QUANTITATIVE METHODS (QM)

IN DECISION MAKING

Edward LUKWAGO

elukwago@gmail.com
04-Dec-17 1
 Definition
• QM is a scientific approach to managerial decision
making.

• It’s a logical and rational approach to making decisions

using numerical data

• It’s statistical and programming techniques that assist in

decision making in many fields.

• Decisions should at all times, be based upon the best

information (data) available to the manager.

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• Information that is quantified can be subjected to a wide
range of statistical techniques for analysis, enabling the
manager to draw conclusions which will inform the
decision-making process.

• Statistics can be defined as the scientific method of

collecting, organizing, summarizing, presenting and
analyzing data as well as drawing valid conclusions and
making reasonable decisions about the data.

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 Examples managerial decisions
• Whether to accept special orders or not

• Whether to introduce a new product or not

• Determining the right product mix

• How to minimize costs of operation

• How to maximize profits

• How to allocate the limited resources

• When and how will the business break even

• Determining how sales, revenue, costs and profits are

correlated…, e.t.c 4
 Therefore..
• QM involves the field of statistics that is
concerned with proper collection, organizing
and summarizing data into manageable and
presentable forms, analytically and interpreting
the conclusion or statistical data.

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 Mathematical models
• When using the quantitative approach, an analyst will
concentrate on the quantitative facts or data associated
with the problem and develop mathematical
expressions that describe the objectives, constraints and
relationship that exist in the problem.

• A model is a representation of something or some

phenomena under analysis. Any thought that is
logically consistent is a model.
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Some examples of models used in decision making are:

• Regression models

• Model for calculating drop outs

• Growth rate model

• Investment model

• Total revenue function (maximization)

• Total cost function (minimization)

• Profit maximization model (objective functions)

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• Constraint models (labour, material, e.t.c
 Merits of mathematical models
• Mathematical models can help us determine
our priorities objectively.

• Decisions made are based on concrete facts

and realities of the situation.

• Mathematical models built in computer

language help in rapid calculations of the
future implications of alternative policies. 9
Importance of Quantitative methods in management

• Helps in the provision of relevant and reliable information

on which to base decision making and resource allocation.

• Prediction; time series analysis offers a statistical method

for using past performance figures to help produce a
forecast.

• Planning and control; to carry out these two management

functions successfully, management must be supplied with
accurate and up to date information concerning all aspects
of the organisations 10
 Importance cont’d…
• Index numbers help in reflecting the changes in different
social economic variables like changes in prices or exchange
rates, cost of living, poverty levels etc.

• Quantitative methods help in quality control particularly

when the body or authority concerned uses sampling
techniques to test whether the organisation or firm has been
complying with the quality assurance measures.

• Regression and correlation techniques help the manager to

know the relationship between 2 or more variables for the
benefit of the organisation. (e.g sales and advertising.) 11
 Importance of QM cont…
• QM helps in policy formulation as well as improving on
man power planning. E.g. a firm uses QM to establish causes
of high labour turn over and uses this information to
formulate better policies to reduce the problem

• Probability theory is important for risk management.

• Probability theory is relevant in handling situations that are

risky with high degree of uncertainty. This helps managers
to decide on items to insure by knowing the level of risk
using probability.
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 DATA COLLECTION
AND PRESENTATION

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 DATA COLLECTION AND
PRESENTATION

• Types of data

We have two types of data:

– Quantitative data

– Qualitative data
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 Quantitative data
• This is a type of data where the variable(s)
under study is/are numerically measured.

• Examples include; test scores, weight and

age.

• A variable is something that can be

measured. For example height of a person
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• A variable that can take only specific values
in a given interval is called a discrete
variable. For example ‘goals scored by
Arsenal’, and ‘number of people entering a
certain supermarket’.

• A continuous variable is one that can take

any value within a specified range or interval.
E.g. age, height and temperature 16
 Qualitative data
• This is a type data where the variable under
study is non-numerically measured. It is
categorical in nature.

• Examples of such data include variables

such as social-economic status, nationality,
beauty, …

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 Sources of Data

Data may be obtained either from:

• a primary source
• or a secondary source

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 Primary source of data
• A primary source is a document or physical
object which was written or created during the
time under study.

• These sources are present during an experience or

time period and offer an inside view of a particular
event.

• When data to answer a given question are not

available in routinely kept records, it is often
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necessary to carry out a survey.
 Secondary source of data
• A secondary source is one that makes
available data which were collected by
some other agency.

• Data needed to answer a question may

already exist in books, journals or
commercially available data banks.

• These are secondary sources.

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Primary & secondary sources of data cont.….

• If UMI records do not contain information on age of

participants a survey may be carried out to obtain that
information – this is data from primary source.

• Secondary source is when data needed to answer a

question may already exist in books, journals or data
bank. Some one else may have asked same questions
and data collected may be useful to you.

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 Data collection methods

• The methods are determined by

type of data to be collected

– Primary vs secondary data

– Qualitative vs quantitative data

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 Data collection methods
• Observing what is happening
• Literature review
• Interviewing
• Questionnaire

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 Data collection instruments
• Interviewing schedule
• Questionnaire
• Observation schedule
• Check list

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 Population and Sample
• A population is a complete collection (or
universe) of all the elements (units) that are
of interest in a particular investigation.

• A Sample: is a collection of some (a subset)

elements of a population..

