Quantitative approaches to decision-making

Quantitative studies of management have generally been considered to have originated during the
World War II period, when operations research teams were formed to deal with strategic and tactical
problems faced by the military. These teams, which often consisted of people with diverse specialities
(e.g., engineers, mathematicians and behavioural scientists) were joined together to solve common
problems through the utilization of scientific methods. After the war, many of these team members
continued their research on quantitative approaches to decision-making, leading to the growth and use
of management science in non military applications such as manufacturing, health care, engineering
projects, transportation and traffic studies, communication, business, and educational administration.

Network Models

In network analysis each component of the system is viewed in relation to the other parts or activities.
The activities are arranged in a sequential order relative to the time required to complete each
component. The total system and the relationships among its components can be seen from a
schematic model in the form of a flow chart or diagram.

Besides providing a representation of a situation, the network model may be analyzed to yield
information about particular properties which affect management decisions. Many of the more refined
network models can be used to generate sets of constraints for a linear programming model, so that
optimal schedules can be found, satisfying arbitrary sets of constraints.

Basically, CPM (Critical Path Method) and PERT (Programme Evaluation Review Technique) are
project management techniques, which have been created out of the need of Western industrial and
military establishments to plan, schedule and control complex projects.

CPM/PERT or Network Analysis as the technique is sometimes called, developed along two parallel
streams, one industrial and the other military.

CPM was the discovery of M.R.Walker of E.I.Du Pont de Nemours & Co. and J.E.Kelly of
Remington Rand in 1957. Critical Path Method (CPM) is a network method for planning and
controlling large, complex projects by identifying the relationships among the component parts and
time.
PERT was devised in 1958 for the POLARIS missile program by the Program Evaluation Branch of
the Special Projects office of the U.S.Navy, helped by the Lockheed Missile Systems division and the
Consultant firm of Booz-Allen & Hamilton. Program Evaluation Review Technique (PERT) is an
evaluation application used to study more efficient ways of scheduling activities, further planning, and
better control.

CPM/PERT can answer the following important questions:

1. How long will the entire project take to be completed? What are the risks involved?

2. Which are the critical activities or tasks in the project which could delay the entire project if
they were not completed on time?

3. Is the project on schedule, behind schedule or ahead of schedule?

4. If the project has to be finished earlier than planned, what is the best way to do at least cost?

Essentially, there are six steps which are common to both the techniques,

I. Define the Project and all of its significant activities or tasks. The Project (made up of several
tasks) should have only a single start activity and a single finish activity.
II. Develop the relationships among the activities. Decide which activities must precede and
which must follow others.
III. Draw the "Network" connecting all the activities. Each Activity should have unique event
numbers. Dummy arrows are used where required to avoid giving the same numbering to two
activities.
IV. Assign time and/or cost estimates to each activity.
V. Compute the longest time path through the network. This is called the critical path.
VI. Use the Network to help plan, schedule, and monitor and control the project.

The Key Concept used by CPM/PERT is that a small set of activities, which make up the longest path
through the activity network control the entire project.

If these "critical" activities could be identified, management resources could be optimally used by
concentrating on the few activities which determine the fate of the entire project.

Non-critical activities can be replanned, rescheduled and resources for them can be reallocated
flexibly, without affecting the whole project.
The Role of Quantitative Techniques

1. Provide a tool for scientific analysis: These techniques provide executives with a more precise
description of the cause and effect relationship and risks underlying the business operations in
measurable terms.

2. Provide solutions for various business problems: Problems like how best can the managers and
executives allocate the available resources to various products so that in a given time the profits are
maximum or the cost is minimum? Is it possible for an industrial enterprise to arrange the time and
quantity of orders of its stock such that overall profit with given resources is maximum? How best can
the manager determine the number of men and machines to be employed and used in a manner that
neither remain idle and at the same time the customer or the public will not wait for unduly long for
service?.And similar other problems can be solved with the help of quantitative techniques.

3. Enable proper deployment of resources: Quantitative Techniques like Programme Review and
Evaluation Technique (PERT) helps in proper deployment of resources. PERT enables organizations
to determine the latest finish time for each events and activities thereby helping in the identification of
critical path. It will also enable us deploy resources from one activity to another to facilitate early
completion.

4. It helps in minimizing waiting time and servicing costs: The queuing theory helps management in
minimizing total waiting time and servicing costs. This technique also analyses the feasibility of
adding facilities and thereby helps businesses to take a correct and profitable decision.

5. Enable management to decide when to buy and how much to buy. The technique of inventory
planning enables management to decide when to buy and how much to buy. Inventory model Like
EOQ would help to determine quantity of material needed at the lowest cost.

6. They facilitate the process of decision making: Decision theory enables the business organizations
to select the best course of action when information is given in a probabilistic form. Through decision
tree techniques, executives judgment can systematically be brought into the analysis of problems.