Quantitative Technique

Westmead International School
School of Economics, Business and Accountancy
LINEAR PROGRAMMING
Maximization
A Wooden manufacturer makes wooden desks (X) and tables (Y). Each desk
requires 2.5 hours to assemble, 3 hours for buffing, and 1 hour to crate.
Each table requires 1 hour to assemble, 3 hours to buff, and 2 hours to
crate. The firm can do only up to 20 hours of assembling, 30 hours of
buffing, and 16 hours of crating per week. Profit is $3 per desk and $4 per
table. Maximize the profit.
Linear Programming Results
Quantitative Technique in Business

Iterations
Graph

Interpretation:
Minimization
2. Chicken farmer uses a mixture of two chicken feeds, Chickens Best and
Chicken meal. Each ounce of Chickens Best contains 12 grams of protein, 2

grams of fat, and 16 grams of carbohydrate. Each once of Chicken Meal
contains 6 grams of protein, one gram of fat, and 18 grams of
carbohydrate. Chicken's Best costs P7 per ounce while Chicken Meal costs P5
per ounce. Each bag of chicken farmer buys must contain at least 60 grams of
protein, 8 grams of fat, and at most 180 grams of carbohydrates. Determine the
number of ounces Chicken's Best and Chicken Meal feed that will produce a
mixture satisfying the give restrictions at minimum cost.

Linear Programming Results
Iterations

Graph
Interpretation:
Project Management
PERT Program Evaluation & Review Technique It is generally used for
those projects where time required to complete various activities are not
known as a priori. It is probabilistic model & is primarily concerned for
evaluation of time. It is event oriented. CPM Critical Path Analysis It is a
commonly used for those projects which are repetitive in nature & where
one has prior experience of handling similar projects. It is a deterministic
model & places emphasis on time & cost for activities of a project.

a. CPM
The following activities are part of a project to be scheduled using CPM.
Activity
A
B
C
D
E
F
G
Immediate
Predecessor
--A
A
C
B, D
D
E, F
Time (weeks)
6
4
5
7
2
3
8
a. Draw the network diagram.

b. What is the critical path?
Diagram

Interpretation:
b. PERT
Consider the project information in the table.

Activity
A
B
C
D
E
F
G
H
I
J
Immediate
Predecesso
r
--A
A
B
B
D
C
C
G, H
E, F
4
2
5
2
3
3
3
2
3
4
5
4
3
4
5
4
5
3
4
5
6
7
5
7
8
6
6
5
5
6

a. Draw the PERT network diagram for this project.

b. Compute the mean and variance in time for each activity.
c. Find the critical path.
Interpretation: The earliest time to finish the project is 15 weeks.
3. Sunsilk Philippines has the following activity times for their next product launching
on a new hair product.
Activit
y
A
B
C
D
E
F
G
Time (days)
Normal
Crash
3
2
2
1
5
3
5
3
6
4
2
1
2
1
Total Cost ($)

Normal
Crash
800
1400
1200
1900
2000
2800
1500
2300
1800
2800
600
1000
500
1000
a. What are the Critical Path activities?

b. What is the total project cost using the normal times?
c. What activities should be crashed?
Project Management Results
SUNSILK Solution
Normal
time
Crash
time
Normal
Cost
Crash
Cost
Crash
cost/pd
Crash by
Crashing
cost

Project
800
1400
600
1200
1900
700
2000
2800
400
400
1500
2300
400
400
1800
2800
500
1000
600
1000
400
500
1000
500
TOTALS
8400
1800
Crash Schedule
SUNSILK Solution
Period
cost
Cumulativ
e cost
500
500
1300
1800
Project time
1
1
Interpretation: The activities that should be crashed are C, D, and E with a total
crashing cost of $1,800.
Decision Theory

1. A firm is considering three options for managing its data processing operation:
continuing with its own staff, hiring an outside vendor, or a combination of its own staff
or outside vendor. The annual cost of each decision alternative and state of nature is
as follows:
Decision Alternative
Own Staff
Vendor
Combination
State Of Nature
High
Medium
Demand
Demand
Low Demand
750
950
800
600
300
450
650
600
600
If the demand probabilities are .2, .55 and .25, which decision alternative will minimize
the expected cost of data processing operation?
Decision Table Results
FIRM Solution
High
Demand
Medium
Demand
Low
Demand
.2
.55
.25
Own Staff
750
650
Vendor
950
Combination
800
Probabilities
EMV
Row Min
Row
Max
600
657.5
600
750
600
300
595
300
950
600
450
602.5
450
800
minimum
595
300
750
Best EV
minimin
minima
x
Expected Value Multiplication
10

FIRM Solution
High Demand
Medium
Demand
Low Demand
.2
.55
.25
Own Staff
150
357.5
150
657.5
Vendor
190
330
75
595
Combination
160
330
112.5
602.5
Probabilities
Row sum (Exp Val)
Perfect Information
FIRM Solution
High Demand
Medium Demand
Low Demand
.2
.55
.25
Own Staff
750
650
600
Vendor
950
600
300
Combination
800
600
450
Perfect Information
750
600
300
Perfect*probability
150
330
75
Probabilities
Best Expected Value
Maximum
555
595
Exp Value of Perfect Info
40
Regret or Opportunity Loss
FIRM Solution
High Demand
Regret
Medium Demand
Regret
Low Demand
Regret
Probabilities
.2
.55
.25
Own Staff
50
200
50
Vendor
Combination
Minimax regret
Maximum
Regret
Expected
Regret
300
300
102.5
200
40
150
150
47.5
150
11

