ACC 115| Management Science

Module #2 Teacher’s Guide

Lesson title: Introduction to Quantitative Techniques Materials:

and Probability Pen and non-scientific calculator
Learning Targets: Strategic Cost Management by
At the end of this module, you should be able to: Cabrera
1. Identify the types of quantitative techniques.
2. Calculate expected value References:
3. www.researchgate.net
www.yourarticlelibrary.com
www.analyticsvidhya.com

A. LESSON PREVIEW/REVIEW

Introduction
This module serves as an overview of all the topics covered by quantitative techniques. The
scope of quantitative techniques is broad but only the topics in the course syllabus will be tackled in this
subject. Some of the topics not included in the course syllabus are already covered in other subjects
while some are for different engineering courses.
In our day to day life, the “probability” or “chance” is a very common used term. The theory of
probability has been developed in 17th century. It got its origin from games, tossing coins, throwing a
dice, drawing a card from a pack. Probability has become one of the basic tools of statistics and
quantitative techniques for decision making.

B. MAIN LESSON
Content Notes and Skill Building

Lesson Objective 1
Quantitative Techniques
Quantitative techniques may be defined as those techniques which provide the decision makers a
systematic and powerful means of analysis, based on quantitative data. It is a scientific method
employed for problem solving and decision making by the management. With the help of quantitative
techniques, the decision maker is able to explore policies for attaining the predetermined objectives. In
short, quantitative techniques are inevitable in decision-making process.

Classification of Quantitative Techniques

1. Mathematical Quantitative Techniques 2. Statistical Quantitative Techniques
3. Programming Quantitative Techniques

Mathematical Quantitative Techniques

A technique in which quantitative data are used along with the principles of mathematics is known as
mathematical quantitative techniques. Mathematical quantitative techniques involve:

1. Permutations and Combinations

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 Permutation means arrangement of objects in a definite order. The number of arrangements

depends upon the total number of objects and the number of objects taken at a time for
arrangement.
 Combination means selection or grouping objects without considering their order.

2. Set Theory
Set theory is a modern mathematical device which solves various types of critical problems.

3. Matrix Algebra
Matrix is an orderly arrangement of certain given numbers or symbols in rows and columns. It is
a mathematical device of finding out the results of different types of algebraic operations on the
basis of the relevant matrices.

4. Determinants
It is a powerful device developed over the matrix algebra. This device is used for finding out
values of different variables connected with a number of simultaneous equations.

5. Differentiation
It is a mathematical process of finding out changes in the dependent variable with reference to a
small change in the independent variable.

6. Integration
Integration is the reverse process of differentiation

7. Differential Equation
It is a mathematical equation which involves the differential coefficients of the dependent
variables.

Statistical Quantitative Techniques

Statistical techniques are those techniques which are used in conducting the statistical enquiry
concerning to certain Phenomenon. They include all the statistical methods beginning from the
collection of data till interpretation of those collected data. Statistical techniques involve:

1. Collection of data
One of the important statistical methods is collection of data. There are different methods for
collecting primary and secondary data.

2. Measures of Central tendency, dispersion, skewness and Kurtosis

Measures of Central tendency is a method used for finding he average of a series while
measures of dispersion used for finding out the variability in a series. Measures of Skewness
measures asymmetry of a distribution while measures of Kurtosis measures the flatness of
peakedness in a distribution.

3. Correlation and Regression Analysis

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Correlation is used to study the degree of relationship among two or more variables. On the
other hand, regression technique is used to estimate the value of one variable for a given value of
another.

4. Index Numbers
Index numbers measure the fluctuations in various Phenomena like price, production etc over a
period of time, They are described as economic barometres.

5. Time series Analysis

Analysis of time series helps us to know the effect of factors which are responsible for changes.

6. Interpolation and Extrapolation

Interpolation is the statistical technique of estimating under certain assumptions, the missing
figures which may fall within the range of given figures. Extrapolation provides estimated figures
outside the range of given data.

7. Statistical Quality Control

Statistical quality control is used for ensuring the quality of items manufactured. The variations
in quality because of assignable causes and chance causes can be known with the help of this tool.
Different control charts are used in controlling the quality of products.

8. Ratio Analysis
Ratio analysis is used for analyzing financial statements of any business or industrial concerns
which help to take appropriate decisions.

9. Probability Theory
Theory of probability provides numerical values of the likely hood of the occurrence of events.

10. Testing of Hypothesis

Testing of hypothesis is an important statistical tool to judge the reliability of inferences drawn
on the basis of sample studies.

