The essence of management is making decisions for the purpose of achieving individual

/ group and organizational objectives. Management is a multidimensional and dynamic

concept. The problems in business have multifold effects in human, economic, social and
political fronts. Managerial decisions are always made in a state of flux. Hence managers
are required to consider not only economic considerations but also other aspects such as
human, social political etc. while making complex decisions in a changing environment.
But due to complexity the mangers make assumptions to simplify the situation in
practice. The problem is analyzed in economic terms and then implemented only if it
does not violate the human social and political constraints.
Management problems solving approach must have a focus on decision-making,
economic effectiveness, reliance on a formal mathematical model and dependence on
computer. Operations research or management science is helpful in analyzing decision
problems. Operations research models improve the decision-making. They help in better
coordination. An operation research oriented planning model becomes vehicle for
coordinating more complex situations with all types of limitations. Operations research
helps to have better control over routine functions and activities that involve more cost.
By combining historical experience with scientific methods resulting in standardizing and
reliable procedures for signaling dangerous trends.
The complexity of decision making in business and industry calls for the systematic
decision making methodology. The decision may be choosing an appropriate action from
the possible/ available course of actions. The decision has monitory gain or loss attached
to it. A good decision may not get large quantities of money but a bad decision may cost
an organization lot of money. Decision-making is a risk, which results after it is taken.

1.2 The quantitative approach

The quantitative approach to management requires that decision problem be defined,
analyzed and solved in a conscious, rational, logical, systematic and scientific mannerbased on the data, facts information and logic and not mere on whim or guess. In the light
of the constraints and the restrictions there are variations of decision-making.
The scope of quantitative methods is very broad. They are applicable in defining and
solving all types of problems in all types of organizations: business, government,
military, and private non-profit organizations. The decisions such as resource allocations,
product mix, replacement of machines, transportation, logistics and supply chain
managements, man power planning, etc are examples of these methods.
The basic purpose of this course is to make a student aware of the tools and techniques
available as decision support to a decision maker. The tools and techniques are from
Statistics and from Operations Research or Management Science. The models are the

systematic representation of the decision-making that makes the thinking concrete to

reutilize it again and again.
Problem solving requires the systems approach and also an inter-disciplinary teamwork.
The systems approach means that the mangers make a conscious attempt to understand
the relationship between the various departments of the organization and their role in
supporting the overall performance of the organization. The system is trying to operate on
the optimum level that does not mean that the subsystems are also operating on the
optimum level. The decision maker has to understand the significance of the system and
sub system optimization. Understand the importance of what it is necessary and when
something can be avoided.
The watertight compartments of the functional specialization are a hindrance to
teamwork. The complexity of the problem increases if the interpretations of the same
problem for different persons are different. The specialized knowledge is has grown to
point where it is impossible for one person to be a specialist in more than one branch of a
scientific discipline. The nature of problem is also interdisciplinary. Large and complex
problems need to be subjected to analysis by a team of specialists representing wide
range of skills.

1.3 Scientific methods

Most important feature of quantitative scientific approach is use of scientific method and
building the decision model. The most important aspects of science are
1. It comprises a body of systematic knowledge consisting of concepts, laws, principles
and theories used in explaining a set of phenomena.
2. It involves a process of inquiry or a procedure for answering question solving problem
designing better procedure.
The body of systematic knowledge is accumulated through inductive and deductive
research conducted for the purpose of explaining phenomena.
The inductive approachThe inductive approach for the purpose of reaching conclusions or making statements is
based on empirical evidence. The method of induction involves the collection of hard
data in specific situation and then making a general statement to cover all such situations.
This is from specific to general.
The deductive approach- The deductive approach for the purpose of reaching conclusions
or making statements depends on the techniques of mathematics rather than on empirical
evidence. The validity of the conclusions depends only on the validity of the
mathematical procedure that is being employed. The direction of deductive approach is
from general to specific.
The steps in scientific method:
1- Observation and problem solving The systematic observation leads to problem
definition or alternatively the awareness and recognition or assumption of a
problem that will lead to observation and then to problem definition.

