Quantitative Methods for Business (with Crystal Ball Pro 2000 v7.1, CD-ROM, and InfoTrac)

by Anderson, David R.; Sweeney, Dennis J.; Williams, Thomas A.

• ISBN13: 9780324312652
• ISBN10: 0324312652
• Edition: 10th
• Format: Hardcover
• Copyright: 2005-10-17
• Publisher: South-Western College Pub

Summary

This revision of QUANTITATIVE METHODS FOR BUSINESS provides students with a conceptual understanding of the role that quantitative methods play in the decision-making process. This text describes the many quantitative methods that have been developed over the years, explains how they work, and shows how the decision-maker can apply and interpret data. Written with the non-mathematician in mind, this text is applications-oriented. Its "Problem-Scenario Approach" motivates and helps students understand and apply mathematical concepts and techniques. In addition, the managerial orientation motivates students by using examples that illustrate situations in which quantitative methods are useful in decision making.

Table of Contents

Preface	xiii
Introduction	1	(28)
Problem Solving and Decision Making	3	(1)
Quantitative Analysis and Decision Making	4	(2)
Quantitative Analysis	6	(7)
Model Development	7	(3)
Data Preparation	10	(1)
Model Solution	11	(1)
Report Generation	12	(1)
A Note Regarding Implementation	12	(1)
Models of Cost, Revenue, and Profit	13	(3)
Cost and Volume Models	14	(1)
Revenue and Volume Models	14	(1)
Profit and Volume Models	15	(1)
Breakeven Analysis	15	(1)
Quantitative Methods in Practice	16	(13)
Methods Used Most Frequently	17	(1)
Summary	18	(1)
Glossary	18	(1)
Problems	19	(4)
Case Problem: Scheduling a Golf League	23	(1)
Appendix 1.1 The Management Scientist Software	23	(2)
Appendix 1.2 Using Excel for Breakeven Analysis	25	(4)
Introduction to Probability	29	(30)
Experiments and the Sample Space	31	(1)
Assigning Probabilities to Experimental Outcomes	32	(2)
Classical Method	32	(1)
Relative Frequency Method	33	(1)
Subjective Method	33	(1)
Events and Their Probabilities	34	(1)
Some Basic Relationships of Probability	34	(9)
Complement of an Event	35	(1)
Addition Law	36	(2)
Conditional Probability	38	(4)
Multiplication Law	42	(1)
Bayes' Theorem	43	(16)
The Tabular Approach	47	(1)
Summary	48	(1)
Glossary	49	(1)
Problems	50	(6)
Case Problem: Hamilton County Judges	56	(3)
Probability Distributions	59	(37)
Random Variables	60	(1)
Discrete Random Variables	61	(4)
Probability Distribution of a Discrete Random Variable	62	(1)
Expected Value	63	(1)
Variance	64	(1)
Binomial Probability Distribution	65	(5)
Nastke Clothing Store Problem	66	(2)
Expected Value and Variance for the Binomial Distribution	68	(2)
Poisson Probability Distribution	70	(2)
An Example Involving Time Intervals	70	(1)
An Example Involving Length or Distance Intervals	71	(1)
Continuous Random Variables	72	(3)
Applying the Uniform Distribution	72	(1)
Area as a Measure of Probability	73	(2)
Normal Probability Distribution	75	(8)
Standard Normal Distribution	76	(1)
Computing Probabilities for Any Normal Distribution	77	(4)
Grear Tire Company Problem	81	(2)
Exponential Probability Distribution	83	(13)
Computing Probabilities for the Exponential Distribution	84	(1)
Relationship Between the Poisson and Exponential Distributions	84	(1)
Summary	85	(1)
Glossary	85	(1)
Problems	86	(6)
Case Problem: Specialty Toys	92	(1)
Appendix 3.1 Computing Discrete Probabilities with Excel	93	(1)
Appendix 3.2 Computing Probabilities for Continuous Distributions with Excel	94	(2)