Hurwicz Table
FIRM Solution
Hurwicz Value
Own Staff
Vendor
Combination
.00
600
300
450
.01
601.5
306.5
453.5
.02
603
313
457
.03
604.5
319.5
460.5
.04
606
326
464
.05
607.5
332.5
467.5
.06
609
339
471
.07
610.5
345.5
474.5
.08
612
352
478
.09
613.5
358.5
481.5
.10
615
365
485
.11
616.5
371.5
488.5
.12
618
378
492
.13
619.5
384.5
495.5
.14
621
391
499
.15
622.5
397.5
502.5
.16
624
404
506
.17
625.5
410.5
509.5
.18
627
417
513
.19
628.5
423.5
516.5
.20
630
430
520
.21
631.5
436.5
523.5
.22
633
443
527
.23
634.5
449.5
530.5
.24
636
456
534
.25
637.5
462.5
537.5
.26
639
469
541
.27
640.5
475.5
544.5
12

.28
642
482
548
.29
643.5
488.5
551.5
.30
645
495
555
.31
646.5
501.5
558.5
.32
648
508
562
.33
649.5
514.5
565.5
.34
651
521
569
.35
652.5
527.5
572.5
.36
654
534
576
.37
655.5
540.5
579.5
.38
657
547
583
.39
658.5
553.5
586.5
.40
660
560
590
.41
661.5
566.5
593.5
.42
663
573
597
.43
664.5
579.5
600.5
.44
666
586
604
.45
667.5
592.5
607.5
.46
669
599
611
.47
670.5
605.5
614.5
.48
672
612
618
.49
673.5
618.5
621.5
.50
675
625
625
.51
676.5
631.5
628.5
.52
678
638
632
.53
679.5
644.5
635.5
.54
681
651
639
.55
682.5
657.5
642.5
.56
684
664
646
.57
685.5
670.5
649.5
.58
687
677
653
.59
688.5
683.5
656.5
.60
690
690
660
.61
691.5
696.5
663.5
.62
693
703
667
.63
694.5
709.5
670.5
13

.64
696
716
674
.65
697.5
722.5
677.5
.66
699
729
681
.67
700.5
735.5
684.5
.68
702
742
688
.69
703.5
748.5
691.5
.70
705
755
695
.71
706.5
761.5
698.5
.72
708
768
702
.73
709.5
774.5
705.5
.74
711
781
709
.75
712.5
787.5
712.5
.76
714
794
716
.77
715.5
800.5
719.5
.78
717
807
723
.79
718.5
813.5
726.5
.80
720
820
730
.81
721.5
826.5
733.5
.82
723
833
737
.83
724.5
839.5
740.5
.84
726
846
744
.85
727.5
852.5
747.5
.86
729
859
751
.87
730.5
865.5
754.5
.88
732
872
758
.89
733.5
878.5
761.5
.90
735
885
765
.91
736.5
891.5
768.5
.92
738
898
772
.93
739.5
904.5
775.5
.94
741
911
779
.95
742.5
917.5
782.5
.96
744
924
786
.97
745.5
930.5
789.5
.98
747
937
793
.99
748.5
943.5
796.5
14

1.00
750
950
800
Interpretation: The decision alternative that will minimize the expected cost is hiring
an outside vendor with the given expected monetary value of 595 and given value of
300 in minimin. The expected value of perfect information is 40.
2. Razors TV Production is considering producing a pilot for a drama series for a

television network. The network may reject the pilot and the series, but it may also
purchase the program for 1 or 2 years. He may decide to produce the pilot or transfer
the rights for the series to a competitor for 100,000. Razors profit are summarized in
the following profit (in thousands of pesos) payoff table.
Decision
Alternative
Produce Pilot
Sell to
competitor
State Of Nature
Reject
1 year
2 years
-100
100
50
100
150
100
Razor's TV Production Solution
15

Reject
1 year
2 years
-100000
50000
100000
100000
Probabilities
Produce Pilot
Sell to Competitor
Row Min
Row Max
150000
-100000
150000
100000
100000
100000
maximum
100000
150000
maximin
maximax

Reject Regret
1 year Regret
2 years
Regret
200000
50000
Probabilities
Produce Pilot
Sell to Competitor
Maximum
Regret
Expected Regret
200000
50000
50000
Minimax regret
50000
Hurwicz Table

Hurwicz Value
Produce Pilot
Sell to Competitor
.00
-100000
100000
.01
-97500
100000
.02
-95000
100000
.03
-92500
100000
.04
-90000
100000
16

.05
-87500
100000
.06
-85000
100000
.07
-82500
100000
.08
-80000
100000
.09
-77500
100000
.10
-75000
100000
.11
-72500
100000
.12
-70000
100000
.13
-67500
100000
.14
-65000
100000
.15
-62500
100000
.16
-60000
100000
.17
-57500
100000
.18
-55000
100000
.19
-52500
100000
.20
-50000
100000
.21
-47500
100000
.22
-45000
100000
.23
-42500
100000
.24
-40000
100000
.25
-37500
100000
.26
-35000
100000
.27
-32500
100000
.28
-30000
100000
.29
-27500
100000
.30
-25000
100000
.31
-22500
100000
.32
-20000
100000
.33
-17500
100000
.34
-15000
100000
.35
-12500
100000
.36
-10000
100000
.37
-7500
100000
.38
-5000
100000
.39
-2500
100000
.40
100000
17

