Assignment: Mathematics

Importance of Quantitative Techniques in Business to Accountancy

Quantitative methods emphasise on objective measurements and numerical analysis of data collected through polls,
questionnaires or surveys. Quantitative research focuses on gathering numerical data and generalizing it across groups of
people.

Quantitative techniques are fundamental to the correct interpretation of commercial reality, and can aid practical business
decision making and problem solving.

This course aims to introduce statistical and quantitative techniques used by business managers to aid in decision-making.
The focus of this course is the application of statistical and mathematical techniques to problems in accounting and
finance. In particular, this course will concentrate on the analysis and interpretation of results of statistical testing.

Accountants in the workplace need to be familiar with effective techniques for dealing with business data. This unit uses
spreadsheet tools and accounting examples to introduce the most important data analysis methods. The unit will help
students understand variability and detect when variation is random and when something significant is going on. This unit
will also enable students to uncover the relationships between variables that can be hidden in business data. Students will
learn how to look at accounting data and use it to forecast business performance. Students will also be given examples of
the misuse of statistics in an accounting context. The unit will be taught through data- driven examples, exercises and
business case studies.

What is Quantitative Analysis/Operational Research?

Quantitative Analysis

A business or financial analysis technique that seeks to understand behavior by using complex mathematical and
statistical modeling, measurement and research. By assigning a numerical value to variables, quantitative analysts try to
replicate reality mathematically.
Quantitative analysis can be done for a number of reasons such as measurement, performance evaluation or valuation of
a financial instrument. It can also be used to predict real world events such as changes in a share price.
Quantitative analysis is the use of math and statistical methods to evaluate investment or business opportunities and
make decisions.

Quantitative analysis is the foundation of a broad array of investment and financial decision-making methods.

However, it is not the only way to determine whether an investment is worthwhile. Many investors, Warren Buffett being
one of the most notable, also perform qualitative analysis of companies and investments, whereby things such as the taste
of the product, the look of the packaging, relationships with management, and public perception are taken into account.

Sound business judgment often involves incorporating both analytical methods, although there is considerable
controversy about how much weight each method should receive when making particular business or investment
decisions.

Operational Research

Operations research, or operational research in British usage, is a discipline that deals with the application of advanced
analytical methods to help make better decisions. It is often considered to be a sub-field of mathematics. The terms
management science and decision science are sometimes used as synonyms. It is also the use of advanced analytical
techniques to improve decision making. It is sometimes known as operations research, management science or industrial
engineering. People with skills in OR hold jobs in decision support, business analytics, marketing analysis and logistics
planning as well as jobs with OR in the title.

What are the different Quantitative Techniques?

Classification of Quantitative Techniques:

There are different types of quantitative techniques. We can classify them into three categories. They are:
1. Mathematical Quantitative Techniques
2. Statistical Quantitative Techniques
3. Programming Quantitative Techniques
Mathematical Quantitative Techcniques
A technique in which quantitative data are used along with the principles of mathematics is known as
mathematical quantitative techniques. Mathematical quantitative techniques involve:
1. Permutations and Combinations:
Permutation means arrangement of objects in a definite order. The number of arrangements depends upon the
total number of objects and the number of objects taken at a time for arrangement.
2. Set Theory:-
Set theory is a modern mathematical device which solves various types of critical problems.
3. Matrix Algebra:
Matrix is an orderly arrangement of certain given numbers or symbols in rows and columns. It is a mathematical
device of finding out the results of different types of algebraic operations on the basis of the relevant matrices.
4. Determinants:
It is a powerful device developed over the matrix algebra. This device is used for finding out values of different
variables connected with a number of simultaneous equations.
5. Differentiation:
It is a mathematical process of finding out changes in the dependent variable with reference to a small change in
the independent variable.
6. Integration:
Integration is the reverse process of differentiation.
7. Differential Equation:
It is a mathematical equation which involves the differential coefficients of the dependent variables.

Statistical Quantitative Techniques

Techniques which are used in conducting the statistical enquiry concerning to certain Phenomenon. They include
all the statistical methods beginning from the collection of data till interpretation of those collected data.
Statistical techniques involve:
1. Collection of data
One of the important statistical methods is collection of data. There are different methods for collecting primary
and secondary data.
2. Measures of Central tendency, dispersion, skewness and Kurtosis
Measures of Central tendency is a method used for finding he average of a series while measures of dispersion
used for finding out the variability in a series. Measures of Skewness measures asymmetry of a distribution while
measures of Kurtosis measures the flatness of peakedness in a distribution.
3. Correlation and Regression Analysis
Correlation is used to study the degree of relationship among two or more variables. On the other hand,
regression technique is used to estimate the value of one variable for a given value of another.
4. Index Numbers
Index numbers measure the fluctuations in various Phenomena like price, production etc over a period of time,
They are described as economic barometres.
5. Time series Analysis
Analysis of time series helps us to know the effect of factors which are responsible for changes:
6. Interpolation and Extrapolation
Interpolation is the statistical technique of estimating under certain assumptions, the missing figures which may
fall within the range of given figures. Extrapolation provides estimated figures outside the range of given data.
7. Statistical Quality Control
Statistical quality control is used for ensuring the quality of items manufactured. The variations in quality
because of assignable causes and chance causes can be known with the help of this tool. Different control charts are used
in controlling the quality of products.
8. Ratio Analysis
Ratio analysis is used for analyzing financial statements of any business or industrial concerns which help to take
appropriate decisions.
9. Probability Theory
Theory of probability provides numerical values of the likely hood of the occurrence of events.
10. Testing of Hypothes
Testing of hypothesis is an important statistical tool to judge the reliability of inferences drawn on the basis of
sample studies.