Programming Techniques
Programming techniques are also called operations research techniques. Programming techniques are
model building techniques used by decision makers in modern times. Programming techniques involve:

1. Linear Programming
Linear programming technique is used in finding a solution for optimizing a given objective
under certain constraints.

2. Queuing Theory
Queuing theory deals with mathematical study of queues. It aims at minimizing cost of both
servicing and waiting.

3. Game Theory
Game theory is used to determine the optimum strategy in a competitive situation.

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4. Decision Theory
This is concerned with making sound decisions under conditions of certainty, risk and
uncertainty.

5. Inventory Theory
Inventory theory helps for optimizing the inventory levels. It focuses on minimizing cost
associated with holding of inventories.

6. Network Programming
It is a technique of planning, scheduling, controlling, monitoring and co-ordinating large and
complex projects comprising of a number of activities and events. It serves as an instrument in
resource allocation and adjustment of time and cost up to the optimum level. It includes CPM,
PERT etc.

7. Simulation
It is a technique of testing a model which resembles a real life situations

8. Replacement Theory
It is concerned with the problems of replacement of machines, etc due to their deteriorating
efficiency or breakdown. It helps to determine the most economic replacement policy.

9. Non Linear Programming

It is a programming technique which involves finding an optimum solution to a problem in which
some or all variables are non-linear.

10. Sequencing
Sequencing tool is used to determine a sequence in which given jobs should be performed by
minimizing the total efforts.

11. Quadratic Programming

Quadratic programming technique is designed to solve certain problems, the objective function
of which takes the form of a quadratic equation.

12. Branch and Bound Technique

It is a recently developed technique. This is designed to solve the combinational problems of
decision making where there are large number of feasible solutions. Problems of plant location,
problems of determining minimum cost of production etc. are examples of combinational problems.

Functions of Quantitative Techniques

The following are the important functions of quantitative techniques:
1. To facilitate the decision-making process
2. To provide tools for scientific research
3. To help in choosing an optimal strategy
4. To enable in proper deployment of resources
5. To help in minimizing costs

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6. To help in minimizing the total processing time required for performing a set of jobs

Uses of Quantitative Techniques in Business and Industry

Quantitative techniques render valuable services in the field of business and industry. Today, all
decisions in business and industry are made with the help of quantitative techniques. Some important
uses of quantitative techniques in the field of business and industry are given below:
1. Quantitative techniques of linear programming is used for optimal allocation of scarce resources in
the problem of determining product mix
2. Inventory control techniques are useful in dividing when and how much items are to be purchase so
as to maintain a balance between the cost of holding and cost of ordering the inventory.
3. Quantitative techniques of CPM, and PERT helps in determining the earliest and the latest times for
the events and activities of a project. This helps the management in proper deployment of resources.
4. Decision tree analysis and simulation technique help the management in taking the best possible
course of action under the conditions of risks and uncertainty.
5. Queuing theory is used to minimize the cost of waiting and servicing of the customers in queues.
6. Replacement theory helps the management in determining the most economic replacement policy
regarding replacement of an equipment.

Limitations of Quantitative Techniques

Even though the quantitative techniques are inevitable in decision-making process, they are not free
from short comings. The following are the important limitations of quantitative techniques:
1. Quantitative techniques involves mathematical models, equations and other mathematical
expressions
2. Quantitative techniques are based on number of assumptions. Therefore, due care must be ensured
while using quantitative techniques, otherwise it will lead to wrong conclusions.
3. Quantitative techniques are very expensive.
4. Quantitative techniques do not take into consideration intangible facts like skill, attitude, etc.
5. Quantitative techniques are only tools for analysis and decision-making. They are not decisions itself.

Probability
Important Terminologies
1. Experiment – are the uncertain situations, which could have multiples outcomes.
Example: Whether it rains on a daily basis is an experiment.
2. Outcome – the result of a single trial.
Example: So if it rains today, the outcome of today’s trial from the experiment is “it rained”.
3. Event – one or more outcome from an experiment
Example: “It rained” is one of the possible event of this experiment.
4. Probability – is the measure of how likely an event is
Example: If there is 60% chance that it will rain tomorrow, the probability of the outcome “it rained” for
tomorrow is 0.6.

Probability provides a method for mathematical expressing doubt or assurance about the occurrence of
an event. The probability of an event varies from 0 to 1 or 0% to 100%.
a. A probability of 0 means the event cannot occur, whereas a probability of 1 means the event is
certain to occur.

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Examples: The probability that the sky will fall is 0 while the probability that a person will die is 1 or
100%.
b. A probability between 0 to 1 indicates the likelihood of the event’s occurrence
Example: The probability that a coin will yield heads is 0.5 (50%) on any single toss.

