Quantitative Techniques in Business Report: Decision Making Analysis

This report provides a comprehensive analysis of quantitative techniques applied to a business scenario involving USW Audio Solution Limited, which is planning to launch a Bluetooth speaker. The report begins with an examination of decision-making using Expected Monetary Value (EMV) to evaluate the options of joint venture versus in-house production. It proceeds to explore resource management through linear programming, including the formulation of objective equations, constraints, and the determination of optimal solutions and net profits. The report then delves into project management, constructing a network diagram, identifying the critical path, and assessing the impact of project crashing on completion time and costs. The analysis includes detailed calculations and recommendations, providing insights into optimal strategies and the application of various quantitative methods to enhance business decision-making and project success.

Quantitative Techniques in
Business

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
Task 1. Decision making..................................................................................................................1
Constructing decision tree for the business............................................................................1
Recommendations to management to maximise Expected Monetary Value (EMV).............1
Optimal strategy.....................................................................................................................2
Task 2. Resource Management........................................................................................................3
Listing objective equation and all the constraints..................................................................3
Drafting linear programming graph........................................................................................3
Building linear programming model......................................................................................3
Presenting optimal solution and net profit..............................................................................3
Modifying LP model..............................................................................................................4
Task 3. Project Management............................................................................................................5
Network diagram....................................................................................................................5
Critical path and completion time..........................................................................................5
Crashing activities and computing total cost of completion..................................................6
Recalculating EMV for options..............................................................................................7
Task 4. Summary.............................................................................................................................8
Formal business report...........................................................................................................8
CONCLUSION................................................................................................................................8
REFERENCES................................................................................................................................9

INTRODUCTION
Quantitative techniques play crucial role in the organisation. Present report deals with
constructing decision tree, LP model and EMV are calculated. This provides clarity to USW
Audio Solution Limited which is planning to launch Bluetooth speaker with joint partnership or
second option is in-house production development. Thus, effective decision can be taken by the
company.
Task 1. Decision making
Constructing decision tree for the business
Recommendations to management to maximise Expected Monetary Value (EMV)
The EMV is effective technique to analyse whether project will generate better returns or
not. USW Audio Solution Limited is planning to launch new product which is a Bluetooth
speaker. Moreover, product can be launched with two options such as joint venture and without
the same. Joint venture will be started with Welsh Sound which is engaged in producing portable
speakers. The initial investment involving in joint venture is 0.6 million and if in-house
production will be done then outlay would be 1.2 million (Shmueli and et.al, 2017). If having
joint venture with other company, there would be 80 % chance that project will be completed
within three years and if in-house production is made then there would be 60 % of success rate.
The EMV value of the project is calculated-
Joint venture
If successful, then probability is 80 % and initial investment is 0.2 million and not
successful, then predicted loss is 2 million. The loss will be divided in equal manner of 1-1
million each.
If project is failed, then company has two options. First is to sell the venture to Welsh
Sound and second one is to keep the venture with it.
Calculation of EMV (For Joint venture)
= 2 million (Predicted risk), 20 % probable loss
= 20, 00,000 * 0.2 = 400,000
EMV can be added to probability of risk
= 20, 00,000 + 400,000
= 24, 00,000
If loss is occurred than, EMV will be 12, 00,000 to each party
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Calculation of EMV (in-house development)
= 12, 00,000 (Initial investment), 40 % probable loss
= 12, 00,000 * 0.4 = 480,000
EMV can be added to probability of risk
= 12, 00,000 + 480,000
= 16, 80,000
It can be interpreted that EMV calculated in this context clearly shows that management
should opt for the first option of the joint venture. This is evident from the fact that by investing
low amount in the project, EMV is economical and cost efficient for the company. Higher risk is
not preferable for the firm as if in-house development is used then, there is more initial outlay
and more risk is predicted. Furthermore, investing in it would not be profitable as completion of
success rate is only 60 % while in joint venture is far better and that too with half investment. It
is advised to management that for maximising EMV, USW Audio Solution Limited should
invest the money in joint venture as it will provide more profits for the organisation and as such,
objectives can be met with much ease. Moreover, project would be completed within stipulated
time of three years. Thus, investing in first option will be fruitful for the company.
Optimal strategy
The optimal strategy is that by which one firm tries to minimise the maximum loss that
can be made by its rival. In simple words, company prepares strategy to minimise loss up to
extent that may be inflict by other organisation (Runfola, Perna, Baraldi and Gregori, 2017).
However, in the context of USW Audio Solution, optimal strategy is different. It is stated that
new product will provide market return of 5 million instead of 7 million, and then it will affect
optimal strategy of the firm. This is evident from the fact that if loss would incur, firm has to
formulate and implement new strategy. It will impact on firm’s optimal strategy and time will
also be wasted as entire project would be prepared. Moreover, it will affect suitability of the new
project and initial investment will not be used in economical way.