Decision Analysis	96	(57)
Problem Formulation	98	(3)
Influence Diagrams	99	(1)
Payoff Tables	99	(1)
Decision Trees	99	(2)
Decision Making Without Probabilities	101	(2)
Optimistic Approach	101	(1)
Conservative Approach	101	(1)
Minimax Regret Approach	102	(1)
Decision Making with Probabilities	103	(5)
Expected Value of Perfect Information	106	(2)
Risk Analysis and Sensitivity Analysis	108	(5)
Risk Analysis	108	(1)
Sensitivity Analysis	108	(5)
Decision Analysis with Sample Information	113	(11)
Influence Diagram	113	(1)
Decision Tree	114	(2)
Decision Strategy	116	(4)
Risk Profile	120	(2)
Expected Value of Sample Information	122	(1)
Efficiency of Sample Information	123	(1)
Computing Branch Probabilities	124	(29)
Summary	128	(1)
Glossary	129	(2)
Problems	131	(13)
Case Problem 1: Property Purchase Strategy	144	(1)
Case Problem 2: Lawsuit Defense Strategy	145	(1)
Appendix 4.1 Decision Analysis with TreePlan	146	(7)
Utility and Game Theory	153	(26)
The Meaning of Utility	154	(1)
Utility and Decision Making	155	(5)
The Expected Utility Approach	158	(1)
Summary of Steps for Determining the Utility of Money	159	(1)
Utility: Other Considerations	160	(4)
Risk Avoiders Versus Risk Takers	160	(3)
Expected Monetary Value Versus Expected Utility	163	(1)
Introduction to Game Theory	164	(3)
Competing for Market Share	165	(1)
Identifying a Pure Strategy	166	(1)
Mixed Strategy Games	167	(12)
A Larger Mixed Strategy Game	170	(1)
Summary of Steps for Solving Two-Person, Zero-Sum Games	171	(1)
Extensions	171	(1)
Summary	172	(1)
Glossary	172	(1)
Problems	173	(6)
Forecasting	179	(52)
Components of a Time Series	182	(2)
Trend Component	182	(1)
Cyclical Component	183	(1)
Seasonal Component	184	(1)
Irregular Component	184	(1)
Smoothing Methods	184	(9)
Moving Averages	184	(3)
Weighted Moving Averages	187	(1)
Exponential Smoothing	188	(5)
Trend Projection	193	(3)
Trend and Seasonal Components	196	(9)
Multiplicative Model	196	(1)
Calculating the Seasonal Indexes	197	(4)
Deseasonalizing the Time Series	201	(1)
Using Deseasonalized Time Series to Identify Trend	201	(3)
Seasonal Adjustments	204	(1)
Models Based on Monthly Data	205	(1)
Cyclical Component	205	(1)
Regression Analysis	205	(7)
Using Regression Analysis as a Causal Forecasting Method	206	(5)
Using Regression Analysis with Time Series Data	211	(1)
Qualitative Approaches	212	(19)
Delphi Method	213	(1)
Expert Judgment	213	(1)
Scenario Writing	213	(1)
Intuitive Approaches	213	(1)
Summary	213	(1)
Glossary	214	(1)
Problems	215	(9)
Case Problem 1: Forecasting Sales	224	(1)
Case Problem 2: Forecasting Lost Sales	225	(1)
Appendix 6.1 Using Excel for Forecasting	226	(1)
Appendix 6.2 Using CB Predictor for Forecasting	227	(4)
Introduction to Linear Programming	231	(59)
A Simple Maximization Problem	233	(4)
Problem Formulation	234	(2)
Mathematical Model for the RMC Problem	236	(1)
Graphical Solution Procedure	237	(12)
A Note on Graphing Lines	246	(1)
Summary of the Graphical Solution Procedure for Maximization Problems	247	(1)
Slack Variables	248	(1)
Extreme Points and the Optimal Solution	249	(2)
Computer Solution of the RMC Problem	251	(2)
Interpretation of Computer Output	252	(1)
A Simple Minimization Problem	253	(6)
Summary of the Graphical Solution Procedure for Minimization Problems	256	(1)
Surplus Variables	256	(2)
Computer Solution of the M&D Chemicals Problem	258	(1)
Special Cases	259	(4)
Alternative Optimal Solutions	259	(1)
Infeasibility	260	(1)
