1 1 Slide © 2004 Thomson/South-Western Body of Knowledge n The body of knowledge involving quantitative approaches to decision making is referred to as Management Science Management Science Operations research Operations research Decision science Decision science n It had its early roots in World War II and is flourishing in business and industry with the aid of computers

2 2 Slide © 2004 Thomson/South-Western n 7 Steps of Problem Solving (First 5 steps are the process of decision making) Define the problem. Define the problem. Identify the set of alternative solutions. Identify the set of alternative solutions. Determine the criteria for evaluating alternatives. Determine the criteria for evaluating alternatives. Evaluate the alternatives. Evaluate the alternatives. Choose an alternative (make a decision). Choose an alternative (make a decision) Implement the chosen alternative. Implement the chosen alternative. Evaluate the results. Evaluate the results. Problem Solving and Decision Making

3 3 Slide © 2004 Thomson/South-Western Quantitative Analysis and Decision Making n Potential Reasons for a Quantitative Analysis Approach to Decision Making The problem is complex. The problem is complex. The problem is very important. The problem is very important. The problem is new. The problem is new. The problem is repetitive. The problem is repetitive.

4 4 Slide © 2004 Thomson/South-Western Quantitative Analysis n Quantitative Analysis Process Model Development Model Development Data Preparation Data Preparation Model Solution Model Solution Report Generation Report Generation

5 5 Slide © 2004 Thomson/South-Western Model Development n Models are representations of real objects or situations n Three forms of models are: Iconic models - physical replicas (scalar representations) of real objects Iconic models - physical replicas (scalar representations) of real objects Analog models - physical in form, but do not physically resemble the object being modeled Analog models - physical in form, but do not physically resemble the object being modeled Mathematical models - represent real world problems through a system of mathematical formulas and expressions based on key assumptions, estimates, or statistical analyses Mathematical models - represent real world problems through a system of mathematical formulas and expressions based on key assumptions, estimates, or statistical analyses

6 6 Slide © 2004 Thomson/South-Western Advantages of Models n Generally, experimenting with models (compared to experimenting with the real situation): requires less time requires less time is less expensive is less expensive involves less risk involves less risk

7 7 Slide © 2004 Thomson/South-Western Mathematical Models n Cost/benefit considerations must be made in selecting an appropriate mathematical model. n Frequently a less complicated (and perhaps less precise) model is more appropriate than a more complex and accurate one due to cost and ease of solution considerations.

8 8 Slide © 2004 Thomson/South-Western Transforming Model Inputs into Output Uncontrollable Inputs (Environmental Factors) Uncontrollable Inputs (Environmental Factors) ControllableInputs(DecisionVariables)ControllableInputs(DecisionVariables) Output(ProjectedResults)Output(ProjectedResults) MathematicalModelMathematicalModel

9 9 Slide © 2004 Thomson/South-Western Quantitative Methods in Practice n Linear Programming n Integer Linear Programming n PERT/CPM n Inventory models n Waiting Line Models n Simulation n Decision Analysis n Goal Programming n Analytic Hierarchy Process n Forecasting n Markov-Process Models

10 Slide © 2004 Thomson/South-Western The Management Scientist Software n Modules