There are various factors which could lead to failure of project. For overcoming this,
optimal strategy is required to be determined by taking SFA (Suitability, Feasibility, and
Acceptability). In this aspect, suitability means that project should be undertaken by clearly
stating organisational goals in order to extract benefit out of the same. It means that firm should
analyse whether it will be able to gain good returns or not. Thus, expectations must be assessed.
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Acceptability means that outcome of the strategy should be taken so that performance
expectation can be measured in terms of risk and other factors. Risk should be analysed in order
to assess probability of loss and profit in effectual way. Feasibility states that whether firm has
required quantum of resources and competencies to successfully implement strategy. Thus, this
help to analyse whether firm’s objectives will be met in effectual manner or not.
Task 2. Resource Management
Listing objective equation and all the constraints
The objective of the firm is to maximize profit.
Let X be electricians and Y be audio technicians for original product
Let A be electricians and B be audio technicians for new product
Constraints are -
3x + 1y = 100
1a + 2b = 80
Drafting linear programming graph
Building linear programming model
Particulars
Original
product
New product
Constraints
Production units 24 28
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Profits per unit 15 20
Total profits 360 560 920
Associated Variable cost
Electricians 3 1
Audio technicians 1 2
New machine 0 2
Labour
Total variable cost
Electricians 72 28 100 100
Audio technicians 24 56 80 80
New machine 0 56 56 80
Presenting optimal solution and net profit
The optimal solution is calculated and total net profits can be provided which is 35. The
total profit per unit comprise of 15 (audio speaker) and 20 (Bluetooth speaker). It can be stated
that production units at original product is 24 and as such, total profits amounts to 360 (Falaster
and Ferreira, 2017). On the other hand, 28 are units of production in the above linear
programming model and as such, profits are 560. This provides clarity that total profits of
original and new product is 920. Thus, it can be said that net profit is 920. Moreover, it can be
analysed that management is planning to produce at least 20 products. However, total products
are 28 which means giving the constraints of the problem and machine hours, firm will be able to
produce 28 units of speakers which will be profitable for the organisation.
Modifying LP model
Particulars
Original
product
New product
Constraints
Production units 40 20
Profits per unit 15 20
Total profits 600 400 1000
Associated Variable cost
Electricians 2 1
Audio technicians 1 2
New machine 1 2
Labour
Total variable cost
Electricians 80 20 100 100
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Audio technicians 40 40 80 80
New machine 40 40 80 80
It can be analysed that by changing the hours of electrician and audio technicians, profit
of 1000 will be garnered by USW Audio Solution. The concept of binding means that if the
constraint changes, then optimal solution also changes (Appelbaum, Kogan, Vasarhelyi and Yan,
2017). Moreover, non-binding constraint means that no effect is seen on the profit when
constraints changes. This means that audio technicians in the above LP model is said to be non-
binding constraint.
Task 3. Project Management
Network diagram
Figure 1 Network diagram
Critical path and completion time
There are three critical paths that can be evaluated from the network diagram.
Duration for path 1- 0 + 3 + 2 + 10 + 4 + 10 + 12 = 41
Duration for path 2- 0 + 1 + 3 + 10 + 4 + 10 + 12 = 40
Duration for path 3- 0 + 1 + 3 + 10 + 4 + 8 + 10 + 12 = 48
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It can be analysed that the longest path that will led to completion of the project is path 3.
This is the critical path which will delay the activities up to high extent. It can be noticed that
project needs to be completed within the duration of 36 months. This is required in order to
launch new product of USW Audio Solution Limited in the best possible manner. It can be
analysed that project will be completed in the time span of 48 months. Thus, it is essentially
required to reduce the time so that Bluetooth speaker may be launched in the market and as such,
company may be able to garner profits with much ease. Thus, for overcoming this, project
crashing can be applied in effectual manner.
Critical path is the longest duration of the activity that can be completed in the project
(Reh, 2017). Moreover, it is termed as network packages having least slack amount. This means
that if sequences of paths in the event are delayed, then it will lead to delay of entire project.
Thus, critical path calculates longer path of the duration of project. Thus, this help management
to take right decisions and as such, activities may be completed within time frame. In this
project, total completion time of the project is 48 months.
Crashing activities and computing total cost of completion
Project needs to be completed within stipulated time in order to extract benefit out of the
same in effectual way. Firm will be able to fulfil the promise of customers and as such, profits
can be generated with much ease (Prakash, Jha, Prasad and Singh, 2017). Moreover, it helps
company to complete the project in accordance of cost stated in the budgeted so that investment
can be made in the right project. On the other hand, if project would not be completed in time,
problems can be raised. Mainly, costs to complete the project will require being increase so that
it should be achieved with much ease. Moreover, it will decrease customer satisfaction and
organisation would require completing project by increasing expenditures.
