BDM FROM TEXTBOOKS

Question 1

Quantitative analysis

Answer 1

uses a scientific approach to managerial decision making

- the approach starts with data

Question 2

Qualitative factors in quantitative analysis

Answer 2

the weather, new technological breakthroughs, federal ligislation (in most cases, it will be an aid to decision making).

Question 3

POM

Answer 3

production/operations management

Question 4

Business analytics

Answer 4

is a data driven-approach to decision making, allows companies to make better decisions.
- involves the use of large amounts of data

Question 5

3 categories of Business analytics

Answer 5

1) descriptive
2) predictive
3) prescriptive

Question 6

Descriptive analytics

Answer 6

involves the study and consolidation of historical data for a business and an industry (measures how company has performed in the past and how it is performing now)

ex: statistical quality control

Question 7

Predictive analytics

Answer 7

is aimed at forecasting future outcomes based on patterns in the past data

ex: decision trees, regression models, forecasting, etc

Question 8

Prescriptive analytics

Answer 8

Involves the use of optimization methods to provide new and better ways to operate, based on specific business objectives

ex: economic order quantity, linear programming

Question 9

The Quantitative Analysis Approach

Answer 9

defining a problem, developing a model, acquiring input data, developing a solution, testing the solution, analyzing the results, implementing the results

Question 10

The Quantitative Analysis Approach: Defining the problem

Answer 10

develop a clear, concise statement of the problem.

• selecting the problem that creating the greatest increase in profits or reduction in costs

Question 11

The Quantitative Analysis Approach: Developing a model

Answer 11

2nd step is to develop a model. physical, scale, schematic, and mathematical models

Question 12

schematic model

Answer 12

a picture, drawing or chart of reality

Question 13

A Mathematical model

Answer 13

is a set of mathematical relationships

Question 14

Variable

Answer 14

a measurable quantity that may vary or is subject to change. can be either controllable (decision variable) or uncontrollable

Question 15

parameter

Answer 15

a measurable quantity that is inherent in the problem. In most cases, theses are known

Question 16

Acquiring Input Data

Answer 16

“garbage in, garbage out” -

Question 17

Developing a solution

Answer 17

involves manipulating the model to arrive a the best optimal solution to the problem. The input data and model determine the accuracy of the solution

Question 18

Testing the Solution

Answer 18

testing the data and model is done before the results are analyzed

Question 19

Analyzing the results and sensitivity analysis

Answer 19

sensitivity analysis determines how the solution wills change with a different model or input data

Question 20

Profit formula

Answer 20

revenue - expenses

sX - f - vX 
s = selling price per unit 
f = fixed cost 
v = variable costs per unit
X = number of units sold

Question 21

Expenses include…

Answer 21

fixed and variable costs

Question 22

BEP

Answer 22

Break-even-point. the number of units sold that will result in $0 profits

Question 23

BEP formula

Answer 23

= fixed costs
_____________
(SP per unit - VC per unit)

Question 24

Advantages of Mathematical modeling

Answer 24

1. accurately represent reality
2. help decision makers formulate problems
3. give us insight and information

Question 25

Deterministic model

Answer 25

A model in which all values used in the model are known with complete certainty

Question 26

Probabilistic model

Answer 26

means models that involve change or risk (often measured as a probability value

Question 27

Possible problems in the Quantitative analysis approach

Answer 27

Defining the problem : All viewpoints should be considered before formally defining the problem (conflicting viewpoints, impact on other departments, beginning assumptions) Developing solution: Hard to understand Mathematics Assumptions should be reviewed

Question 28

Implementation problems

Answer 28

- Lack of commitment and resistance to change | - Lack of commitment by quantitative analysts (technical)

Question 29

Mathematical model

Answer 29

a model that uses mathematical equations and statements to represent the relationships within the model