Types of Events
1. Mutually Exclusive Events
The events are said to be mutually exclusive when they do not occur simultaneously. If one event is
present in a trial, other events will not appear. In other words, occurrence of one precludes the
occurrence of all the others.
Example:
a. If a girl is beautiful, she cannot be ugly.
b. If a ball is white, it cannot be red.
c. If a person is alive, he cannot be dead. He cannot also be alive and dead at the same time.
d. If a coin is tossed, either the head or tail will appear, but both cannot appear at the same time.

2. Independent Events
Two or more events are said to be independent when the occurrence of one trial does not affect the
other. If the trials are made one by one, one trial is not affected by the other trial. Also, one trial never
describes the outcome of other trials.
Example:
The repetitive tossing of a coin are independent events. If you try to toss a coin, then that event will not
affect the succeeding tossing of coins. The preceding trial also never describes the outcome of the
succeeding trials.

3. Dependent Events
Dependent events are those in which the occurrence and non-occurrence of one event in a trial may
affect the outcome of the other trials.
Example:
If a card is drawn from a deck of playing cards and is not put back in the deck, then in the second
withdrawal of a card from the deck will alter the probability of drawing a certain card.

4. Equally Likely Events

Events are said to be equally likely when the chances of occurrence for each event is equal. Events
cannot be said to be equally likely when one event occurs more often than the others.
Example:
a. If a coin is tossed, there is an equal chance for the head and the tail to appear. Fifty percent or ½ for
head and also 50% or ½ for tail.
b. If a die is rolled, there is an equal chance for each face to appear with 16.67% or 1/6 for each face.

5. Simple Events
Simple event deals with the probability of the happening or not-happening of a single event.
Example:
a. If you toss a coin, you are considering the probability of getting a head or a tail.

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b. If there are 10 white balls and 6 red balls in a bag and you want to know the probability of drawing a
red ball, then it is considered a simple event.

6. Compound event
Compound event deals with the joint occurrence of two or more events.
Example:
You want to know the probability of having 3 white balls if you are going to draw 3 balls simultaneously
draw in a bag with 10 white balls and 6 red balls.

Probability Distribution
A probability distribution specifies the value of a variable with their associated probabilities.

Discrete Data vs Continuous Data

 Discrete data – can take only specified values
Example: When you roll a die, the possible outcomes are 1, 2, 3, 4, 5, or 6. It cannot be 1.5,
2.45, or 3.33
 Continuous data – can take any value within a given range. The range maybe finite or infinite.
Example: A girl’s weight is said to be 54 kgs but it can be 54.3 kgs, 54.215 kgs or 59.994 kgs.

Types of Distributions
1. Bernoulli Distribution – has only two possible outcomes, namely 1 (success) and 0 (failure).
Example: a. The probability of getting a head if a coin is tossed. 50% success and 50% failure
b. The probability of success and failure need not to be equally likely like the probability of the
Lakers (85%) winning a basketball game versus the Ginebra (15%).

2. Uniform Distribution – the probabilities of getting the outcomes are equally likely. This has the
same concept with equally likely events.

3. Binomial Distribution – a distribution where only two outcomes are possible, such as success or
failure, gain or loss, win or lose and where the probability of success and failure is the same for all the
trials

4. Normal Distribution – any distribution is known as normal distribution if it has the following
characteristics:
a. The mean, median, and mode of the distribution coincide.
b. The curve of the distribution is bell-shaped and symmetrical.
c. The total area under the curve is 1.
d. Exactly half of the values are to the left of the center and the other half to the right.

5. Poisson Distribution – any distribution is called Poisson distribution when the following
assumptions are valid:
a. Any successful event should not influence the outcome of another successful event.
b. The probability of success over a short interval must equal the probability of success over a
long interval.
c. The probability of success in an interval approaches zero as the interval becomes smaller.
Example:
i. The number of printing errors at each page of the book.

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ii. The number of customers arriving at a salon in an hour.

6. Exponential Distribution – helps in analysis of events such as the time intervals between the
number of customers arriving at a salon in an hour or the lifespan of an air conditioner.

Expected Value
For decisions involving risk, the concept of expected value provides a rational means for selecting the
best alternative. The expected value of an action is found by multiplying the probability of each outcome
by its payoff and summing the products. The best alternative is the one having the highest expected
value.

Illustration
An investment may have three possible outcomes depending on the state of economy. If the economy
is strong, there will be a ₱12,000 return on investment. If the economy is fair, there will be an ₱8,000
return of investment. If the economy is weak, the investment will suffer a loss of ₱2,000. The probability
that the economy for the coming year will be 40% strong, 40% fair, and 20% weak. Find the expected
value of the return on investment.

