f = fixed cost X = number of units sold

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© 2009 Prentice-Hall, Inc. 1 – 36 How To Develop a Quantitative Analysis Model Expenses can be represented as the sum of fixed and variable costs and variable costs are the product of unit costs times the number of units 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 v = variable cost per unit f = fixed cost X = number of units sold The parameters of this model are f, v, and s as these are the inputs inherent in the model The decision variable of interest is X

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© 2009 Prentice-Hall, Inc. 1 – 37 EXAMPLE: PRITCHETT’S PRECIOUS TIME PIECES We will use the Bill Pritchett clock repair shop example to demonstrate the use of mathematical models. Bill’s company, Pritchett’s Precious Time Pieces, buys, sells, and repairs old clocks and clock parts. Bill sells rebuilt springs for a price per unit of $10. The fixed cost of the equipment to build the springs is $1,000. The variable cost per unit is $5 for spring material. In this example,

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© 2009 Prentice-Hall, Inc. 1 – 38 Pritchett’s Precious Time Pieces Profits = sX – f – vX The company buys, sells, and repairs old clocks. Rebuilt springs sell for $10 per unit. Fixed cost of equipment to build springs is $1,000. Variable cost for spring material is $5 per unit. s = 10 f = 1,000 v = 5 Number of spring sets sold = X –$1,000 If sales = 0, profits = –$1,000 If sales = 1,000, profits= [(10)(1,000) – 1,000 – (5)(1,000)] = $4,000

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© 2009 Prentice-Hall, Inc. 1 – 39 Pritchett’s Precious Time Pieces 0 = sX – f – vX, or 0 = ( s – v ) X – f break-even point Companies are often interested in their break-even point (BEP). The BEP is the number of units sold that will result in $0 profit. Solving for X, we have f = ( s – v ) X X = f s – v BEP = Fixed cost (Selling price per unit) – (Variable cost per unit)

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© 2009 Prentice-Hall, Inc. 1 – 40 Pritchett’s Precious Time Pieces 0 = sX – f – vX, or 0 = ( s – v ) X – f break-even point Companies are often interested in their break-even point (BEP). The BEP is the number of units sold that will result in $0 profit. Solving for X, we have f = ( s – v ) X X = f s – v BEP = Fixed cost (Selling price per unit) – (Variable cost per unit)

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© 2009 Prentice-Hall, Inc. 1 – 41 BEP for Pritchett’s Precious Time Pieces BEP = $1,000/($10 – $5) = 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 result in a profit

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© 2009 Prentice-Hall, Inc. 1 – 42 Others Example Siam Eng Co.LTD. Max Profit itemsFountain Obtaining Resource Ladder F.Smooth F. Motor(item/unit)11200 Production time (hrs/unit) Pipe (ft/unit) Profit($)

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© 2009 Prentice-Hall, Inc. 1 – 43 Advantages of Mathematical Modeling 1.Models can accurately represent reality 2.Models can help a decision maker formulate problems 3.Models can give us insight and information 4.Models can save time and money in decision making and problem solving 5.A model may be the only way to solve large or complex problems in a timely fashion 6.A model can be used to communicate problems and solutions to others

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© 2009 Prentice-Hall, Inc. 1 – 44 Models Categorized by Risk Mathematical models that do not involve risk are called deterministic models We know all the values used in the model with complete certainty Mathematical models that involve risk, chance, or uncertainty are called probabilistic models Values used in the model are estimates based on probabilities

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© 2009 Prentice-Hall, Inc. 1 – 45 Computers and Spreadsheet Models 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 Program 1.1

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© 2009 Prentice-Hall, Inc. 1 – 46 Computers and Spreadsheet Models Excel QM’s Main Menu (2003) Works automatically within Excel spreadsheets Program 1.2A

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© 2009 Prentice-Hall, Inc. 1 – 47 Computers and Spreadsheet Models Excel QM Solution to the Break- Even Problem Program 1.3B

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© 2009 Prentice-Hall, Inc. 1 – 48 Possible Problems in the Quantitative Analysis Approach Defining the problem Problems are not easily identified Conflicting viewpoints Impact on other departments Beginning assumptions Solution outdated Developing a model Fitting the textbook models Understanding the model

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© 2009 Prentice-Hall, Inc. 1 – 49 Possible Problems in the Quantitative Analysis Approach Acquiring input data Using accounting data Validity of data Developing a solution Hard-to-understand mathematics Only one answer is limiting Testing the solution Analyzing the results

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© 2009 Prentice-Hall, Inc. 1 – 50 Implementation – Not Just the Final Step Lack of commitment and resistance to change Management may fear the use of formal analysis processes will reduce their decision-making power Action-oriented managers may want “quick and dirty” techniques Management support and user involvement are important

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© 2009 Prentice-Hall, Inc. 1 – 51 Implementation – Not Just the Final Step Lack of commitment by quantitative analysts An analysts should be involved with the problem and care about the solution Analysts should work with users and take their feelings into account

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© 2009 Prentice-Hall, Inc. 1 – 52 Problem

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© 2009 Prentice-Hall, Inc. 1 – 53 Model Confuse detail in class

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© 2009 Prentice-Hall, Inc. 1 – 54 Summary Quantitative analysis is a scientific approach to decision making The approach includes Defining the problem Acquiring input data Developing a solution Testing the solution Analyzing the results Implementing the results

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© 2009 Prentice-Hall, Inc. 1 – 55 Summary Potential problems include Conflicting viewpoints The impact on other departments Beginning assumptions Outdated solutions Fitting textbook models Understanding the model Acquiring good input data Hard-to-understand mathematics Obtaining only one answer Testing the solution Analyzing the results

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© 2009 Prentice-Hall, Inc. 1 – 56 Summary Implementation is not the final step Problems can occur because of Lack of commitment to the approach Resistance to change

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