Question 30

A probability

Answer 30

is a numerical statement about the chance that an event will occur

Question 31

Two basic rules of probability

Answer 31

Regardless of how probabilities are determined, they must adhere to these two rules: 1) the probability of any event or state of nature occurring is greater than or equal to 0 and less than or equal to 1 (probability of 0 indicates that an event is never expected to occur 2) the sum of simple probabilities for all possible outcomes of an activity must equal 1

Question 32

2 different ways to determine probability

Answer 32

objective approach | subjective approach

Question 33

the Relative frequency approach

Answer 33

``` an objective probability assessment in general: P(event) = number of occurrences of the e vent ___________________ total number of trails or outcomes ```

Question 34

Determining objective probabilities

Answer 34

classical or logical method

Question 35

Mutually exclusive

Answer 35

if only one of the events can occur on any one trail

Question 36

Collectively exhaustive

Answer 36

if the list of outcomes includes every possible outcome

Question 37

Intersection of two events

Answer 37

is the set of all outcomes that are common to both events (the word and is commonly associated with the intersection)

Question 38

joint probability

Answer 38

implies that both events are occurring at the same time or jointly

Question 39

The union of two events

Answer 39

the set of all outcomes that are contained in either of these two events. the word or is commonly associated with the union, as in the symbol

Question 40

Probability of the union of two events (additive rule)

Answer 40

on formula sheet P(A or B) = P(A) + P(B) - P(A and B)

Question 41

Conditional Probability

Answer 41

is the probability of an event occurring given that another event has already happened Equation on formula sheet

Question 42

Two events are independent

Answer 42

Independent if the occurrence of one has no impact on the occurrence of the other independent if : P(A/B) = P(A) probability of the intersection is: P(A and B) = P(A)P(B)

Question 43

Bayes Theorem

Answer 43

used to incorporate additional information as it is made available and help create revised or posterior probabilities from the original prior probabilities.

Question 44

revised or posterior probabilities

Answer 44

two conditional probabilities

Question 45

Thomas Bayes

Answer 45

did the work leading to the Bayes theorem

Question 46

Random Variables

Answer 46

assigns a real number to every possible outcome or event in an experiment

Question 47

Types of random variables

Answer 47

Discrete random variables | continuous random variable

Question 48

discrete random variables

Answer 48

if it can assume only a finite or limited set of values. Probability value assigned to each event - must be between 0 and 1 and must sum to 1

Question 49

continuous random variable

Answer 49

is a random variable that has a infinite or unlimited set of values

Question 50

3 rules request of all probability distributions

Answer 50

1) events are mutually exclusive and collectively exhaustive 2) individual probability values are between 0 and 1 inclusive 3) the total of the probability values is 1

Question 51

Expected value

Answer 51

the central tendency of the distribution

Question 52

Variance

Answer 52

amount of variability or spread of the distribution

Question 53

Expected value of a discrete probability distribution

Answer 53

the expected value of a discrete distribution is the weighted average of the values of the random variable. Given on Formula sheet

Question 54

Variance of a discrete probability distribution

Answer 54

is a number that reveals the overall spread or dispersion of the distribution. For a discrete probability distribution, it can be computed using the following equation. Given on Forumla sheet

Question 55

Standard deviation

Answer 55

a relative measure of dispersion or spread (square root of the variance)

Question 56

Probability distribution of Continuous Random Variable

Answer 56

used the probability density function

Question 57

Probability density function

Answer 57

f(X), is a mathematical way of describing the probability distribution. Shaded area under the graph represents probability.

Question 58

The Binomial Distribution

Answer 58

a discrete distribution that describes the number of successes in independent trails of a Bernoulli process Used to find the probability of a specific number of success out of n trials of a Bernoulli process. Bernouli process, following characteristics 1. each trail has only two possible outcomes - success and a failure 2. probability stays the same from one trail to the next 3. the trails are statistically independent 4. the number of trails is a positive integer

