THE IMPACT OF QUANTITATIVE TECHNIQUES ON MANAGEMENT DECISION MAKING

CHAPTER ONE

INTRODUCTION

1.1      Background to the Study

Quantitative studies of management have generally been considered to have originated during the World War II period, when operation research team were formed to deal with strategic and tactical problems faced by the military. These teams, which often consisted of people with diverse specialties, e.g. engineer, mathematicians and behavioural scientists were joined together to solve common problems through the utilization of scientific method (Anderson, Sweeney and Williams, 1994).

After the war, many of these team members continued their research in quantitative approaches to decision making, leading to the growth and use of management science in non-military application such as manufacturing, health care, engineering projects, transportation and traffic studies, communication, business and education administration.

Concurrent with this methodological development, system analysis was developed. It represent one approach to solving problems within the framework of systematic output followed by feedback. Thus information system facilitated the advance of computer technology numerous softwares programs written to develop variants of the Post-World War II methodological approaches, allowing for solution to more complex and larger problems than those requiring only intuitive, simpler solution (Robbins and Decenzo, 1995). The contingency view point or the situational approach is the most recent school of thought about management.

In essence, managers who follow this approach can use any other view point depending on the current circumstances. Managers should consider the three key contingency variables of environment technology and people, before making a decision (Chellriegel and Slocum (1992). Decision making is often referred to as the heart of the management process (Mann, 1976).

Problem solving may be considered in a somewhat broader context than decision making in that, it involves interpreting, bargain.ing and compromising as well as decision making (Foxley 1980).

In business world and infact in practically every aspect of daily living, quantitative technique are used to assist in decision making in order to work effectively in modern business organization, whether the organization is a private commercial company, a government agency, a state industry or whatever, managers must be able to use quantitative techniques in a confident and reliable manner. Decision making is crucial for survival of business. Business have to make decision considering the limited amount f information. Managers who weight their options and calculate optimal level of risk are using the rationale model of decision making. This model is specially useful in making non-programmed decision. It helps managers to beyond a prior reasoning. The assumption that there is on obvious solution already existing and simply waiting to be found.

Accountants make decision based on the information relating to the financial state of the organization. Economists make decision based on the information relating to the economic framework in which the organization operates, marketing staff make decision based on customer response to product and design, personnel managers make decision based on the information relating to the level of employment in the organization and so on. Such information is increasingly quantitative and it is apparent that managers or administrators need a working knowledge of the procedures and techniques appropriate for analyzing and evaluating such information. Such analysis and certainly the business evaluation cannot be delegated to the specialist statistician or mathematician who adopt through they might be at sophisticated numerical analysis will frequently have little overall understanding of the business relevance of such analysis. However, the effectiveness of any decision is dependent upon the quality and utility of the data upon which the decision was based.

1.2      Statement of Problem

Because of the increasing complexity of the business environment in which organization have to function, the information needs of a manager become more complex and demanding. The time available to a manager to assess, analyse and react to a problem or opportunity is much reduced. Managers and their supporting information system need to take fast and hopefully appropriate decision.

When using quantitative approach, a manager will concentrate on and develop mathematical expressions that describe objective, constraints and other relationships that exist in the problem.

According to Dunn (1994) almost all organization problems are inter-dependent, subjective, artificial and dynamic. Problems rarely may be separated into dependent, discrete and mutually exclusive parts.

Ultimately, the use of specific managerial tools can significantly contribute to boosting the management capacity to deal with turbulent organizational environment. Behavioural methods and quantitative techniques in business closely related and when applied to problems they are essentially productivity tools (Foxley 1980). It is the underlying premise of this study that the use of managerial aids quantitative is of vital importance for a sound and effective decision making process. Decision making is in fact psycho technical (Mouns, 1972). Thus, managers may enhance their decision making capabilities by learning, understanding and using various management tool.

Finally, to add to the problems, the consequence of taking wrong decision become more serious and costly, entering the wrong markets, producing the wrong product or providing inappropriate services will have major and by consequences for organization. The problem therefore is that, most firm do not aply appropriate techniques and models in allocating their resources for optimal result.

1.3      Research Questions

Based upon the purpose and objectives formulated several research questions have been developed.

a.           What kind of managerial methodologies among quantitative techniques are more familiar to managers for use in their decision making process?

b.          To what extent are managers using selected quantitative techniques in carrying out their managerial function of planning, directing, reporting and controlling?

c.           At what functional level of service do managers possess the highest degree of familiarity or expertise in using quantitative techniques?

d.          Do managers differ in the extent of their use of the management techniques?

e.           What types of benefits do managers perceive from using quantitative techniques in their decision making process?

f.            What kind of constraints do managers commonly encounter in implementing quantitative techniques in decision making at business and company?

1.4      Objectives of the Study

The purpose of this study is to examine the position of the managers and the extent to which managers of business and company in Nigeria adopt quantitative techniques of management in planning, directing, reporting and controlling in order to effectively enhance their management decision making process.

In order to determine the types of techniques the degree of familiarity with diverse techniques, the frequency of use, the managerial benefits and constraints and some individual and organizational factors involved in implementing such techniques.

The following objectives frame this study:

1.          To determine and select specific quantitative techniques that are commonly used in the decision making and problem solving process in business organization.

2.          To evaluate the existing literature describing theoretical and practical studies of the managerial tool.

3.          To identify with the different organizational structures of business a frame of reference for classifying managers and to define levels or functional area where those managerial techniques might have real or potential application and may be used effectively.