.41
2500
100000
.42
5000
100000
.43
7500
100000
.44
10000
100000
.45
12500
100000
.46
15000
100000
.47
17500
100000
.48
20000
100000
.49
22500
100000
.50
25000
100000
.51
27500
100000
.52
30000
100000
.53
32500
100000
.54
35000
100000
.55
37500
100000
.56
40000
100000
.57
42500
100000
.58
45000
100000
.59
47500
100000
.60
50000
100000
.61
52500
100000
.62
55000
100000
.63
57500
100000
.64
60000
100000
.65
62500
100000
.66
65000
100000
.67
67500
100000
.68
70000
100000
.69
72500
100000
.70
75000
100000
.71
77500
100000
.72
80000
100000
.73
82500
100000
.74
85000
100000
.75
87500
100000
.76
90000
100000
18

.77
92500
100000
.78
95000
100000
.79
97500
100000
.80
100000
100000
.81
102500
100000
.82
105000
100000
.83
107500
100000
.84
110000
100000
.85
112500
100000
.86
115000
100000
.87
117500
100000
.88
120000
100000
.89
122500
100000
.90
125000
100000
.91
127500
100000
.92
130000
100000
.93
132500
100000
.94
135000
100000
.95
137500
100000
.96
140000
100000
.97
142500
100000
.98
145000
100000
.99
147500
100000
1.00
150000
100000
Interpretation: The best decision of Razors TV Production is to sell the rights on the
series to a competitor given by the value in maximax and minimax regret.

3. JC Company is considering two options for managing its data processing operation:
continuing with its own staff or hiring an outside vendor. The annual profit of each
decision alternative and state of nature is as follows:
State Of Nature
19

High Demand
Medium Demand
Low Demand
Own Staff
700
800
750
Vendor
650
650
600
Decision
Alternative
Which decision alternative will maximize the expected profit of data processing
operation?
JC Company Solution
High Demand
Medium Demand
Low Demand
Own Staff
700
800
Vendor
650
650
Probabilities
Row Min
Row Max
750
700
800
600
600
650
maximum
700
800
maximin
maximax

JC Company Solution
High Demand
Regret
Medium
Demand
Regret
Low Demand
Regret
Probabilities
Own Staff
50
150
Vendor
Minimax regret
Maximum
Regret
Expected Regret
150
150
20

Hurwicz Table
JC Company Solution
Hurwicz Value
Own Staff
Vendor
.00
700
600
.01
701
600.5
.02
702
601
.03
703
601.5
.04
704
602
.05
705
602.5
.06
706
603
.07
707
603.5
.08
708
604
.09
709
604.5
.10
710
605
.11
711
605.5
.12
712
606
.13
713
606.5
.14
714
607
.15
715
607.5
.16
716
608
.17
717
608.5
.18
718
609
.19
719
609.5
.20
720
610
.21
721
610.5
.22
722
611
.23
723
611.5
.24
724
612
.25
725
612.5
.26
726
613
.27
727
613.5
.28
728
614
.29
729
614.5
.30
730
615
21

.31
731
615.5
.32
732
616
.33
733
616.5
.34
734
617
.35
735
617.5
.36
736
618
.37
737
618.5
.38
738
619
.39
739
619.5
.40
740
620
.41
741
620.5
.42
742
621
.43
743
621.5
.44
744
622
.45
745
622.5
.46
746
623
.47
747
623.5
.48
748
624
.49
749
624.5
.50
750
625
.51
751
625.5
.52
752
626
.53
753
626.5
.54
754
627
.55
755
627.5
.56
756
628
.57
757
628.5
.58
758
629
.59
759
629.5
.60
760
630
.61
761
630.5
.62
762
631
.63
763
631.5
.64
764
632
.65
765
632.5
.66
766
633
22

.67
767
633.5
.68
768
634
.69
769
634.5
.70
770
635
.71
771
635.5
.72
772
636
.73
773
636.5
.74
774
637
.75
775
637.5
.76
776
638
.77
777
638.5
.78
778
639
.79
779
639.5
.80
780
640
.81
781
640.5
.82
782
641
.83
783
641.5
.84
784
642
.85
785
642.5
.86
786
643
.87
787
643.5
.88
788
644
.89
789
644.5
.90
790
645
.91
791
645.5
.92
792
646
.93
793
646.5
.94
794
647
.95
795
647.5
.96
796
648
.97
797
648.5
.98
798
649
.99
799
649.5
1.00
800
650
23

Interpretation: The best decision of JC Company is to continue with its own staff
given the value of maximax, maximin, and minimax regret.
Inventory Management
1. An auto parts supplier sells Hardy-brand batteries to car dealers and auto
mechanics. The annual demand is approximately 1,200 batteries. The supplier pays
$28 for each battery and estimates that the annual holding cost is 30 percent of the
battery's value. It costs approximately $20 to place an order (managerial and clerical
costs).
a. Determine the ordering, holding, and total inventory costs for the current order
quantity.
b. Determine the economic order quantity (EOQ).
c. How many orders will be placed per year using the EOQ?
d. Determine the ordering, holding, and total inventory costs for the EOQ. How has
ordering cost changed? Holding cost? Total inventory cost?
Inventory Results
Auto Part Supplier Solution

Parameter
Value
Parameter
Value
Demand rate(D)
1200
Optimal order quantity (Q*)
75.59
Setup/Ordering cost(S)
20
Maximum Inventory Level (Imax)
75.59
Holding cost(H)@30%
8.4
Average inventory
37.8
Unit cost
28
Orders per period(year)
15.87
Annual Setup cost
317.49
24

