Quantitative Decision Making – An Introduction

You may be aware of the fact that prior to the industrial revolution individual business was small and production was carried out on a very small scale mainly to cater to the local needs. The management of such business enterprises was very different from the present management of large scale business. The information needed by the decision-maker (usually the owner) to make effective decisions was much less extensive than at present. Thus he used to make decisions based upon his past experience and intuition only. Some of the reasons for this were:

  1. The marketing of the product was not a problem because customers were, for the large part, personally known to the owner of the business. There was hardly any competition in the business.
  2. Test marketing of the product was not needed because the owner used to know the choice and requirement of the customers just by personal interaction.
  3. The manager (also the owner) also used to work with his workers at the shop floor. He knew all of them personally as the number was small. This reduced the need for keeping personal data.
  4. The progress of the work was being made daily at the work center itself. Thus production records were not needed.
  5. Any facts the owner needed could be learnt direct from observation and most of what he required was known to him

Now, in the face of increasing complexity in business and industry, intuition alone has no place in decision-making because basing a decision on intuition becomes highly questionable when the decision involves the choice among several courses of action each of which can achieve several management objectives simultaneously. Hence there is a need for training people who can manage a system both efficiently and creatively.

Quantitative techniques have made valuable contribution towards arriving at an effective decision in various functional areas of management-marketing, finance, production and personnel. Today, these techniques are also widely used in regional planning, transportation, public health, communication, military, agriculture, etc.

Quantitative techniques are being used extensively as an aid in business decision-making due to following reasons:

  1. Complexity of today’s managerial activities which involve constant analysis of existing situation, setting objectives, seeking alternatives, implementing, coordinating, controlling and evaluating the decision made.
  2. Availability of different types of tools for quantitative analysis of complex managerial problems.
  3. Availability of high speed computers to apply quantitative techniques (or models) to real life problems in all types of organizations such as business, industry, military, health, and so on. Computers have played an important role in arriving at the optimal solution of complex managerial problems both in terms of time and cost.

In spite of these reasons, the quantitative approach, however, does not totally eliminate the scope of qualitative or judgment ability of the decision-maker. Of course, these techniques complement the experience and knowledge of decision-maker in decision-making.

Meaning of Quantitative Techniques

Quantitative techniques refer to the group of statistical, and operations research (or programming) techniques as shown in the below diagram.

The quantitative approach in decision-making requires that, problems be defined, analyzed and solved in a conscious, rational, systematic and scientific manner based on data, facts, information, and logic and not on mere whims and guesses. In other words, quantitative techniques (tools or methods) provide the decision-maker a scientific method based on quantitative data in identifying a course of action among the given list of courses of action to achieve the optimal value of the predetermined objective or goal. One common characteristic of all types of quantitative techniques is that numbers, symbols or mathematical formulae (or expressions) are used to represent the models of reality.

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