Unbounded	261	(2)
General Linear Programming Notation	263	(27)
Summary	264	(2)
Glossary	266	(1)
Problems	267	(14)
Case Problem 1: Workload Balancing	281	(1)
Case Problem 2: Production Strategy	282	(1)
Case Problem 3: Hart Venture Capital	283	(1)
Appendix 7.1 Solving Linear Programs with The Management Scientist	283	(1)
Appendix 7.2 Solving Linear Programs with LINDO®	284	(2)
Appendix 7.3 Solving Linear Programs with Excel	286	(4)
Linear Programming: Sensitivity Analysis and Interpretation of Solution	290	(58)
Introduction to Sensitivity Analysis	292	(1)
Objective Function Coefficients	293	(5)
Simultaneous Changes	296	(2)
Right-Hand Sides	298	(7)
Simultaneous Changes	301	(1)
A Second Example	302	(2)
Cautionary Note on the Interpretation of Dual Prices	304	(1)
More Than Two Decision Variables	305	(9)
Modified RMC Problem	305	(6)
Bluegrass Farms Problem	311	(3)
Electronic Communications Problem	314	(34)
Problem Formulation	315	(1)
Computer Solution and Interpretation	316	(3)
Summary	319	(1)
Glossary	320	(1)
Problems	321	(21)
Case Problem 1: Product Mix	342	(1)
Case Problem 2: Investment Strategy	343	(1)
Case Problem 3: Truck Leasing Strategy	344	(1)
Appendix 8.1 Sensitivity Analysis with Excel	345	(3)
Linear Programming Applications	348	(76)
Marketing Applications	349	(6)
Media Selection	350	(3)
Marketing Research	353	(2)
Financial Applications	355	(8)
Portfolio Selection	355	(4)
Financial Planning	359	(4)
Production Management Applications	363	(15)
A Make-or-Buy Decision	363	(4)
Production Scheduling	367	(5)
Workforce Assignment	372	(6)
Blending Problems	378	(5)
Data Envelopment Analysis	383	(8)
Evaluating the Performance of Hospitals	384	(1)
Overview of the DEA Approach	385	(1)
DEA Linear Programming Model	385	(5)
Summary of the DEA Approach	390	(1)
Revenue Management	391	(33)
Summary	396	(1)
Glossary	396	(1)
Problems	397	(16)
Case Problem 1: Planning an Advertising Campaign	413	(1)
Case Problem 2: Phoenix Computer	414	(1)
Case Problem 3: Textile Mill Scheduling	415	(1)
Case Problem 4: Workforce Scheduling	416	(1)
Case Problem 5: Cinergy Coal Allocation	417	(3)
Appendix 9.1 Excel Solution of Hewlitt Corporation Financial Planning Problem	420	(4)
Transportation, Assignment, and Transshipment Problems	424	(48)
The Transportation Problem: The Network Model and a Linear Programming Formulation	425	(7)
Problem Variations	428	(3)
A General Linear Programming Model of the Transportation Problem	431	(1)
The Assignment Problem: The Network Model and a Linear Programming Formulation	432	(6)
Problem Variations	435	(1)
A General Linear Programming Model of the Assignment Problem	436	(1)
Multiple Assignments	436	(2)
The Transshipment Problem: The Network Model and a Linear Programming Formulation	438	(7)
Problem Variations	443	(1)
A General Linear Programming Model of the Transshipment Problem	444	(1)
A Production and Inventory Application	445	(27)
Summary	448	(1)
Glossary	449	(1)
Problems	449	(14)
Case Problem 1: Solutions Plus	463	(1)
Case Problem 2: Distribution System Design	464	(2)
Appendix 10.1 Excel Solution of Transportation, Assignment, and Transshipment Problems	466	(6)
Integer Linear Programming	472	(45)
Types of Integer Linear Programming Models	474	(2)
Graphical and Computer Solutions for an All-Integer Linear Program	476	(4)
Graphical Solution of the LP Relaxation	476	(1)
Rounding to Obtain an Integer Solution	477	(1)
Graphical Solution of the All-Integer Problem	478	(1)
Using the LP Relaxation to Establish Bounds	479	(1)