Annual Holding cost
317.49
Unit costs (PD)
33600
Total Cost
34234.98
Cost Curve
Interpretation: Auto parts supplier annual setup cost and annual holding cost is
$317.49, unit cost is$33,600 and the total inventory cost for the EOQ is $34,234.68.
2. Pam runs a mail-order business for gym equipment. Annual demand for the
TricoFlexers is 16,000. The annual holding cost per unit is $2.50 and the cost to place
an order is $50. What is the economic order quantity?
Inventory Results
TricoFlexers Solution
Parameter
Demand rate(D)
Value
Parameter
Value
16000
800
25

50
800
Holding cost(H)
2.5
Average inventory
400
20
Annual Setup cost
1000
Annual Holding cost
1000
Unit costs (PD)
Total Cost
2000
Unit cost
Cost Curve
Interpretation: Tricoflexers EOQ is 800, number of orders per year is 20, annual setup
cost and annual holding cost is $1000. The total cost of $2000 is the sum of annual
holding and annual setup cost.
3. Wilson Publishing Company produces books for the retail market. Demand for a
current book is expected to occur at a constant annual rate of 7200 copies. The cost of
one copy of the book is $14.50. The holding cost is based on 18% annual rate, and
production setup costs are $150 per setup. Compute the following values:
26

a. Determine the ordering, holding, and total inventory costs for the current order
quantity.
b. Determine the economic order quantity (EOQ).
c. How many orders will be placed per year using the EOQ?
d. Determine the ordering, holding, and total inventory costs for the EOQ. How has
ordering cost changed? Holding cost? Total inventory cost
Inventory Results
Wilson Publishing Company Solution
Parameter
Value
Parameter
Value
Demand rate(D)
7200
909.72
150
909.72
Holding cost(H)@18%
2.61
Average inventory
454.86
Unit cost
14.5
7.91
Annual Setup cost
1187.18
Annual Holding cost
1187.18
Unit costs (PD)
104400
Total Cost
106774.4
Cost Curve
27

Interpretation: Through the given value of demand rate, setup cost, holding cost and
unit cost Wilson Publishing Company get their EOQ=909.72, number of orders per
year=7.91, annual setup cost=$1187.18 and annual holding cost=$1187.18. The unit
cost (PD) is the product of demand rate and unit cost. The total cost of WPC is
$106,774.4.
FORECASTING
1. Hospitality Hotels forecasts monthly labour needs.

Month
January
February
March
April
May
Actual Values
32
41
38
39
43
a) What would be the forecast for June using the nave method?
b) Compare the accuracy of these models using the mean absolute deviation (MAD),
mean squared error (MSE).
28

Forecasting Results
Hospitality Hotel Summary

Measure
Value
Error Measures
Bias (Mean Error)
2.75
MAD (Mean Absolute Deviation)
4.25
MSE (Mean Squared Error)
26.75
Standard Error (denom=n-2=2)
7.31
MAPE (Mean Absolute Percent Error)
.1
Forecast
next period
43
Details and Error Analysis

Hospitality Hotel Solution
Demand(y)
Forecast
Error
|Error|
Error^2
|Pct Error|
January
32
February
41
32
81
.22
March
38
41
-3
.08
April
39
38
.03
May
43
39
16
.09
TOTALS
193
11
17
107
.42
AVERAGE
38.6
2.75
4.25
26.75
.1
(Bias)
(MAD)
(MSE)
(MAPE)
Std err
7.31
Next period forecast
43
Control (Tracking Signal)

Hospitality Hotel Solution
Demand(y)
January
Forecast
Error
RSFE
|RSFE|
Cum Abs
Cum MAD
Track Signal
32
29

February
41
32
March
38
41
-3
12
April
39
38
13
4.33
1.62
May
43
39
11
17
4.25
2.59
Graph of Hospitality Hotel
Interpretation: By using the nave method of time series analysis the forecasting for
the next period or for the month of June is 43. Through the use of details and error
analysis the MAD and the MSE of Hospitality Hotel are 4.25 and 26.75 respectively.
2. The manager of a small health clinic would like to use exponential smoothing to
forecast demand for laboratory services in their facility. To make her decision, she has
decided to use .7 as the value of alpha.
Week
1
2
Demand (labor
Requirement)
330
350
30

3
4
5
6
320
370
368
343
Forecasting Results
Health Clinic Summary
Measure
Value
Error Measures
Bias (Mean Error)
5.58
23.88
679.66
33.66
.07
Forecast
next period
349.52
Details and Error Analysis

Health Clinic Solution
Demand(y)
Forecast
Error
|Error|
Error^2
|Pct Error|
Week1
330
Week2
350
330
20
20
400
.06
Week3
320
344
-24
24
576
.08
Week4
370
327.2
42.8
42.8
1831.84
.12
Week5
368
357.16
10.84
10.84
117.51
.03
Week6
343
364.75
-21.75
21.75
472.97
.06
2081
27.89
119.39
3398.32
.34
346.83
5.58
23.88
679.66
.07
(Bias)
(MAD)
(MSE)
(MAPE)
Std err
33.66
TOTALS
AVERAGE
Next period forecast
349.52
Errors as a function of Alpha

