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Management Science Handouts 1

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Anna Liza Selauso
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3 views

Management Science Handouts 1

Uploaded by

Anna Liza Selauso
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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Management science is the application of analytical methods, scientific principles, and

mathematical techniques to solve business and organizational problems, aiding in decision-


making and resource optimization.
To improve efficiency, productivity, and decision quality in management processes.
Key Characteristics:
 Focuses on decision-making and problem-solving.
 Relies on quantitative analysis.
 Interdisciplinary, incorporating mathematics, economics, statistics, and operations
research.

Quantitative Techniques refer to the application at mathematics in actual business operations.


It is also known as quantitative methods.
The following are six such important quantitative techniques of decision making:
1. Linear programming
This technique basically helps in maximizing an objective under limited resources. The objective
can be either optimization of a utility or minimization of a disutility. In other words, it helps in
utilizing a resource or constraint to its maximum potential.
Managers generally use this technique only under conditions involving certainty. Hence, it might
not be very useful when circumstances are uncertain or unpredictable.

2. Probability decision theory


This technique lies in the premise that we can only predict the probability of an outcome. In
other words, we cannot always accurately predict the exact outcome of any course of action.
Managers use this approach to first determine the probabilities of an outcome using available
information. They can even rely on their subjective judgment for this purpose. Next, they use
this data of probabilities to make their decisions. They often use ‘decision trees’ or pay-off
matrices for this purpose.

3. Game theory
Sometimes, managers use certain quantitative techniques only while taking decisions pertaining
to their business rivals. The game theory approach is one such technique.
This technique basically simulates rivalries or conflicts between businesses as a game. The aim
of managers under this technique is to find ways of gaining at the expense of their rivals. In
order to do this, they can use 2-person, 3-person or n-person games.

4. Queuing theory
Every business often suffers waiting for periods or queues pertaining to personnel, equipment,
resources or services.
For example, sometimes a manufacturing company might gather a stock of unsold goods due to
irregular demands. This theory basically aims to solve such problems.
The aim of this theory is to minimize such waiting periods and also reduce investments on such
expenses.
For example, departmental stores often have to find a balance between unsold stock and
purchasing fresh goods. Managers in such examples can employ the queuing theory to
minimize their expenses.

5. Simulation
As the name suggests, the simulation technique observes various outcomes under hypothetical
or artificial settings. Managers try to understand how their decisions will work out under diverse
circumstances.
Accordingly, they finalize on the decision that is likely to be the most beneficial to them.
Understanding outcomes under such simulated environments instead of natural settings
reduces risks drastically.

6. Network techniques
Complex activities often require concentrated efforts by personnel in order to avoid wastage of
time, energy and money. This technique aims to solve this by creating strong network structures
for work.
There are two very important quantitative techniques under this approach. These include the
Critical Path Method and the Programme Evaluation & Review Technique. These techniques are
effective because they segregate work efficiently under networks. They even drastically reduce
time and money.

7. Linear Programming
It utilizes mathematical optimization to find the best outcome in decision scenarios. Linear
programming models enable businesses to allocate resources efficiently, optimize production
processes, and maximize profits. They do so by considering constraints and objectives
simultaneously. It is particularly useful in supply chain management and resource allocation.

8. Regression Analysis
It examines relationships between variables to make predictions and informed decisions. This
statistical technique aids in understanding the impact of one or more independent variables on a
dependent variable. It is widely employed for market research, pricing strategies, and
forecasting, providing valuable insights into the factors influencing outcomes

9. Decision Trees
Decision trees visually map decision options and outcomes, aiding strategic decision-making in
risk analysis, project management, and financial planning. They offer a clear framework for
evaluating choices and uncertainties, enhancing the decision process, and facilitating effective
communication among stakeholders.
10. Inventory Theory
Inventory theory helps for optimizing the inventory levels. It focuses on minimizing cost
associated with holding of inventories.
Example is the EOQ model

Limitations of Quantitative Techniques


Even though the quantitative techniques are inevitable in decision-making process, they are not
free
from short comings. The following are the important limitations of quantitative techniques:
1. Quantitative techniques involves mathematical models, equations and other
mathematical
expressions
2. Quantitative techniques are based on number of assumptions. Therefore, due care
must be ensured
while using quantitative techniques, otherwise it will lead to wrong conclusions.
3. Quantitative techniques are very expensive.
4. Quantitative techniques do not take into consideration intangible facts like skill,
attitude, etc.
5. Quantitative techniques are only tools for analysis and decision-making. They are not
decisions itself.

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