Computer Solution	479	(1)
Application Involving 0-1 Variables	480	(16)
Capital Budgeting	480	(2)
Fixed Cost	482	(2)
Distribution System Design	484	(5)
Bank Location	489	(2)
Product Design and Market Share Optimization	491	(5)
Modeling Flexibility Provided by 0-1 Integer Variables	496	(21)
Multiple-Choice and Mutually Exclusive Constraints	496	(1)
k Out of n Alternatives Constraint	497	(1)
Conditional and Corequisite Constraints	497	(1)
A Cautionary Note About Sensitivity Analysis	497	(2)
Summary	499	(1)
Glossary	499	(1)
Problems	500	(11)
Case Problem 1: Textbook Publishing	511	(1)
Case Problem 2: Yeager National Bank	512	(1)
Case Problem 3: Production Scheduling with Changeover Costs	513	(1)
Appendix 11.1 Excel Solution of Integer Linear Programs	514	(3)
Project Scheduling: PERT/CPM	517	(37)
Project Scheduling with Known Activity Times	518	(10)
The Concept of a Critical Path	519	(2)
Determining the Critical Path	521	(4)
Contributions of PERT/CPM	525	(1)
Summary of the PERT/CPM Critical Path Procedure	526	(2)
Project Scheduling with Uncertain Activity Times	528	(8)
The Daugherty Porta-Vac Project	528	(1)
Uncertain Activity Times	529	(2)
The Critical Path	531	(2)
Variability in Project Completion Time	533	(3)
Considering Time-Cost Trade-Offs	536	(18)
Crashing Activity Times	536	(3)
Linear Programming Model for Crashing	539	(2)
Summary	541	(1)
Glossary	542	(1)
Problems	542	(10)
Case Problem: R. C. Coleman	552	(2)
Inventory Models	554	(47)
Economic Order Quantity (EOQ) Model	555	(9)
The How-Much-to-Order Decision	559	(2)
The When-to-Order Decision	561	(1)
Sensitivity Analysis for the EOQ Model	562	(1)
Excel Solution of the EOQ Model	563	(1)
Summary of the EOQ Model Assumptions	563	(1)
Economic Production Lot Size Model	564	(4)
Total Cost Model	565	(2)
Economic Production Lot Size	567	(1)
Inventory Model with Planned Shortages	568	(4)
Quantity Discounts for the EOQ Model	572	(2)
Single-Period Inventory Model with Probabilistic Demand	574	(6)
Johnson Shoe Company	575	(3)
Nationwide Car Rental	578	(2)
Order-Quantity, Reorder Point Model with Probabilistic Demand	580	(4)
The How-Much-to-Order Decision	581	(1)
The When-to-Order Decision	582	(2)
Periodic Review Model with Probabilistic Demand	584	(17)
More Complex Periodic Review Models	587	(1)
Summary	588	(1)
Glossary	589	(1)
Problems	590	(7)
Case Problem 1: Wagner Fabricating Company	597	(1)
Case Problem 2: River City Fire Department	598	(1)
Appendix 13.1 Development of the Optimal Order Quantity (Q) Formula for the EOQ Model	599	(1)
Appendix 13.2 Development of the Optimal Lot Size (Q*) Formula for the Production Lot Size Model	600	(1)
Waiting Line Models	601	(40)
Structure of a Waiting Line System	603	(4)
Single-Channel Waiting Line	603	(1)
Distribution of Arrivals	603	(2)
Distribution of Service Times	605	(1)
Queue Discipline	606	(1)
Steady-State Operation	606	(1)
Single-Channel Waiting Line Model with Poisson Arrivals and Exponential Service Times	607	(4)
Operating Characteristics	607	(1)
Operating Characteristics for the Burger Dome Problem	608	(1)
Managers' Use of Waiting Line Models	609	(1)
Improving the Waiting Line Operation	609	(1)
Excel Solution of Waiting Line Model	610	(1)
Multiple-Channel Waiting Line Model with Poisson Arrivals and Exponential Service Times	611	(5)
Operating Characteristics	612	(2)
Operating Characteristics for the Burger Dome Problem	614	(2)
Some General Relationships for Waiting Line Models	616	(2)