31

Alpha
Bias
MAD
MSE
Standard error
MAPE
.00
20.2
24.2
742.6
35.18
.07
.01
19.87
23.95
729.95
34.88
.07
.02
19.54
23.7
717.95
34.59
.07
.03
19.22
23.46
706.57
34.32
.07
.04
18.9
23.22
695.79
34.05
.06
.05
18.58
22.98
685.59
33.8
.06
.06
18.27
22.75
675.94
33.56
.06
.07
17.97
22.53
666.83
33.34
.06
.08
17.67
22.31
658.24
33.12
.06
.09
17.38
22.1
650.15
32.92
.06
.10
17.09
21.89
642.54
32.72
.06
.11
16.8
21.68
635.4
32.54
.06
.12
16.52
21.48
628.71
32.37
.06
.13
16.24
21.28
622.45
32.21
.06
.14
15.97
21.09
616.61
32.06
.06
.15
15.7
20.9
611.17
31.92
.06
.16
15.43
20.71
606.12
31.78
.06
.17
15.17
20.53
601.45
31.66
.06
.18
14.92
20.56
597.15
31.55
.06
.19
14.66
20.64
593.19
31.44
.06
.20
14.41
20.72
589.58
31.35
.06
.21
14.17
20.8
586.29
31.26
.06
.22
13.93
20.88
583.32
31.18
.06
.23
13.69
20.95
580.66
31.11
.06
.24
13.45
21.03
578.29
31.05
.06
.25
13.22
21.1
576.21
30.99
.06
.26
13
21.18
574.41
30.94
.06
.27
12.77
21.25
572.88
30.9
.06
.28
12.55
21.32
571.61
30.87
.06
.29
12.33
21.4
570.59
30.84
.06
.30
12.11
21.47
569.81
30.82
.06
.31
11.9
21.54
569.27
30.8
.06
.32
11.69
21.61
568.96
30.79
.06
.33
11.49
21.68
568.87
30.79
.06
.34
11.28
21.75
569
30.8
.06
32

.35
11.08
21.82
569.34
30.8
.06
.36
10.89
21.89
569.88
30.82
.06
.37
10.69
21.96
570.62
30.84
.06
.38
10.5
22.03
571.55
30.86
.06
.39
10.31
22.09
572.67
30.89
.06
.40
10.13
22.16
573.97
30.93
.06
.41
9.94
22.23
575.45
30.97
.06
.42
9.76
22.29
577.1
31.01
.06
.43
9.58
22.36
578.92
31.06
.06
.44
9.41
22.42
580.9
31.12
.06
.45
9.23
22.49
583.04
31.17
.06
.46
9.06
22.55
585.33
31.23
.06
.47
8.89
22.61
587.78
31.3
.06
.48
8.73
22.68
590.38
31.37
.06
.49
8.56
22.74
593.12
31.44
.06
.50
8.4
22.8
596
31.52
.06
.51
8.24
22.86
599.02
31.6
.06
.52
8.08
22.92
602.18
31.68
.07
.53
7.93
22.98
605.47
31.77
.07
.54
7.77
23.04
608.89
31.86
.07
.55
7.62
23.1
612.43
31.95
.07
.56
7.47
23.15
616.11
32.04
.07
.57
7.32
23.21
619.9
32.14
.07
.58
7.18
23.27
623.82
32.24
.07
.59
7.04
23.32
627.86
32.35
.07
.60
6.89
23.38
632.01
32.46
.07
.61
6.75
23.43
636.28
32.56
.07
.62
6.62
23.48
640.66
32.68
.07
.63
6.48
23.54
645.16
32.79
.07
.64
6.35
23.59
649.77
32.91
.07
.65
6.21
23.64
654.48
33.03
.07
.66
6.08
23.69
659.31
33.15
.07
.67
5.95
23.74
664.24
33.27
.07
.68
5.83
23.78
669.27
33.4
.07
.69
5.7
23.83
674.42
33.53
.07
.70
5.58
23.88
679.66
33.66
.07
33

.71
5.46
23.92
685.01
33.79
.07
.72
5.34
23.97
690.47
33.92
.07
.73
5.22
24
696.03
34.06
.07
.74
5.1
24.05
701.68
34.2
.07
.75
4.98
24.09
707.44
34.34
.07
.76
4.87
24.13
713.3
34.48
.07
.77
4.76
24.17
719.27
34.62
.07
.78
4.65
24.2
725.33
34.77
.07
.79
4.54
24.24
731.5
34.92
.07
.80
4.43
24.27
737.76
35.07
.07
.81
4.32
24.31
744.13
35.22
.07
.82
4.22
24.34
750.6
35.37
.07
.83
4.12
24.37
757.18
35.52
.07
.84
4.02
24.4
763.85
35.68
.07
.85
3.92
24.42
770.64
35.84
.07
.86
3.82
24.45
777.52
36
.07
.87
3.72
24.47
784.52
36.16
.07
.88
3.62
24.49
791.62
36.32
.07
.89
3.53
24.51
798.82
36.49
.07
.90
3.44
24.53
806.14
36.65
.07
.91
3.35
24.55
813.57
36.82
.07
.92
3.26
24.56
821.11
37
.07
.93
3.17
24.57
828.77
37.17
.07
.94
3.08
24.58
836.55
37.34
.07
.95
24.59
844.44
37.52
.07
.96
2.92
24.62
852.46
37.69
.07
.97
2.84
24.81
860.6
37.87
.07
.98
2.76
25
868.87
38.05
.07
.99
2.68
25.2
877.27
38.24
.07
1.00
2.6
25.4
885.8
38.42
.07