4.          To examine the possible relationship among the different levels of managers and frequency of use of the selected quantitative techniques decision making process in business organization in Nigeria.

1.5      Statement of Hypothesis

Hypothesis is an idea or explanation of something that is based on a few known facts but that has not yet been proved to be true or correct after a statistical test. For the purpose of this research work, the following hypothesis have be formulated.

i.            Without using regression analysis in decision making, management cannot establish the line of best fit to the observed data.

ii.          Without using linear programming in decision making, management can not allocate the scarce resources and also cannot achieve optional result.

iii.        Without using stock (inventory) control techniques in decision making, management cannot effectively manage stock.

iv.         Without using decision theory in decision making management cannot select the must profitable alternative in the business.

1.6      Significance of the Study

This project is aimed at determining the impact of quantitative techniques on management decision making. As man moves further in the scientific age, his work is becoming increasingly complex, hence, the need for information in every work of life continues to be a high increase.

The rationale for the study is predicted on the belief that informed opinion is always valuable. The examination of different type of managerial techniques as well as a series of personal and organizational variables, that may be influencing the decision making process in business and company may provide valuable insights for designing future strategies to facilitate the adoption of these methods and could enhance the managers capability and organization performance. The findings of this study could be useful for enhancing commitment, individual and collective decision making, improving communication, stimulating more meaningful training and development and enhancing the participating of people in innovative process and change. The study of quantitative techniques also create problem solving skill that will be useful and helpful in enhancing accountants or managers effectiveness and efficiency in an organization.

Finally, it is hoped that this study will assist final years students in developing their knowledge about quantitative techniques and about ways these method might be applied in their related topics to achieve positive results in improved decision making.

1.7      Scope of the Study

This study is divided into five chapters. In the present chapter, the introduction to be explored and the rationale for the study have been discussed. Chapter two will elaborate on a review of related literature to the implementation of techniques, extent of use and personal factors in business setting, that have produced result in past studies, chapter 3 will describe the research method and design employed in gathering data, chapter 4 report the data presentation, analysis of the study, finally chapter 5 analyses the summary of findings, conclusion and recommendations related to the research question and discusses the implication of this result for future research and practice.

1.8      Limitations of the Study

The study discussed a limited number of quantitative techniques previously selected from practical studies. The concepts related to decision making and problem solving are limited to the functions of management activities. This study examines only some of the variables related to the impact and extent to the use of quantitative techniques influencing managers decision making process. The difference in knowledge, degree of authority, managerial style, level of professionalism and experience of the managers, related to the diverse managerial techniques might possibly be a limited factor in completing the data.

Due to time constraints and space allowed for the project work, the researcher limited her discussion to four of the quantitative techniques method, they include, linear programming, regression analysis, stock (inventory) control and decision theory.

1.9      Definition of Terms

Decision Making: This is the study of identifying and choosing alternative based on the values and preferences of the decision maker. It is also the process of sufficiently reducing uncertainty and doubt about alternatives to allow a reasonable choice to be made from among them.

Inventory (Stock) Control: Inventory control is the method of ensuring that the right quantity and quality of the relevant stock is available at the right time and at the right place. Inventory can be of raw material, work-in-progress or finished goods awaiting dispatch.

Ordering Costs: These are cost incurred in placing the order up to the point of receiving the goods into the warehouse. Ordering cost per year increase as the number of orders increase.

Carrying Costs: These are cost incurred whenever a material is stored. They are incurred because the firm has decided to maintain inventory.

Stock Out Costs: These are costs associated with running out of stock. The avoidance of these cost is the basic reason why stock are held in the first instance. The costs involved are mostly subjective in nature without involving movement of cash.

Cost of Inventory (Purchase Price): This is the actual cost of the items placed in stock. The per unit cost of the items may vary with some quantity discount or it may be fixed if no quantity discount is allowed.

Economic Order Quantity (EOQ): This is the level of activity at which the cost of inventory control is minimized. It is the quantity of stock, which is normally ordered each time the stock is being replenished. It is also called re-order quantity.

Lead Time: This is the time between the time an order is made and the time the item is received.

Re-Order Level: It is the fixed point between maximum and minimum stock level, where requisition are raised for new purchases.

Expected Value: The expected value of an event is its value multiply by its probability. Value referred to here could mean profit, revenue of revenue.

Minimax Regret: This is based on opportunity loss. The idea is to minimize the maximum regret in the decision theory.

Maximin Criterion: This is the best of the worst situation in the decision theory.

Maximax Criterion: This is the best of the best in the decision theory.

Decision Tree: This shows a complete picture of a potential decision and allows a manager to graph alternative decision paths. Decision trees are useful way to analyze hiring, marketing, investment, equipment, purchases, pricing and similar decisions that involve a progression of smaller decisions.  Generally, decision tress are use to evaluate decisions under condition of risk. The tem decision tree comes from the graphic appearance of the technique that starts with the initial decision shows as the base. The various alternatives based upon possible future environmental conditions, and the payoffs associated with each of the decisions branch from the trunk. Decision trees force a manager to be explicit in analyzing conditions associated with future decisions and in determining the outcome of different alternatives. The decision tree is a flexible method. It can be use for many situation in which emphasis can be placed on sequential decisions, the probability of various conditions or the highlighting of alternative.

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