2- Formulation of a hypothesis- based on the observations and with the eventual

purpose of solving a problem a course of action is suggested. Course of action or
hypothesis is a statement of belief, which says that the problem will be solved if
the suggested action is followed.
3- Testing the hypothesis- The most important step of the scientific method and the
hypothesis is confronted with the empirical data If the test supports the stated
belief the hypothesis is accepted otherwise rejected. If accepted, the belief
becomes the basis for managerial action. If rejected, alternative course of action
will be investigated.
4- Implementation and control- The course of action accepted in stage 3 are finally
implemented as organizational actions. This step is the logical conclusion of the
scientific approach to solve managerial problems but it is not the end of
managerial action. The
The scientific method is a continuous process for effective decision making in
organization.
1.4 Use of models
A model is particular representation of a system, which in turn represents specific aspects
of reality. A model is relationship amongst specified variables and parameters of the
system. A model is constructed to analyze and understand the system so that better
decisions could be made.
The means for representing a system may be physical, graphical, schematic, analogy,
mathematical, symbolic or combination of these. The degree of abstraction varies
according to these models. Physical models are the least abstract as compared to the
mathematical models, which are most abstract.
The models could be classified in four categories.
1- Descriptive models- these models are used to describe the behavior of the system
based on certain information. A descriptive model is used to display the problem
situation more vividly including the alternative choices to enable the decision
maker to evaluate the results of each alternative choice. However these models do
not select the best alternative.
2- Explanatory model- these models are used to explain the behavior of a system by
establishing relationship between its various components.
3- Predictive models- These models predict the status of the system in near future
based on the past data.
4- Prescriptive or normative model- these models provide the norms for comparison
of alternative situation, which results in the selection of the most preferred course
of action or the best alternative.
1.5 The classification of models based on behavior characteristics
The classification using specified behavior is useful in understanding the nature and
role of model in representing management and economic behavior of organization.
The models can be static or dynamic. Static models do not consider the impact of

changes that take place during the planning horizon. They are independent of time.
Dynamic models depend of time. Dynamic model changes from stage to stage. Stage
may be any point of time of decision-making. Models may be linear or nonlinear.
Linear models have linear relationships amongst its constituent variables. Nonlinear
models exhibit nonlinear relationships in the constituent variables.

Model

Abstract

Dynamic

Nonlinear

Unstable Stable
Constrainted

Physical

Static

Linear Nonlinear

Unstable
Explosive

Stable

Dynamic

Static

Linear

Unstable Stable

Transient Steady state

Stable state (Nonexistent)

Transient state Steady state

Realistic representation of
corporate and economic
behavior

N. Paul Loomba, Management A quantitative perspective, 1978, Macmillan Publishing

Company, New York

1.6 Classification according to degree of certainty

Models could also be classified according to the degree of certainty. Under this we divide
models into deterministic and probabilistic. Deterministic model assumes conditions of
complete perfect knowledge. Hence each decision or strategy results in unique and
known payoff or consequence. Probabilistic model handles those situations in which the
consequences or payoffs of managerial actions may not be predicted with certainty. Each
decision or a strategy can result in more than one payoff.

1.7 Overview of the course.

Various techniques in this course includes statistical tools and management science
techniques that mainly are based on basic mathematical concepts. These concepts are
discussed in the first block. Next two blocks are about the statistical tools and the last two
are from operations research. Introduction to statistics and operations research is given in
unit no. 6 and 17. The structure of each unit is starts with introduction and ends with
review exercises and suggested reading for further study. The main body of the unit
contains discussion about the main topic the unit.

1.8 Suggested readings

N. Paul Loomba, Management A quantitative perspective, 1978, Macmillan
Publishing Company, New York
H.A.Taha, Operations Research an Introduction, 2002 Prentice Hall of India Pvt. Ltd.
New Delhi.
Anderson et al, An introduction to Management Science quantitative approach to
decision making, Tenth edition, 2003, Thomson Asia Pvt. Ltd. Mumbai India.
1.9 Review exercise

1. If you are a working executive, try to identify steps followed by you to arrive at
the decision made by you in the recent past. Other wise interview an executive
and narrate his experience in the above steps.
2. Write the main features of Static and dynamic model, probabilistic and
deterministic models
3. Describe the role of quantitative models in decision-making.