On the other hand, if company can reduce the time to complete certain activities, then
project can be completed without any delay. This is known as project crashing in the project
management. This technique helps to reduce the time of activities without affecting completion
of the project in the best possible manner. Duration can be easily reduced by deploying more
labour by implementing overtime work hours in the project in effectual way. Increasing
expenditures in terms of labour and machineries eventually increases total cost of project. Thus,
trade-off between cost and time should be made in the best possible way. Crashing means to
reduce the normal activity time.
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Activity Normal
Time
(months)
Crash
Time
(months)
Normal
Cost
(£000s)
Crash
Cost
(£000s)
Total
allowable
crash time
Crash cost
allowable
Total
cost
A 3 1 35 50 2 7.5 15
B 1 5 1 5 5
C 2 40 2 20 40
D 3 60 3 20 60
E 10 6 280 450 4 42.5 170
F 4 3 55 60 1 5
G 8 4 75 120 4 11.25
H 10 8 200 320 2 60
I 12 450 12 37.5
The above table shows crashing cost and time of activities. Total allowable of crash time
is calculated by obtaining difference between normal time and crash time. On the other hand,
allowable crash cost is computed by applying formula of Crash cost – Normal cost and dividing
the same with total allowable crash time to have cost. It can be assessed that in order to complete
project within 36 months, it is required to reduce activities of 12 months, this will give total cost
to incur the project by deploying more resources and completion in time (Kalaian and Kasim,
2017). By implementing this, activities, A, B, C, D and E are required to be reduced. Crashing of
these activities will have cost of 290 which will be required to be incurred to complete the
project within 36 months in effectual manner. Therefore, adding 290 into initial investment of
project, total cost comes to 14, 90,000
Recalculating EMV for options
Investment should made in higher return yielding project so that company may extract
benefit out of the same. The total cost of project is 14, 90,000 while initial investment is 12,
00,000 for in-house product development .
Recalculation of EMV (in-house development)
= 14, 90,000, 40 % probable loss
= 14, 90,000 * 0.4 = 596000
EMV can be added to probability of risk
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= 14, 90,000 + 596000
= 20, 86,000
It can be analysed that EMV is maximised as more costs are added to produce the good
(Kerzner and Kerzner, 2017). Incurring more expenses is required so that firm may be able to
achieve project on time. Though expenditures will be increased, it will provide good EMV by
producing Bluetooth speaker.
Task 4. Summary
Formal business report
Business Report
To Senior Management
USW Audio Solution Limited
Introduction- The report is prepared for recommending to management whether Bluetooth
speakers should be produced or not. The findings provide clarity that company should invest in
the producing units of new products as LP model help to know regarding the profits that will be
accomplished by the company. Organisation is planning to produce units of 20 but with putting
constraints, it would gain 28 units which are good for the firm to invest in the same.
Furthermore, it may be able to earn revenue in effective manner.
Conclusion- Hereby it can be concluded that organisation will be able to earn revenue in
effectual manner. Moreover, USW Audio Solution would produce more number of units of new
product. Thus, it would be profitable for company to invest in it.
CONCLUSION
Hereby it can be concluded that quantitative techniques play important role in the
company. It provides organisation to take decisions so that profits can be attained. This help to
invest into high yielding project in order to get profits in the best possible manner.
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REFERENCES
Books and Journals
Appelbaum, D., Kogan, A., Vasarhelyi, M. and Yan, Z., 2017. Impact of business analytics and
enterprise systems on managerial accounting. International Journal of Accounting
Information Systems. 25. pp.29-44.
Falaster, C. and Ferreira, M. P., 2017. What drives publishing in top management journals: an
analysis of language, quantitative competency and financial support. International Journal
of Bibliometrics in Business and Management. 1(1). pp.52-69.
Kalaian, S. A. and Kasim, R. M., 2017. Predictive analytics. Decision Management: Concepts,
Methodologies, Tools, and Applications: Concepts, Methodologies, Tools, and
Applications. 1. p.49.
Kerzner, H. and Kerzner, H. R., 2017. Project management: a systems approach to planning,
scheduling, and controlling. John Wiley & Sons.
Prakash, A., Jha, S.K., Prasad, K. D. and Singh, A. K., 2017. Productivity, quality and business
performance: an empirical study. International Journal of Productivity and Performance
Management. 66(1). pp.78-91.
Runfola, A., Perna, A., Baraldi, E. and Gregori, G. L., 2017. The use of qualitative case studies
in top business and management journals: A quantitative analysis of recent
patterns. European Management Journal. 35(1). pp.116-127.
Shmueli, G. and et.al, 2017. Data Mining for Business Analytics: Concepts, Techniques, and
Applications in R. John Wiley & Sons.
Online
Reh, 2017 Critical Path Description and overview [Online] Available Through:<
https://www.thebalance.com/critical-path-description-and-overview-2276120>
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