BA40 Management Science

Intro to Management
Science

This PowerPoint presentation was prepared by Yonie Pahayac, CMU Instructor in Business for the purpose of aiding online. This does not serve as endorsement,
source of primary data or illustrations of effective and ineffective management. PowerPoint® is a registered trademark of Microsoft Corporation. Distribution of this
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 Management vs. Management Science
• Management is a process used to achieve certain goals through the
utilization of resources (people, money, energy, materials, space,
time)
• Management Science (MS), an approach to managerial decision
making based on the scientific method, makes extensive use of
quantitative analysis.
• Other names of MS for more or less the same area are: operational
research, operations analysis, quantitative analysis, quantitative
methods, decision analysis and decision science.
 How MS
started?
• The significant development of the
Operations Research disciplines and
techniques started during World War II when
teams are formed to deal with strategic and
tactical problems faced by the military. These
teams, which often consisted of people with
diverse specialties (e.g., mathematicians,
engineers, and behavioral scientists), were
joined together to solve a common problem
by utilizing the scientific method
 Post-WWII
• The continued research in Operations Research
resulted in numerous methodological
developments like the discovery by George
Dantzig, in 1947, of the simplex method for
solving linear programming problems.
• The end of 20th century the information
technology explosion created new possibilities
for management science.
• Today, many software products are available to
carry out analysis and decisions like a simple
spreadsheet (MS excel), SPSS, etc.
 Characteristics of Management Science
• A primary focus on managerial decision making.
• The application of the scientific approach to the decision making
process.
• The examination of the decision situation from a broad perspective;
i.e. the application of a system approach.
• The use of methods and knowledge from several disciplines.
• A reliance on formal mathematical models.
• The extensive use of computers.
 the analysis phase of the
decision-making process may
take two basic forms:
qualitative and quantitative.
 reasons why a
quantitative
approach might
be used in the
decision-
making process
Managerial problems where MS can be applied

• Inventory control.
• Transportation planning.
• Project management –
planning and control
• Investment decisions (new
plants, etc.).
• Market research decisions.
• Credit policy analysis.
• Sales force decisions.
 BA40 Management Science

Break-Even
Analysis

This PowerPoint presentation was prepared by Yonie Pahayac, CMU Instructor in Business for the purpose of aiding online. This does not serve as endorsement,
source of primary data or illustrations of effective and ineffective management. PowerPoint® is a registered trademark of Microsoft Corporation. Distribution of this
material is not allowed without prior permission from the owner.
Purpose of break-even analysis
▪Determine the number of units of a product (i.e., the
volume) to sell or produce that will equate total
revenue with total cost. The point where total revenue
equals total cost is called the break-even point, and at
this point profit is zero. The break-even point gives a
manager a point of reference in determining how many
units will be needed to ensure a profit.
Components of break-even analysis
▪ Volume- level of production by a company (Quantity)
▪ Cost- incurred in the production of product
▪ Fixed Cost- independent of the volume units (e.g., rent on plant and
equipment, taxes, staff and management salaries, insurance, advertising)
▪ Variable Cost- dependent of the volume units (e.g., costs on raw
materials and resources, direct labor, packaging, freight costs). Total
variable costs are a function of the volume and the variable cost per unit.
Thus,

▪ Profit- difference between Total Revenue and Total Cost.

Formulas: Total Profit & Volume
EXAMPLE:
Odette is the managerial accountant in charge of CPA Inc., which sells water bottles. He previously
determined that the fixed costs of CPA Inc. consist of property taxes, a lease, and executive salaries,
which add up to Php 100,000. The variable costs associated with producing one water bottle is Php 2 per
unit. The water bottle is sold at a premium price of Php 12.

1. Determine the break-even quantity or volume.

2. For a monthly volume of 30,000 water bottles, determine the total cost, total revenue and profit/loss
Your turn!
Comment your answers
 BA40 Management Science

Forecasting: Moving Averages,

MAD/MAE, MSE, MAPE

This PowerPoint presentation was prepared by Yonie Pahayac, CMU Instructor in Business for the purpose of aiding online. This does not serve as endorsement,
source of primary data or illustrations of effective and ineffective management. PowerPoint® is a registered trademark of Microsoft Corporation. Distribution of this
material is not allowed without prior permission from the owner.
Every manager considers some kind of forecast in every
decision that he/she makes.
Example:
▪ An office manager, who, on Thursday, forecasts the workload she
anticipates for Friday in order to give some of her employees time off.
(Simple Forecast)
▪ The VP of finance for an automobile company trying to forecast, a year in
advance, the company’s seasonal needs for working capital. (Complex
Forecast)

REMEMBER: Poor forecasts may result in poor planning and increased

costs for the company.
Forecasting methods:
QUALITATIVE
Involves the use of expert
judgement in developing a
forecast
Appropriate when historical
data are unavailable or
unapplicable
QUANTITATIVE
Used when historical data are
available
Information can be quantified
The patterns of the previous
data will continue in the future
Forecast Accuracy is a significant factor when deciding among
forecasting alternatives. Accuracy is based on the historical error
performance of a forecast.
Three commonly used measures for summarizing historical errors are
the mean absolute deviation (MAD), the mean squared error (MSE), and
the mean absolute percent error (MAPE).

Forecast error is the difference between the value that occurs and the
value that was predicted for a given time period. Hence,
Error = Actual − Forecast or
 21-17=4

Absolute Value of
forecast error divided by
time series value. Thus,
4/21=0.1905*100=19.05
Moving Average Forecast
▪ averages a number of recent actual values, updated as new
values become available.
Weighted Moving Average Forecast
▪ similar to a moving average, except that it typically assigns
more weight to the most recent values in a time series.