A B C D
State of Economy Probability
Return on Investment AxC
₱ ₱
Strong 40%
12,000 4,800
₱ ₱
Fair 40%
8,000 3,200
₱ ₱
Weak 20%
(2,000) (400)
Expected value of Return on Investment ₱ 7,600

Value of perfect information – the amount of profit foregone due to uncertain conditions affecting the
selection of a course of action. Given the perfect information, a decision-maker is supposed to know
which particular state of nature will be in effect leading to the selection of an optimal course of action.
- The difference between the expected value without perfect information and the return if the
best action is taken given perfect information.

Skill-building Activities
Determine the probability of the following situations:
1. What is the probability of rolling a 5 when a die is rolled?
2. What is the probability of getting a 2 or a 5 when a die is rolled?
3. What is the probability of selecting a black card or a 6 from a deck of 52 cards.
4. Say, a coin is tossed twice. What is the probability of getting two consecutive tails?
5. A pack contains 4 blue, 2 red and 3 black pens. If a pen is drawn at random from the pack, replaced,
and the process repeated 2 more times. What is the probability of drawing 2 blue pens and 1 black
pen?

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6. A pack contains 4 blue, 2 red and 3 black pens. If 2 pens are drawn at random from the pack, NOT
replaced and then another pen is drawn. What is the probability of drawing 2 blue pens and 1 black
pen?
7. What is the probability of drawing a king and a queen consecutively from a deck of 52 cards, without
replacement.
8. In a class, 40% of the students study math and science. Sixty percent of the students study math.
What is the probability of a student studying science given he/she is already studying math?
9. A single coin is tossed 32 times. What is the probability of getting at least one head?

Check for Understanding

A company has the following probabilities of profit (or loss) from an investment opportunity:
Profit Outlook Profit (Loss) Amount Probability
Positive ₱10,000 .30
Most Likely 6,000 .55
Negative (1,000) .15
Required:
1. What is the expected profit?
2. How much would the company be willing to pay before investing in the project to learn in advance
which of the three scenarios (positive, negative, or most likely) would actually occur?

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C. LESSON WRAP-UP

Frequently Asked Questions

1. What is a sample space?

The set of all possible outcomes of an experiment is called a “sample space.” The experiment of
tossing a coin once results in a sample space with two possible outcomes, “heads” and “tails.”

Thinking about Learning (5 mins)

How do you feel today?

I feel (unsatisfactory/satisfactory/excellent) because_________________________________________
__________________________________________________________________________________

What are your challenges in learning the concepts in this module? If you do not have challenges, what
is your best learning for today?
__________________________________________________________________________________
_______________________________________________________________________________

What are the questions/thoughts you want to share to your teacher today?
__________________________________________________________________________________
_______________________________________________________________________________

ANSWER KEY
Skill Building Activity
1. No. of ways it can occur = 1 , Total no. of possible outcomes = 6
Answer = 1/6.

2. No. of ways it can occur = 1 for #2 and 1 for #5

Total no. of possible outcomes = 6
Answer =

3. Probability of selecting a black card = 26/52

Probability of selecting a 6 = 4/52
Probability of selecting both a black card and a 6 = 2/52
Answer =

4. Probability of getting a tail in one toss = 1/2

The coin is tossed twice. Answer =

5. Total number of pens = 9

Probability of drawing 1 blue pen = 4/9
Probability of drawing another blue pen = 4/9
Probability of drawing 1 black pen = 3/9

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Answer =

6. Probability of drawing 1 blue pen = 4/9

Probability of drawing another blue pen = 3/8
Probability of drawing 1 black pen = 3/7
Answer =

7. Probability of drawing a king = 4/52 or 1/13

After drawing one card, the number of cards are 51.
Probability of drawing a queen = 4/51.
Answer =

8. Students studying math and science = 0.40

Students studying math= 0.40
Answer =

9. Probability of getting no head = 1/32

Answer =

Check for Understanding

1. The answer is ₱6,150 computed as:
Profit Profit (Loss) Expected
Probability
Outlook Amount Value
Positive ₱10,000 0.3 3,000
Most Likely 6,000 0.55 3,300
Negative (1,000) 0.15 (150)
Total 6,150

2. The value of perfection information is the difference between the expected value assuming the
probabilities are the perfect information and the event that will most likely happen.
Expected value ₱6,150
Most likely 6,000
Value of perfect information ₱ 150

ADDITIONAL NOTES FOR TEACHERS

In this portion, you may include:

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● Additional exercises that teachers may give to students during face-to-face classes or
during remote coaching sessions
● Additional reading materials or references that teachers may use
● Instructions for activities during face-to-face classes
● Answer Keys for quizzes and exams

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