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Quantitative Techniques for Decision Making

Decision Making is a process of consciously choosing an alternative among several available (examples). Decision making can be with complete certainty, risk & uncertainty and complete uncertainty. QTs assist in decision making in the above situations.

Quantitative Techniques for Decision Making


Quantitative analysis in decision making involves the use of scientific approach (No whim, emotions or guesswork). Raw data is processed into a meaningful information to arrive at a decision (examples). Both QTs are used for decision making.

Statistics and its role


1. Introduce the field of statistics 2. Demonstrate how statistics applies to business 3. Establish the link between statistics and data 4. Identify the different types of data and datacollection methods 5. Differentiate between population and sample data 6. Differentiate between descriptive and inferential statistics

What Is Statistics?
1. Collecting Data
e.g., Survey

Data Analysis

Why?

2. Presenting Data
e.g., Charts & Tables
1984-1994 T/Maker Co.

3. Characterizing Data
e.g., Average

DecisionMaking

1984-1994 T/Maker Co.

What Is Statistics?
Statistics is the science of data. It involves collecting, classifying, summarizing, organizing, analyzing, and interpreting numerical information.

Statistics: Two Processes


Describing sets of data
and Drawing conclusions (making estimates, decisions, predictions, etc. about sets of data based on sampling)

Statistical Methods
Statistical Methods

Descriptive Statistics

Inferential Statistics

2011 Pearson Education, Inc

Statistical methods
In using statistical methods, a manager may face one or all of the following situations:
when data need to be presented in a form which helps in easy grasping (e.g., presentation of performance data in graphs, charts, and tables, in the annual report of a company). where no specific action is contemplated but it is intended to test some hypotheses and draw inferences.

Statistical methods
when some unknown quantities have to be estimated or relationships established through observed data. when a decision has to be made under uncertainty regarding a course of action to be followed.

Situation (i) falls into descriptive statistics; Situations (ii) and (iii) fall into inductive or inferential statistics; Situation (iv) falls into statistical decision theory.

Descriptive Statistics
1. Involves
Collecting Data Presenting Data Characterizing Data
50

Rs.

25
0 Q1 Q2 Q3 Q4

2. Purpose
Describe Data

X = 30.5 S2 = 113

Inferential Statistics
1. Involves
Estimation (No. of students opting engineering seats) Hypothesis Testing (soft branches by)
Population?

2. Purpose
Make decisions about population characteristics
2011 Pearson Education, Inc

Fundamental Elements
1. Experimental unit
Object upon which we collect data All items of interest Characteristic of an individual experimental unit

2. Population
3. Variable

4. Sample
Subset of the units of a population

Fundamental Elements
1. Statistical Inference
Estimate or prediction or generalization about a population based on information contained in a sample

2. Measure of Reliability
Statement (usually qualified) about the degree of uncertainty associated with a statistical inference

Four Elements of Descriptive Statistical Problems


1. The population or sample of interest 2. One or more variables (characteristics of the population or sample units) that are to be investigated 3. Tables, graphs, or numerical summary tools 4. Identification of patterns in the data

Five Elements of Inferential Statistical Problems


1. The population of interest 2. One or more variables (characteristics of the population units) that are to be investigated 3. The sample of population units 4. The inference about the population based on information contained in the sample 5. A measure of reliability for the inference

Types of Data
Types of Data

Quantitative Data

Qualitative Data

Types of Data
Quantitative data are measurements that are recorded on a naturally occurring numerical scale.

Qualitative data are measurements that cannot be measured on a natural numerical scale; they can only be classified into one of a group of categories.

Quantitative Data
Measured on a numeric scale. Number of defective items in a lot. Salaries of CEOs of oil companies. Ages of employees at a company.

4 943 21 120 52

12
8

71

Qualitative Data
Classified into categories. College major of each student in a class. Gender of each employee at a company. Method of payment (cash, check, credit card).
Rs Credit

Types of Data

1. 2. 3. 4.

Data from a published source Data from a designed experiment Data from a survey Data collected observationally

Category 1 is a secondary source; 2,3, and 4 fall into Primary source of data

Obtaining Data
Published source: book, journal, newspaper, Web site Designed experiment: researcher exerts strict control over units Survey: a group of people are surveyed and their responses are recorded Observation study: units are observed in natural setting and variables of interest are recorded

Some Statistical Applications Areas


Economics
Forecasting Demographics

Engineering
Construction Materials

Sports
Individual & Team Performance

Business
Consumer Preferences Financial Trends

Some Statistical Applications Areas


Accountants make decisions based on the information relating to the financial state of organization. Marketing staff make decisions based on customer response to product and design. Personnel managers make decisions based on the information relating to the levels of employment in the organization.

Some Statistical Applications Areas


Production executives use statistical methods for R & D programmes to improve the quality of the processes and products (SQC). Probable dividends for future years can be decided based on a correlation study of profits and dividends in the present and previous years (-- Finance department). Physical sciences such as astronomy, geology, meteorology, etc. use statistical methods such as sampling, estimation, DoE, etc. Medical science also use statistics. Government agencies state or central - do use statistics; census, identification of the target beneficiaries for various schemes and many more.

Some limitations
Statistics does not study qualitative phenomena. Statistics does not study individuals Statistics can be misused (skill & experience are needed to draw useful inferences god or devil)

Operations Research Techniques

A technique that provides a quantitative basis for the executives for decision making. Nature of OR models

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