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Assignment on Quantitative Business Analysis (QBA)

 Quantitative Business Analysis (QBA)?

Quantitative Business Analysis

Quantitative analysis is the process of using math and statistical methods in order to evaluate
investments and other business opportunities in order to make decisions. It works by offering a
mathematical approach for determining when to buy or sell certain securities.

For example, you have considered whether to purchase shares of ABC Company. Performing
quantitative analysis to help you arrive at a final decision would mean that you will be calculating the
company’s cost of the capital percentage change in sales over time, or examine trends in their net
income as a percentage of sales or other ratios.

Business decisions have both tangible and intangible effects on a business, often resulting in quantity vs.
quality trade-offs. In some cases, a strategy you pursue can provide qualitative and quantitative benefits
-- or disadvantages. Understanding both the objective and subjective ways to look at your operations
will help you make better business decisions.

.Quantitative Measurements

Analyzing the quantitative performance aspects of a department, product or other area of your business
provides you with hard numbers. For example, if someone spend $1,000 on a magazine ad and it brings
him/her $5,000 in increased business, his/her quantitative net gain is $4,000. If he/she subtract the
$500 in costs to create the ad, the return on his/her investment comes to $3,500. When he/she subtract
his/her costs to make and sell that $4,000 worth of product, his/her net profit might only be $1,500. This
gives him/her a 50 percent return on his/her $1,000 investment.

Quantitative Analysis Examples

When you examine the performance of your business, the results of one of your choices or research the
impacts of possible business actions you can take, you create an analysis. Analyzing only the objective
results helps you compare them against qualitative results. If the quantitative results don’t justify the
action, you can skip going any further to determine what the intangible effects will be. For example,
raising your prices might reduce your sales. A quantitative analysis will try to determine the net
decrease in sales, the effect on profit margins of the revenue increase and the net increase or decrease
in your gross profits. This quantitative analysis provides you with an objective look at the effects of the
price increase. Comparing your quarterly expenses to your projected budget provides a quantitative
analysis of your performance. The same happens when you compare sales projections to actual sales.

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Qualitative Measurements

When someone makes a decision to pursue a business activity, he/she make a choice not to pursue
another one. For example, if he/she purchases a $1,000 magazine ad, that’s $1,000 he/she can’t spend
on website banner advertising, giving an employee a bonus or reducing debt. If his/her ad provides
$1,500 worth of profit, but he/she loses his/her employee or decreases her loyalty and productivity,
buying the ad has a negative qualitative impact on his/her business that might be greater than $1,500.

Qualitative Analysis Examples

When analyze the subjective results of an action you take, you can determine its overall value to your
business. Looking at the intangible effects will help you see the total benefit to your business beyond the
dollars. For example, a price decrease might decrease your net profits, but put pressure on your
competitor to reduce its prices or lose marketing share. If it lowers its prices, it might have to decrease
its quality, reduce advertising or decrease customer service, providing a qualitative benefit to you of
being more competitive. Lower prices might also hurt your profits, but can prevent a competitor from
entering the market, protecting your sales, revenues and profits. A quantitative financial analysis of your
business might show that you are making $X in profits each year and an X percent return on your
investment, but won’t show your goodwill, barriers to entry and long-term growth potential based on an
growing target customer base.

From the above discussion we can say that Quantitative Business Analysis is the application of scientific
methods, techniques, and tools to problems involving the operation of systems so as to provide those in
control of the operations with optimum solution to the problems.

Quantitative Analysis Techniques

1. Regression Analysis

Regression analysis is a common technique that is not only employed by business owners but also by
statisticians and economists. It involves using statistical equations to predict or estimate the impact of
one variable on another. For instance, regression analysis can be used to determine how interest rates
affect consumers’ behavior regarding asset investment. One other core application of regression
analysis is establishing the effect of education and work experience on employees’ annual earnings.

In the business sector, owners can use regression analysis to determine the impact of advertising
expenses on business profits. By using this approach, a business owner can establish whether there’s a
positive or negative correlation between two variables.

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2. Linear Programming

Most companies occasionally encounter a shortage of resources such as facility space, production
machinery, and labor. In such situations, company managers must find ways to allocate resources
effectively. Linear programming is a quantitative method that determines how to achieve such an
optimal solution. It is also used to determine how a company can make optimal profits and reduce its
operating costs, subject to a given set of constraints, such as labor.

3. Data Mining

Data mining is a combination of computer programming skills and statistical methods. The popularity of
data mining continues to grow in parallel to the increase in the quantity and size of available data sets.
Data mining business analysis is used in evaluating very large sets of data, with the aim of finding
patterns or correlations concealed within them.

 Functions of Quantitative Business Analysis

Thus quantitative business analysis provides a scientific base for meeting with uncertainty of future. No
doubt, these uncertainties cannot be eliminated but quantitative business analysis help in minimizing
problems of the business.

The following are the important reasons or functions of Quantitative business analysis.

