A small business owner is always making decisions under uncertainty. In the world of business, nothing is ever done with total confidence that you have made the right decision. Fortunately, numerous quantitative techniques are available to help organize and assess the risks of various issues.
Quantitative models give managers a better grasp of the problems so that they can make the best decisions based on the information available. Quantitative techniques are used by managers in practically all aspects of a business.
Quantitative methods have found wide applications in project management. These techniques are used for optimizing the allocation of manpower, machines, materials, money and time. Projects are scheduled with quantitative methods and synchronized with delivery of material and workforce.
Production Planning and Scheduling
Determining the size and location of new production facilities is a complex issue. Quantitative techniques aid in evaluating multiple proposals for costs, timing, location and availability of transportation. Product mix and scheduling get analyzed to meet customer demands and maximize profits.
Purchasing and Inventory
Predicting the amount of demand for a product is always dicey. Quantitative techniques offer guidance on how much raw material to purchase, levels of inventory to keep and costs to ship and store finished products.
Marketing campaigns get evaluated with large amounts of data. Marketers apply quantitative methods to set budgets, allocate media purchases, adjust product mix and adapt to customers' preferences.
Surveys produce data about viewers' responses to advertisements. How many people saw the ads, and how many purchased the products. All of this information is evaluated to get the return on investment of dollars in an advertising campaign.
Financial managers rely heavily on quantitative techniques. They evaluate investments with discounted cash flow models and return on capital calculations. Products get analyzed for profit contribution and cost of production. Workers are scrutinized for productivity standards and hiring or firing to meet changing workloads.
Predicting cash flow is always a critical concern for managers, and quantitative measurements help them to predict cash surpluses and shortfalls. They use probabilities and statistics to prepare annual profit plans.
Research and Development
Risking funds on research and development is always a best-guess scenario. The outcomes are never certain. So, managers look to mathematical projections about the probability of success and eventual profitability of products to make investment decisions.
Operations research techniques have long been employed by farmers. They utilize decision trees and make assumptions about weather forecasts to decide which crops to plant. If forecasters predict cold weather, is it more profitable to plant corn or wheat? What happens if the weather is warm? These are all probabilities that farmers use to plan their crop rotations.
A variety of quantitative methods of analysis are finding more applications in business as managers learn how to use these techniques to provide more insight into problems and aid in daily decision-making.
James Woodruff has been a management consultant to more than 1,000 small businesses. As a senior management consultant and owner, he used his technical expertise to conduct an analysis of a company's operational, financial and business management issues. James has been writing business and finance related topics for work.chron, bizfluent.com, smallbusiness.chron.com and e-commerce websites since 2007. He graduated from Georgia Tech with a Bachelor of Mechanical Engineering and received an MBA from Columbia University.