Programming Techniques
Programming techniques are also called operations research techniques. Programming techniques are model
building techniques used by decision makers in modern times.
Programming techniques involve:
1. Linear Programming
Linear programming technique is used in finding a solution for optimizing a given objective under certain
constraints.
2. Queuing Theory
Queuing theory deals with mathematical study of queues. It aims at minimizing cost of both servicing and
waiting.
3. Game Theory
Game theory is used to determine the optimum strategy in a competitive situation.
4. Decision Theory
This is concerned with making sound decisions under conditions of certainty, risk and uncertainty.
5. Inventory Theory
Inventory theory helps for optimizing the inventory levels. It focuses on minimizing cost associated with holding
of inventories.
6. Net work programming
It is a technique of planning, scheduling, controlling, monitoring and co-ordinating large and complex projects
comprising of a number of activities and events. It serves as an instrument in resource allocation and adjustment of time
and cost up to the optimum level. It includes CPM, PERT etc.
7. Simulation
It is a technique of testing a model which resembles a real life situations
8. Replacement Theory
It is concerned with the problems of replacement of machines, etc due to their deteriorating efficiency or
breakdown. It helps to determine the most economic replacement policy.
9. Non Linear Programming
It is a programming technique which involves finding an optimum solution to a problem in which some or all
variables are non-linear.
10. Sequencing
Sequencing tool is used to determine a sequence in which given jobs should be performed by minimizing the total
efforts.
11. Quadratic Programming
Quadratic programming technique is designed to solve certain problems, the objective function of which takes the
form of a quadratic equation.
12. Branch and Bound Technique
It is a recently developed technique. This is designed to solve the combinational problems of decision making
where there are large number of feasible solutions. Problems of plant location, problems of determining minimum cost of
production etc. are examples of combinational problems.

What are the Steps in Problem Solving?

The Problem Solving process consists of a sequence of sections that fit together depending on the type of problem to be
solved. These are: Problem Definition.

Problem Analysis.
Generating possible Solutions.
Analyzing the Solutions.
Selecting the best Solution(s).
Planning the next course of action (Next Steps)

The process is only a guide for problem solving. It is useful to have a structure to follow to make sure that nothing is
overlooked. Nothing here is likely to be brand new to anyone, but it is the pure acknowledgment and reminding of the
process that can help the problems to be solved.

1. Problem Definition

The normal process for solving a problem will initially involve defining the problem you want to solve. You need to decide
what you want achieve and write it down. Often people keep the problem in their head as a vague idea and can so often
get lost in what they are trying to solve that no solution seems to fit. Merely writing down the problem forces you to think
about what you are actually trying to solve and how much you want to achieve. The first part of the process not only
involves writing down the problem to solve, but also checking that you are answering the right problem. It is a check-step
to ensure that you do not answer a side issue or only solve the part of the problem that is most easy to solve. People often
use the most immediate solution to the first problem definition that they find without spending time checking the problem
is the right one to answer.

2. Problem Analysis

The next step in the process is often to check where we are, what is the current situation and what is involved in making it
a problem. For example, what are the benefits of the current product/service/process? And why did we decide to make it
like that? Understanding where the problem is coming from, how it fits in with current developments and what the current
environment is, is crucial when working out whether a solution will actually work or not. Similarly you must have a set of
criteria by which to evaluate any new solutions or you will not know whether the idea is workable or not. This section of
the problem solving process ensures that time is spent in stepping back and assessing the current situation and what
actually needs to be changed.

After this investigation, it is often good to go back one step to reconfirm that your problem definition is still valid.
Frequently after the investigation people discover that the problem they really want to answer is very different from their
original interpretation of it.

3. Generating possible Solutions

When you have discovered the real problem that you want to solve and have investigated the climate into which the
solution must fit, the next stage is to generate a number of possible solutions. At this stage you should concentrate on
generating many solutions and should not evaluate them at all. Very often an idea, which would have been discarded
immediately, when evaluated properly, can be developed into a superb solution. At this stage, you should not pre-judge
any potential solutions but should treat each idea as a new idea in its own right and worthy of consideration.

4. Analyzing the Solutions

This section of the problem solving process is where you investigate the various factors about each of the potential
solutions. You note down the good and bad points and other things which are relevant to each solution. Even at this stage
you are not evaluating the solution because if you do so then you could decide not to write down the valid good points
about it because overall you think it will not work. However you might discover that by writing down its advantages that it
has a totally unique advantage. Only by discovering this might you choose to put the effort in to develop the idea so that it
will work.

5. Selecting the best Solution(s)

This is the section where you look through the various influencing factors for each possible solution and decide which
solutions to keep and which to disregard. You look at the solution as a whole and use your judgement as to whether to use
the solution or not. In Innovation Toolbox, you can vote using either a Yes/No/Interesting process or on a sliding scale
depending on how good the idea is. Sometimes pure facts and figures dictate which ideas will work and which will not. In
other situations, it will be purely feelings and intuition that decides. Remember that intuition is really a lifetimes
experience and judgement compressed into a single decision.

By voting for the solutions you will end up with a shortlist of potential solutions. You may want to increase the depth in the
analysis of each idea and vote again on that shortlist to further refine your shortlist.

You will then end up with one, many or no viable solutions. In the case where you have no solutions that work, you will
need to repeat the generation of solutions section to discover more potential solutions. Alternatively you might consider
re-evaluating the problem again as sometimes you may not find a solution because the problem definition is not well
defined or self-contradictory.

6. Planning the next course of action (Next Steps)

This section of the process is where you write down what you are going to do next. Now that you have a potential solution
or solutions you need to decide how you will make the solution happen. This will involve people doing various things at
various times in the future and then confirming that they have been carried out as planned. This stage ensures that the
valuable thinking that has gone into solving the problem becomes reality. This series of Next Steps is the logical step to
physically solving the problem.