Demand(y)
Forecast
Error
RSFE
|RSFE|
Cum Abs
Cum MAD
Track Signal
34

Week1
330
Week2
350
330
20
20
20
20
20
Week3
320
344
-24
-4
24
44
22
-.18
Week4
370
327.2
42.8
38.8
42.8
86.8
28.93
1.34
Week5
368
357.16
10.84
49.64
10.84
97.64
24.41
2.03
Week6
343
364.75
-21.75
27.89
21.75
119.39
23.88
1.17
Graph of Health Clinic
Interpretation: By using the exponential smoothing method of time series analysis the
forecasting for the next period is 349.52. Through the use of details and error analysis
the MAD, MAPE and the MSE of Health Clinic are 23.88, .07 and 679.66 respectively.
3. Erika Grace made the following forecast of demands to a new kitchen gadget in
units:
Month
January
February
Actual
Demand
52
50
Forecast
54
55
35

March
April
May
June
July
August
57
48
56
58
55
60
56
57
58
59
60
65
Compute the mean absolute deviation (MAD) and mean squared error (MSE).
Forecasting Results
Erika Grace Summary

Measure
Value
Error Measures
Bias (Mean Error)
-3.5
3.75
20.75
5.26
.07
Decision and Error Analysis
Erika Grace Solution

Actual
Forecast
Error
|Error|
January
52
54
-2
.04
February
50
55
-5
25
.1
March
57
56
.02
April
48
57
-9
81
.19
May
56
58
-2
.04
June
58
59
-1
.02
July
55
60
-5
25
.09
August
60
65
-5
25
.08
-28
30
166
.57
TOTALS
436
Error^2 |Pct Error|
36

AVERAGE
54.5
-3.5
3.75
20.75
.07
(Bias)
(MAD)
(MSE)
(MAPE)
Std err
5.26
Erika Grace Solution

Actual
Forecast
Error
RSFE
|RSFE|
Cum Abs
Cum
MAD
Track
Signal
January
52
54
-2
-2
-1
February
50
55
-5
-7
3.5
-2
March
57
56
-6
2.67
-2.25
April
48
57
-9
-15
17
4.25
-3.53
May
56
58
-2
-17
19
3.8
-4.47
June
58
59
-1
-18
20
3.33
-5.4
July
55
60
-5
-23
25
3.57
-6.44
August
60
65
-5
-28
30
3.75
-7.47
Graph of Erika Solution
37

Interpretation: Through the use of details and error analysis the MAD, MAPE and the
MSE of Erika Grace are 3.75, .07 and 5.26 respectively.
QUEUING THEORY
1. Consider an M/M/1 queue. A certain printer in the Stat Lab gets jobs with a rate of 3
per hour. On average, the printer needs 15 min to finish a job. Let X (t) be the number
of jobs in the printer and its queue at time t. We know already: X (t) is a Birth & Death
Process with constant arrival rate = 3 and constant death rate = 4.
Waiting Lines Results
Printer Solution
Parameter
Value
M/M/1 (exponential service times)
Parameter
Average server utilization
Arrival rate(lambda)
Average number in the queue(Lq)
Service rate(mu)
Average number in the system(Ls)
Value Minutes
Seconds
.75
2.25
3
38

Number of servers
Average time in the queue(Wq)

Average time in the system(Ws)
.75
45
2700
60
3600
Table of Probabilities
Printer Solution
k
Prob (num in sys = k)
Prob (num in sys <= k)
Prob (num in sys >k)
.25
.25
.75
.19
.44
.56
.14
.58
.42
.11
.68
.32
.08
.76
.24
.06
.82
.18
.04
.87
.13
.03
.9
.1
.03
.92
.08
.02
.94
.06
10
.01
.96
.04
11
.01
.97
.03
12
.98
.02
13
.98
.02
14
.99
.01
15
.99
.01
16
17
18
19
20
21
22
23
24
25
26
39

27
28
Graph of Probabilities
40

Interpretation: The average number of jobs to be finish and the average time a certain
printer needs to finish a job are 3 and 1 respectively. In addition, the average number
of jobs waiting in the queue and the average waiting hours per job are 2.25 and .75
respectively. Through this value, the server utilization rate is .75.
2. Lee Corporation consider an M/M/1 queue with arrival rate =13/hr and service rate
= 14/hr. What is the probability that the system will not be empty?
Waiting Lines Results
Lee Corporation Solution
Parameter
Value
M/M/1 (exponential service times)
Parameter
Value
Minutes
Seconds
.93
13
Service rate(mu)
14
13
.93
55.71
3342.86
60
3600
Number of servers
12.07
Lee Corporation Solution
41

k
.07
.07
.93
.07
.14
.86
.06
.2
.8
.06
.26
.74
.05
.31
.69
.05
.36
.64
.05
.4
.6
.04
.45
.55
.04
.49
.51
.04
.52
.48
10
.03
.56
.44
11
.03
.59
.41
12
.03
.62
.38
13
.03
.65
.35
14
.03
.67
.33
15
.02
.69
.31
16
.02
.72
.28
17
.02
.74
.26
18
.02
.76
.24
19
.02
.77
.23
20
.02
.79
.21
21
.02
.8
.2
22
.01
.82
.18
23
.01
.83
.17
24
.01
.84
.16
25
.01
.85
.15
26
.01
.86
.14
27
.87
.13
28
.88
.12
29
.89
.11
30
.9
.1
42

Graph of Probabilities
43

Interpretation: The average number of clients in the system and the average time a
client spend in the system are 13 and 1 respectively. In addition, the average number
of client waiting in the queue and the average waiting hours are 12.7 and .93
3. Honda Corporation system can be modelled as an M/M/m queuing system with m=5
servers, arrival rate of =8 customers per second and service rate of =2 customers
per second. Find
a) The probability that all servers are idle (free).
b) The probability that all servers are busy.
c) N (Average number of customers in the system)
d) T (Average waiting time spent in the system by a customer)
e) W Average waiting time spent in the queue by a customer)
44

f) N Average number of customers in the service facilities
g) Average number of customers in the queue
h) The utilization of the system (= s N /m).
Waiting Lines Result
Honda Corporation Solution