1. To help in minimizing the time required for completing the task

2. To facilitate the decision making process.
3. To provide tools for scientific research.
4. To select an appropriate strategy.
5. To help in reduction of cost.
6. To have proper allocation of resources.
7. To help in inventory management
8. To help in production management

These functions are described below:

1. To help in minimizing the time required for completing the task

Time is essence in service industry. It is rightly said that a good decision if taken at right time then
outcome of that decision will automatically good. There is gap between service time and capacity so
serve. So queuing theory helps in minimizing waiting time and wastage of resources. It provides a base
for businessman to take a correct and profitable decision.

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2. To facilitate the decision making process

Decision making is an essential part of management process. Thus, the decision maker in the present
business must understand the scientific methodology of making decisions. In real life, some decision
making situations are simple while other are not. The decision is multidimensional response which
includes production, cost quality, price of the product etc. The quantitative business analysis help in
decision making process in the way that identifies the factors which influence the decisions and quantify
them. It becomes easier to resolve the complexity of the decision making. Some of the quantitative
business analysis such as decision theory and simulation work best in complex decisions.

3. To provide tools for scientific research

Quantitative business analysis enforces disciplined thinking about organizational problems .They
provides precise description of the cause and effect relationship and risk elimination. Quantitative
business subjective and intuitive approach with analytical and objective approach.

4. Selection of an appropriate strategy

Every business is having a motive to increase its market share from its competitors by observing the
strategies of the others. So game theory comes handy in this situation where businessman can minimize
cost or maximize profit.

5. To help in reduction of cost

Quantitative business analysis help the manager to reduction cost by proper allocation of resources . It
also help the manager to take right decision in right time .

6. Proper allocation of resources

Quantitative business analysis helps in the proper allocation of resources which save time and cost of
the businessman. PERT and CPM is first tool for proper allocation of resources to each and every activity
in a proper manner. These business analyses ensure completion of task with in time and with limited
resources. These help managers to plan, schedule and control large and complex projects so resources
wastage can be minimized.

7. To help in inventory management

The inventory management is deal with planning and control of inventory in the organization. If
inventory holds for large time and in large quantity then this idle resource and create losses for the
organization. On the other hand, if there is shortage of inventory then it also negative impacts on

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profitability of the organization. So quantitative business analysis maintains balance between holding
the inventory or not. These enables management to decide when to buy and how much to buy.

8. To help in production management

Quantitative business analysis is useful to the production management due to:

1. Proper plant layout

2. Controlling the production movements

3. Compute the optimum product mix.

So quantitative business analysis helpful in planning scheduling and controlling of plant layout and
designing of production process.

 Business Applications of Quantitative Business

Business owners are often forced to make decisions under conditions of uncertainty. Luckily,
Quantitative business analysis enables them to make the best estimates and thus minimize the risks
associated with a particular decision. Ideally, quantitative models provide company owners with a better
understanding of information, to enable them to make the best possible decisions.

Project Management

One area where quantitative analysis is considered an indispensable tool is in project management. As
mentioned earlier, quantitative methods are used to find the best ways of allocating resources,
especially if these resources are scarce. Projects are then scheduled based on the availability of certain
resources.

 Production Planning

Quantitative analysis also helps individuals to make informed product-planning decisions. Let’s say a
company is finding it challenging to estimate the size and location of a new production facility.
Quantitative analysis can be employed to assess different proposals for costs, timing, and location. With
effective product planning and scheduling, companies will be more able to meet their customers’ needs
while also maximizing their profits.

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Marketing

Every business needs a proper marketing strategy. However, setting a budget for the marketing
department can be tricky, especially if its objectives are not set. With the right quantitative method,
marketers can find an easy way of setting the required budget and allocating media purchases. The
decisions can be based on data obtained from marketing campaigns.

Finance

The accounting department of a business also relies heavily on quantitative analysis. Accounting
personnel use different quantitative data and methods such as the discounted cash flow model to
estimate the value of an investment. Products can also be evaluated, based on the costs of producing
them and the profits they generate.

 Purchase and Inventory

One of the greatest challenges that businesses face is being able to predict the demand for a product or
service. However, with quantitative techniques, companies can be guided on just how many materials
they need to purchase, the level of inventory to maintain, and the costs they’re likely to incur when
shipping and storing finished goods.

 The Bottom Line

Quantitative analysis is the use of mathematical and statistical techniques to assess the performance of
a business. Before the advent of quantitative analysis, many company directors based their decisions on
experience and gut. Business owners can now use quantitative methods to predict trends, determine
the allocation of resources, and manage projects.

Quantitative business analysis is also used to evaluate investments. In such a way, organizations can
determine the best assets to invest in and the best time to do so. Some of the quantitative analysis
methods include regression analysis, linear programming, and data mining.

Conclusion

Therefore, Quantitative business analysis is now extended to several areas of business and benefits with
quantitative methods are exhibited in the way problems received and formulated. These techniques are
very helpful in tackling the complex problems of modern business and industry. The tendency of today is
to combine several of these techniques and form them into more sophisticated and advance
programming models. Quantitative business analysis are become integral part of the modern business.

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