Question 59

!

Answer 59

symbol used in binomial distribution, means factorial (ex: 4! = (4) (3) (2) (1) = 24

Question 60

The normal distribution

Answer 60

continuous bell-shaped distribution that is a function of two parameters, mean and standard deviation of the distribution affects a large number of processes in our lives (e.g. filling boxes of cereal with 32 ounces of corn flakes). Each normal distribution depends on the mean and standard deviation as standard deviation becomes smaller, normal distribution becomes steeper, vise versa formula is on formula sheet

Question 61

Area under the normal curve

Answer 61

normal distribution is symmetrical, the highest point is at the mean. Area under the curve (in a continuous distribution) describes the probability that a random variable has a value in a specified interval

Question 62

The Empirical Rule

Answer 62

This rule states that for a normal distribution: 68% of all the values will be within +/- 1 standard deviation of the mean 95% of the values will be within +/- 2 standard deviations of the mean about 99.7% of the values will be within +/- standard deviations of the mean

Question 63

the F distribution

Answer 63

is a continuous probability distribution that is helpful in testing hypotheses about variances. Used when regression models are tested for significance.

Question 64

Finding the F value

Answer 64

associated with a particular probability and degrees of freedom

Question 65

The exponential Distribution

Answer 65

used in dealing with queuing problems. A continuous distribution, Function is given on sheet.

Question 66

The Poisson distribution

Answer 66

this distribution is used in many queuing models to represent arrival patterns formula is given

Question 67

Bernouli Process

Answer 67

A process with two outcomes in each of a series of independent trials in which the probabilities of the outcomes do not change

Question 68

objective approach

Answer 68

the method of determining probability vales based on historical data or logic

Question 69

Decision Theory

Answer 69

is an analytic and systematic way to tackle problems. a good decision is based on logic

Question 70

6 steps in decision making

Answer 70

1. clearly define the problem at hand 2. list the possible alternatives 3. identity the possible outcomes or states of nature 4. list the payoff (typically profit) of each combination of alternative and outcomes 5. select one of the mathematical decision theory models 6. apply the model and make your decision

Question 71

Types of decision-making environments

Answer 71

there decision-making environments: - decision making under certainty - decision making under uncertainty - decision making under risk

Question 72

decision-making under certainty

Answer 72

decision makers know with certainty the consequence of every alternative or decision choice (maximize their well-being)

Question 73

decision-making under uncertainty

Answer 73

the decision maker does not know the probabilities of the various outcomes. sometimes it is impossible to assess the probability of success of a new undertaking or product Several criter for making decisions under conditions of uncertainty 1. optimistic 2. pessimist 3. criterion of realism (HUrwicz) 4. Equally Likely (Laplace 5. Minimax regret

Question 74

decision making under risk

Answer 74

there are several possible outcomes for each alternative, and the decision maker knows the probability of ocurence of each outcome . selecting the altnerative with the highest expected monetary value (or simply expected value)

Question 75

optimistic (maximax)

Answer 75

the best (maximum) payoff for each alternative is considered and the alternative with the best (maximum) of these is selected

Question 76

Pessimistic

Answer 76

the worst (minimum) payoff for each altnerative I s considered, and the alternative with the best (maximum) of these is selected. (Maximin)

Question 77

Criterion of Realism (Hurwicz Criterion)

Answer 77

comprised of an optimistic and a pessimistic decision. Uses the weighted average approach

Question 78

weighted average formula

Answer 78

Weighted average = a(best in a row) - (1-a)(worst in row)

Question 79

Equally Likely (Laplace)

Answer 79

Involves finding the average payoff for each altnerative and selecting the altnerative with the best or highest average

Question 80

Minimax regret

Answer 80

Opportunity loss refers to the difference between the optimal profit or payoff for a given state of nature and the actual payoff received for a particular decision for that state of nature

Question 81

Expected Monetary Value

Answer 81

is the weighted sum of possible payoffs for each altnerative