Parameter
Value
M/M/s
Parameter
Value
Minutes
Seconds
.8
2.22
Service rate(mu)
6.22
Number of servers
.28
16.62
997.4
.78
46.62
2797.4
Honda Corporation Solution

k
.01
.01
.99
.05
.06
.94
.1
.17
.83
.14
.31
.69
.14
.45
.55
.11
.56
.44
.09
.65
.35
.07
.72
.28
.06
.77
.23
.05
.82
.18
10
.04
.85
.15
45

11
.03
.88
.12
12
.02
.91
.09
13
.02
.93
.07
14
.01
.94
.06
15
.01
.95
.05
16
.96
.04
17
.97
.03
18
.98
.02
19
.98
.02
20
.98
.02
21
.99
.01
22
23
24
25
26
27
28
29
30
Graph Of Probabilities
46

Interpretation: The average number of customers in the system and the average time
a customer spend in the system are 6.22 and .78 respectively. In addition, the average
number of client waiting in the queue and the average waiting hours are 2.22 and .78
47

NETWORK
1. Kit Milano the manager of Quitain Enterprises has drawn the following diagram
showing the distances in meters from her office to work stations and indicating
possible paths from one station to another. Use the minimum span algorithm to help
Kit determine the most economical cable to install.
Stations
From
1
1
1
1
2
3
3
3
3
4
5
5
6
Distance
(meters)
6
4
8
10
4
6
10
7
7
12
8
8
14
To
2
3
4
7
3
4
5
6
7
6
6
7
7
Network Results
Quitain Enterprises Solution
Branch name
Branch 1
Start node
End node
Cost
Include
Cost
48

Branch 2
Branch 3
Branch 4
10
Branch 5
Branch 6
Branch 7
10
Branch 8
Branch 9
Branch 10
12
Branch 11
Branch 12
Branch 13
14
Total
36
Solution Steps
Quitain Enterprises Solution
Branch
Starting node
Ending node
Cost
Cumulative cost
Branch 2
Branch 5
Branch 6
14
Branch 8
21
Branch 9
28
Branch 11
36
Interpretation: The minimum distance of Kit Milano is 36 meters from her office to
work stations.
49

2. Waukesha is in the process of developing a road system for downtown. City
planners would like to determine the maximum number of cars that can flow through
the town from west to east.
From
To
Capacity
1
1
1
2
2
3
3
4
5
2
3
4
4
6
4
5
6
6
300
1000
200
100
200
300
200
100
600
Reverse
Capacity
100
0
0
100
200
100
100
100
0
Network Results
Waukesha Solution
Branch name
Start node
Maximal Network Flow
End node
Capacity
Reverse capacity
Flow
500
Branch 1
300
100
300
Branch 2
1000
200
Branch 3
200
Branch 4
100
100
100
Branch 5
200
200
200
Branch 6
300
100
Branch 7
200
100
200
Branch 8
100
100
100
Branch 9
600
200
Iteration
Waukesha Solution
Iteration
1
Path
Flow
Cumulative Flow
1-> 2-> 6
200
200
50

2
1-> 3-> 5-> 6
200
400
1-> 2-> 4-> 6
100
500
Interpretation: The maximum number of cars that can flow through the town from
west to east is 500.
3. Freysinet Construction Company has several constructions project located
throughout NCR. With multiple dairy trips carrying personnel, equipment, and supplies
to and from the construction locations, the costs associated with transportation
activities are substantial. Given the road network, determine the route or paths that will
minimize the total travel distance from the office to each site.
From
1
1
2
2
2
3
4
4
5
6
To
2
3
3
4
7
5
5
7
6
7
Distance
15
10
3
6
17
4
4
5
2
6
Network Results
Freysinet Construction Company Solution
Total distance = 22
Start node
End node
Distance
Cumulative Distance
Branch 2
10
10
Branch 6
14
Branch 9
16
Branch 10
22
51

Minimum Distance Matrix
Freysinet Construction Company Solution
1
13
10
18
14
16
22
13
11
10
12
18
14
16
22
11
12
Interpretation: The shortest route or paths that will minimize the total travel distance
from the office to each site are branch 2-6-9-10 with a total distance of 22 meters.
Introduction
Quantitative Methods in Business presents the application of quantitative
mathematical modelling to decision making in a business management context and
emphasizes not only the role of data in drawing conclusions, but also the pitfalls of
undiscerning reliance of software packages that implement standard statistical
52

procedures. With hands-on applications and explanations that are accessible to
readers at various levels, the book successfully outlines the necessary tools to make
smart and successful business decisions.
This course provides the necessary skills to understand the role of statistics in
business decision making. Topics include a review of basic mathematics relevant in
business, and linear and nonlinear applications of quantitative techniques and
optimization procedures. Data analysis, probability, random variables, binomial
probability distribution, the role of expected values in decision making in business are
also covered. Excel and other statistical software are used for problem solving.
Quantitative methods covers core ideas of probability, descriptive and inferential
statistics, linear regression, and a discussion of time series that includes both classical
topics and more challenging models. It also discusses linear programming models and
decision making under risk as well as less standard topics in the field such as game theory
and Bayesian statistics. Finally, it concludes with a focus on selected tools from
multivariate statistics, including advanced regression models and data reduction methods
such as principal component analysis, factor analysis, and cluster analysis.
LINEAR PROGRAMMING
Linear Programming is a mathematical technique which permits the
determination of the best use of available resources. The simplest linear programming
application is the maximization model.
53