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 Population and Sample
• Target population
This is the population to which the research
ultimately wants to generalize his results
• Sampled population
this is the accessible population. It is the
population from which the sample will be
drawn

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 Census
• Under the census or complete enumeration
survey method, data are collected for each
and every unit [person, household, field,
shop, factory etc] of the population or
universe

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 Sampling
• Sampling: is the process of selecting
elements from a population in such a way
that the sample elements selected represent
the population

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 EDITING DATA
• For primary data upon receipt of returns, it should be
scrutinized with view of detecting errors, omissions and
inconsistencies.
• When errors are discovered, such questionnaires should
either be rejected or corrected.
• Consistency, can be checked by comparing responses to
questions expected to yield relatively similar answer.
• For secondary data, one should compare the objectives
behind the published data visa vie the objectives of the
study.
• Also one should compare the audience for which the
published data was intended against his/her audience.

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 DATA PRESENTATION
• After data collection and editing the facts
(data) should be arranged in certain order
for ease of analysis.

• This is done through classification of the

raw data so that it can be summarized to
enable inference

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 Presentation of data
• Data may be organized and
presented/displayed using: tables, graphs,
pie charts, histogram, polygons and
cumulative frequency curves

• Raw data is data recorded in the sequence

and form in which it was collected.
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 Organizing qualitative data

• We organize and summarize the data with

construction of frequency distribution
tables and use of graphs such as bar graphs
and pie charts to display data.

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 Example

• The table below shows data on 30 students

classified in terms of their social-economic
status (S.E.S) such that a student from high
SES is coded A, one from medium SES is
coded B and one from low SES is coded C

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 Table show raw data
C C B C B

B C C C C

B A A B C

B A C B C

C A B A C

A B A C B

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Frequency distribution table for the data above

SES Number of students

High SES(A) 7

Medium SES(B) 10

Low SES(C) 13

TOTAL 30

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 Organizing quantitative data
We organize and summarize quantitative
data using:

• Frequency distribution tables

• Graphs, e.g. histograms, cumulative curve

• Frequency polygons

• Frequency curves
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 Data Classification
• For Quantitative data: we use an array

• An array is prepared by arranging the data

in ascending or descending order.

• Since an array may contain too many

variables, it can be reduced into the form of
a grouped frequency distribution
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 Classification of data
• Ideally all classes should be same width but they
could be cases when this is not possible;

• Open ended classes for example over 30 is open

ended, rule of thumb is to assume that that class
has the same width as the one before it.

• Choice of classes:
– Should be between 10 and twenty in number

– Class intervals of 5,10 are better

– Class intervals should be equal wherever practicable 39

 Grouped frequency distribution
• Grouped frequency distribution is where all
items possessing similar characteristics in
the study are classified together.

• The following marks were scored by MBA

students in coursework.

• 24, 25, 26, 27, 28, 29, 30, 32, 35, 36, 37, 38,
39, 40, 42, 42, 41, 23, 22, 28
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 Grouped frequency distribution
• Marks (Out of 100) No of students
• 22 - 26 5
• 27 - 31 5
• 32 - 36 3
• 37 - 41 5
• 42 - 46 2
•
• Total 20

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 Key terms in frequency distribution
• Class interval/width
This is the difference between 2 consecutive classes.
• Class Limits
These are the 2 end limits of any class.
• Class Boundaries
• These are the limits up to which the two limits of each
class may be extended to fill up the gap which exist
between classes.
• Mid – value/class mark
• This is the value just at the middle of a class. It is given by
½ (lower class limit + upper class limit)
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 Graphical Presentation of Data

The common graphical presentations are:

• histogram and Bar charts
• frequency polygons
• Ogives
• Time series graphs

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 Graphical Presentation of Data

• Histogram.
plot of the class frequencies against class boundaries.
• Frequency Polygon
This is a plot of the class frequency against the class
marks.
The Ogive.
plot of the class boundaries against the cumulative
frequency
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 The Ogive
The Ogive is either a less than ogive/cumulative frequency
curve or more than ogive or cumulative frequency curve.
• Less than Ogive /cumulative frequency curve
Plots less than cumulative frequency against the upper
class boundaries. It is upward sloping.
• More than Ogive/ cumulative frequency curve
Plots more than cumulative frequency against the lower
class boundaries and helps to find the number of
observations exceeding any value.

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 Time series graph

Time series graph

• This is used to show the pattern displayed by the
variables observed were a given period of time. They
are useful in the following ways;
• They show social-economic factors and also explain
growth and decay in such factors
• They can be used to predict the behaviour of a
phenomena in future which is essential in business
planning
• They are used in comparative studies

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 Diagrammatical presentations
Diagrammatical presentations include
• Pictograms
• Pie charts

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 Diagrammatical presentations
Pictograms
• These involve the use of small pictures to present
the various variables under study e.g. Data below
slows the number of cars in Mbarara Town from
2000 to 2003
• Year Number of Vehicles
• 2000 2,000
• 2001 3,000
• 2002 4,000
• 2003 5,000
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 Pie Chart

Pie Chart
Diagrammatical presentation of data on the basis of proportionally. It
provides a powerful visual tool for presently qualitative data.
• Example
• A survey of 1200 Business persons in the year 2005 revealed the
following proportions of expectation after the budget speech
Proportion Expectation
50% General Price level to rise
20% General Price level to remain uncharged
10% General Price level to reduce
20% Did not know.
• Present the above information by way of a pie chart

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