Economic Analysis of Waiting Lines	618	(1)
Other Waiting Line Models	619	(1)
Single-Channel Waiting Line Model with Poisson Arrivals and Arbitrary Service Times	620	(3)
Operating Characteristics for the M/G/1 Model	620	(2)
Constant Service Times	622	(1)
Multiple-Channel Model with Poisson Arrivals, Arbitrary Service Times, and No Waiting Line	623	(2)
Operating Characteristics for the M/G/k Model with Blocked Customers Cleared	623	(2)
Waiting Line Models with Finite Calling Populations	625	(16)
Operating Characteristics for the M/M/1 Model with a Finite Calling Population	626	(2)
Summary	628	(2)
Glossary	630	(1)
Problems	630	(8)
Case Problem 1: Regional Airlines	638	(1)
Case Problem 2: Office Equipment, Inc.	639	(2)
Simulation	641	(59)
Risk Analysis	644	(13)
PortaCom Project	644	(1)
What-If Analysis	644	(2)
Simulation	646	(7)
Simulation of the PortaCom Problem	653	(4)
Inventory Simulation	657	(5)
Simulation of the Butler Inventory Problem	660	(2)
Waiting Line Simulation	662	(11)
Hammondsport Savings Bank ATM Waiting Line	662	(1)
Customer Arrival Times	663	(1)
Customer Service Times	664	(1)
Simulation Model	664	(4)
Simulation of the Hammondsport Savings Bank ATM Problem	668	(1)
Simulation with Two ATMs	669	(2)
Simulation Results with Two ATMs	671	(2)
Other Simulation Issues	673	(27)
Computer Implementation	673	(1)
Verification and Validation	674	(1)
Advantages and Disadvantages of Using Simulation	674	(1)
Summary	675	(1)
Glossary	676	(1)
Problems	677	(7)
Case Problem 1: Tri-State Corporation	684	(2)
Case Problem 2: Harbor Dunes Golf Course	686	(1)
Case Problem 3: County Beverage Drive-Thru	687	(2)
Appendix 15.1 Simulation with Excel	689	(6)
Appendix 15.2 Simulation Using Crystal Ball	695	(5)
Markov Processes	700	(25)
Market Share Analysis	702	(7)
Accounts Receivable Analysis	709	(16)
Fundamental Matrix and Associated Calculations	711	(1)
Establishing the Allowance for Doubtful Accounts	712	(2)
Summary	714	(1)
Glossary	715	(1)
Problems	715	(4)
Case Problem: Dealer's Absorbing State Probabilities in Blackjack	719	(1)
Appendix 16.1 Matrix Notation and Operations	720	(4)
Appendix 16.2 Matrix Inversion with Excel	724	(1)
Multicriteria Decisions	725	(43)
Goal Programming: Formulation and Graphical Solution	726	(8)
Developing the Constraints and the Goal Equations	727	(2)
Developing an Objective Function with Preemptive Priorities	729	(1)
Graphical Solution Procedure	729	(3)
Goal Programming Model	732	(2)
Goal Programming: Solving More Complex Problems	734	(5)
Suncoast Office Supplies Problem	734	(1)
Formulating the Goal Equations	735	(1)
Formulating the Objective Function	736	(1)
Computer Solution	737	(2)
Scoring Models	739	(5)
Analytic Hierarchy Process	744	(2)
Developing the Hierarchy	745	(1)
Establishing Priorities Using AHP	746	(8)
Pairwise Comparisons	746	(2)
Pairwise Comparison Matrix	748	(1)
Synthesization	749	(1)
Consistency	750	(2)
Other Pairwise Comparisons for the Car Selection Problem	752	(2)
Using AHP to Develop an Overall Priority Ranking	754	(14)
Summary	755	(1)
Glossary	756	(1)
Problems	756	(9)
Case Problem: EZ Trailers, Inc.	765	(1)
Appendix 17.1 Scoring Models with Excel	766	(2)
Appendix A. Binomial Probabilities	768	(7)
Appendix B. Poisson Probabilities	775	(6)
Appendix C. Areas for the Standard Normal Distribution	781	(1)
Appendix D. Values of e-λ	782	(1)
Appendix E. References and Bibliography	783	(2)
Appendix F. Self-Test Solutions and Answers to Even-Numbered Problems	785	(30)
Index	815