Maximization model starts with an objective function with the purpose of
maximizing a goal which can be in the form of profits, sales, target audience, number
of customers, or any variable wherein more is desired.
The opposite of maximization is the minimization model. In mathematics, the
second simplest case of linear programming refers to the study of problems in which
one seeks the minimization of an objective function by systematically choosing the
values of real or integer variables from within an allowed set.
The minimization model starts with an objective function with the purpose of
minimizing a goal, which can be in the form of expenses or cost, travel time, distance,
energy, or any wherein less is desired.
PROJECT MANAGEMENT
Project management is a carefully planned and organize effort to accomplish
a specific one time effort, for example, construct a building or implement a new
computer system. Project management includes developing a project plan, which
includes defining project goals and objectives, specifying tasks or how goals will be
achieved, what resources are needed, and associating budgets and timelines for
completion. Project management usually follows major phases, including feasibility
study, project planning, implementation, evaluation and support maintenance.
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Project management is a network model that aims to finish at the shortest
possible time at the least possible cost. It covers two methods: Critical Path Method
(CPM) and Program Evaluation and Review Technique (PERT).
DECISION THEORY
Decision theory is a framework of logical and mathematical concepts, aimed
at helping managers in formulating rules that may lead to a most advantageous course
of action under the given circumstances. Decision theory divides decisions into three
classes (1) Decisions under certainty: where a manager has far too much information
to choose the best alternative. (2) Decisions under risk: where a manager has to
anticipate moves and counter-moves of one or more competitors. (3) Decisions under
uncertainty: where a manager has to dig-up a lot of data to make sense of what is
going on and what it is leading to.
INVENTORY
The word inventory in business means a detailed list of things in stock for a
period of time. Proper management of inventory is a necessary function of all business
operations. Skilful inventory management could mean great savings for the company,
and would maximize the companys profit. Most problems fall into one of the following
categories:
a. The proper quantity (how much to order)
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b. The proper time to order the quantity. (when to order)
Proper inventory management should be maintained in order to bring down the
total annual cost of inventory. There are two costs involved in annual inventory: the
ordering cost and the carrying cost. Annual cost of inventory is the sum of annual
ordering cost and the annual carrying cost.
The proper quantity and the proper time to order should result in lowest annual
cost.
FORECASTING
Forecasting techniques and models can be both qualitative and quantitative
and their level of sophistication depends on the type of information and the impact of
the decision. The forecasting model a firm should adopt depends on several factors,
including forecasting time horizon, data availability, accuracy required, size of the
forecasting budget, and availability of qualified personnel.
Forecasting can be classified into four basic types: qualitative, time series
analysis, causal relationships, and simulation. Qualitative techniques in forecasting
can include grass roots forecasting, market research, panel consensus, historical
analogy, and the Delphi method. Time series forecasting models try to predict the
future based on past data. A simple moving average forecast is used when the
demand for a product or service is constant without any seasonal variations. A
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weighted moving average forecast varies the weights, given a particular factor and is
thus able to vary the effects between current and past data.
Exponential smoothing improves on the simple and weighted moving average
forecast as it considers the more recent data points to be more important. To correct
for any upward or downward trend in data collected over time periods to smoothing
constants are used. Alpha is the smoothing constant, while delta reduces the impact of
the error that occurs between the actual and the forecast.
Forecast errors are the difference between the forecast value and what actually
occurred. All forecasts contain some degree of error, however it is important to
distinguish between sources of error and measurement of error. Sources of error are
random errors and bias. Various measurements exist to describe the degree of error in
a forecast. Bias errors occur when a mistake is made, i.e., not including the correct
variable or shifting the seasonal demand. Random errors cannot be detected, they
occur normally.
A tracking signal indicates whether the forecast average is keeping pace with
any movement changes in demand. The MAD or the mean absolute deviation also is a
simple and useful tool in obtaining tracking signals. A more sophisticated forecasting
tool to define the functional relationship between two or more correlated variables is
linear regression. This can be used to predict one variable given the value for another.
It is useful for shorter time periods as it assumes a linear relationship between
variables.
QUEUING THEORY
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Queuing Theory is a collection of mathematical models of various queuing
systems. It is used extensively to analyze production and service processes exhibiting
random variability in market demand (arrival times) and service times.
Queues or waiting lines arise when the demand for a service facility exceeds
the capacity of that facility, that is, the customers do not get service immediately upon
request but must wait, or the service facilities stand idle and wait for customers. Some
customers wait when the total number of customers requiring service exceeds the
number of service facilities, some service facilities stand idle when the total number of
service facilities exceeds the number of customers requiring service.
Waiting lines or queues are a common occurrence both in everyday life and in
variety of business and industrial situations. Most waiting line problems are centered
about the question of finding the ideal level of services that a firm should provide.
NETWORK
The term network flow program describes a type of model that is a special case
of the more general linear program. The class of network flow programs includes such
problems as the transportation problem, the assignment problem, the shortest path
problem, the maximum flow problem, the pure minimum cost flow problem, and the
generalized minimum cost flow problem. It is an important class because many
aspects of actual situations are readily recognized as networks and the representation
of the model is much more compact than the general linear program. When a situation
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can be entirely modelled as a network, very efficient algorithms exist for the solution of
the optimization problem, many times more efficient than linear programming in the
utilization of computer time and space resources.
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Quantitative Technique

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