Quantitative Perspective and Decision Theory

Meaning of Quantitative Perspective

During World War II, mathematics and physicists and other scientists joined together to seek solutions to a number of new and complex military problems. The interdisciplinary teams who were engaged for this motive were known as operation research teams. The work of these teams was useful in handling and managing the war-related issues. These quantitative tools later are used to make commerce and business, industry and organization decisions.

The quantitative approach to management involves the use of quantitative techniques, such as statistics, information models and computer simulations to enhance decision making. Broadly this school consists of two branches consisting of management science, operation management and management information system, which are discussed as follows:

1. Management Science Theory:

Management science theory emphasizes on application of mathematics, statistics and other quantitative tools for taking decisions and solving management problems. Management science theory primarily deals with decision making. Linear programmings, game theory, sampling theory, queuing theory,model building, probability theory, simulation etc. are the statistical techniques that managers implement and use to solve resource allocation problems. Management science approach focuses on solving the technical rather than human behavior problems. Computer programs are used to analyze the problems.

The main feature of management science theory are listed below:

1. Use of mathematical tools and techniques for rational and quick decision making.

2. All the problems of management can be expressed in a mathematical process, concept, symbols and models.

3. Give emphasis on decision-making by the use of the computer.

2. Operations Management Theory:

Operations management is a branch of the quantitative approach to management. It gives emphasis on managing the procedures of converting materials, labor and capital into useful products and services. Effective operations management is a concern for both profits oriented and service organizations. The resource includes the wide variety of resources like raw materials , technologies, capital details, and people needed to create finished products. The converting process is the actual place of operations through which various resources are utilized to produce finished goods or services value to customers or clients.

Operations management pays close attention to the demands of customer, service quality, and competition in the market. The process begins with awareness to the needs of customers: What do they want? Where and When do they want it? On the basis of answers to these questions, managers line up resources and take any action and decision necessary to meet customer expectations. Operation research proves to be the best technique for solving complex management problems.

Management Information Information System (MIS):

Management information system is the most contemporary subfield of the quantitative school. Management information system provides a continuous flow of information about price, advertisement, competitions, distribution and others. It is the major tool for scanning and monitoring the external environmental forces. MIS collects vital information from various sources, analyzes and synthesizes them and distribute to the marketing decision makers. As a result, managers can identify alternatives quickly, evaluate alternatives by using spreadsheet programs, pose a series of "what -if" questions and finally, select the best alternatives based on the answers to these questions.

Contributions of Quantitative Perspective:

The major contributions of quantitative perspective are as follows:

1. It encourages disciplined thinking while defining the problems and establishing relations among variables in management problems.

2. Complex relations among variables can be expressed more effectively.

3. It presents management with an objective basis for making a decision.

4. It emphasizes the replacement of intuition and hunch by factual data and logical analysis in the decision-making process.

Limitations of Quantitative Perspective:

The major limitations of quantitative perspective are as follows:

1. It does not deal with the people aspect of an organization.

2. All the required and important data can not be updated and are not accurate.

3. It requires unrealistic or unfounded assumptions.

4. The quantitative models are not appropriate for non-routine or unpredictable management decisions.

Decision Theory:

Decision theory looks management as a decision-making process. The manager is regarded as the decision-maker and a major challenge for him is to take rational decisions. The success or failure of an organization greatly depends on the decision-making ability of the manager. So, the manager must be rational in decision making and try to take the right decision on the basis of requirement , which is essential to maximize productivity. Hiring new employees, introducing a new product, creating an organizational structure, setting objectives, all are dependent on the manager's decisions.

Herbert Simon, Luther Gulick and Lyndall Urwik are major contributors to this theory. Managers deciding rationally are able to achieve goals. There must be a clear understanding of an alternative course of action to take a right decision. The manager must have a desire to come to the best solution by selecting the best alternative.

Characteristics of Decision Theory:

1. Management is basically involved in a decision-making process.

2. Members of an organization are decision makers and problem solvers.

3. Organizational effectiveness is judged on the basis of the quality of managerial decisions.

4. Participative approach is desirable in decision making.

5. Proper information management system is essential for decision making.

Rational Decision Making Process:

Managers seldom achieve complete rationality in actual practice. Limitations of information, resources and time limits manager take a rational decision. In such a case, manager picks a course of action that is satisfactory. The rational decision-making consist of the following steps:

• Definition of the problem.
• Identifying relevant alternatives.
• Evaluating the alternatives.
• Selecting the best course of action.
• Implementation of action.
• Evaluating the result.

Contribution of Decision Theory:

The following are the important contributions of decision theory:

1. This theory is helpful in developing problem-solving skills.

2. It helps to develop different mathematical and quantitative tools for decision making.

3. It emphasizes the knowledge of economics in decision making.

4. It contributes much to information management.

Limitations of Decision Theory:

The following are the main limitations of decision theory:

1. This theory does not take the total view of management.

2. It is narrow and has limited scope.

3. It ignores the situational variables.

4. It does not stress the human relation and behavioral aspects.

Reference

(Podyal, S.R., Pradhan G.M. and Bhandari, K.P. (2011). Principles of Management. Kathmandu: Asmita Publishers and Distributors (P) Ltd.)