QUANTITATIVE ANALYSIS Terminologies:

o Critical Path – is longest path through the PERT

1) Quantitative Analysis refer to the application at network.
mathematics in actual business operations. It is also o Expected Time – is the average time an activity would
known as quantitative methods. require if it were repeated several times.
2) Typical Quantitative methods applications:
Slack Time - amount of time that can be added to an
✓ Corporate planning models
activity without increasing the total time required on the
✓ Forecasting mechanism
critical path; the length of time an activity can be delayed
✓ Productivity and efficiency measure
without forcing a delay for the entire project.
✓ Inventory planning and control
Crash Time - amount of time to complete an activity
✓ Resource allocation
assuming that, under rush or urgent condition, all
available resources were devoted to the task (e.g.,
NETWORK MODELS
overtime, extra labor, etc.); any crash time spend in an
activity normally would incur crash cost.
1) Network Models
o Involves project scheduling techniques that are
PROBABILITY ANALYSIS
designed to aid the planning and control of large-
scale projects that have many interrelated activities.
1) Probability Analysis – is important to decision-making
o These models aid management in predicting and
controlling costs that pertain to certain projects or because of the unpredictability of future events.
business activities.
2) Decision-making involves:
2) Use of Network Models Risk – this occurs when the probability distribution of the
✓ Planning possible future state of nature is known.
✓ Measuring progress to schedule Uncertainty – this occurs when the probability
✓ Evaluating changes to schedule distribution of possible future state of
✓ Forecasting future progress nature is not known and must be
✓ Practicing and controlling costs subjectively determined.

Common Project Scheduling Techniques: The probability of an event varies from 0 to 1 (0% to
1) Gantt or Bar Chart 100%). 100% or probability of 1.0 means that event is
2) Program Evaluation and Review Technique (PERT) certain to occur while zero probability means the event
3) Critical Path Method (CPM) cannot occur under any circumstances.

1) Gantt Charts The Concept of Expected Value

o This is a graphical illustration of a scheduling • The expected value of an action is found by
technique in the form of a horizontal bar chart. The multiplying the probability of each outcome by its
project is divided into different sub-projects called pay-off and summing up the products.
activities or tasks (also call ‘milestones’). • A decision tree diagram is normally devised to show
o The starting and completion time of activity is several possible decisions or acts and the possible
estimated and a bar chart prepared showing each consequences (outcome or events) of each act.
activity as a horizontal bar along a time scale.
Terminologies:
2) Program Evaluation and Review Technique (PERT) – Objective probabilities – calculated from either logic or
Critical Path Method (CPM) actual experience.

PERT – is developed to aid managers in controlling large- Subjective probabilities – estimates, based on
scale, complex problems. judgements of the likelihood of future events.
✓ Two events are said to be mutually exclusive if
Terminologies: they cannot occur simultaneously.
o Pert Diagram – is a probabilistic diagram of the ✓ Two events are said to be independent if
interrelationship of a complex series of activities; it is occurrence of one has no effect on probability of
a free-form network showing each activity as line another.
between events. ✓ The joint probability of two events is the
o Events – discrete moment in time representing the probability that both will occur.
start or finish of an activity; they consume no ✓ The conditional probability of two events is the
resources. probability that one will occur given that the
o Activities – tasks to be accomplished; they consume other has already occurred.
resources (including time).
a. Series – an activity that cannot be done LEARNING CURVE
unless another activity is undertaken first.
b. Parallel – an activity that can be performed Learning Curve describes the efficiencies arising from
simultaneously with another activity. experience, because with experience comes increased
productivity. This productivity increases with production size,
3) Critical Path Method (CPM), like PERT, is a network but at a decreasing rate as diagrammed below:
technique, however, CPM uses deterministic time and
cost estimates, among its advantages include cost
estimates plus the concept of crash efforts and costs.
Important Notes in Learning Curves Analysis:
o The cumulative average time per unit is reduced by a
certain percentage each time production doubles.
o Incremental unit time (time to produce the last unit) is
reduced when production doubles.

LINEAR PROGRAMMING

Linear Programming is a mathematical technique that helps

managers to determine the volume of various products to
produce when resources are limited or scarce in order to
maximize net income. It is a technique used to optimize an
objective function (maximize revenue of profit function, or
minimize a cost function), subject to constraints (such as
scarce resources, minimum/maximum levels of production,
performance, etc.).
Maximize revenue

OBJECTIVE Maximize
net profit

Minimize costs and

expenses
• Limited resources must be allocated to the company’s
most profitable products so that net income is
maximized.
• Linear programming models are extremely helpful in the
analysis and solution of resource allocation problems.
• Simplex method is a much detailed linear programming
technique especially useful if there are more than two
variables in a linear programming problem.

- - END - -
 QUANTITATIVE ANALYSIS

THEORY
1. Various tools are employed to control large scale projects. They include all of the following except
a. Critical Path Method (CPM) c. Program Evaluation Review Technique (PERT)
b. Gantt charts d. Statistical process control

2. A quantitative technique used for selecting the combination of resources that maximize profits or minimize costs
is
a. Curvilinear analysis c. Linear programming
b. Dynamic programming d. Queuing theory

3. Linear programming is an operations research technique that allocates resources. Mathematical expressions are
used to describe the problem. The measure of effectiveness that is to be maximized or minimized is the
a. Constraints c. Objective function
b. Set of decision variables d. Derivative of the function

4. The constraints in a linear programming model are

a. Included in the objective function c. Scarce resources
b. Costs d. Dependent variables

5. Given the basic equations for maximization of profits in linear programming model, what quantitative techniques
would generally be employed to arrive at an optimal solution?
a. Markov analysis c. Monte Carlo analysis
b. Regression analysis d. Simplex method analysis

6. To facilitate planning and budgeting, management of a travel service company wants to develop forecasts of
monthly sales for the next 24 months. Based on past data, management has observed an upward trend in the
level of sales. There are also seasonal variations with high sales in June, July and August, and low sales in January,
February and March. An appropriate technique for forecasting the company’s sales is
a. Time series analysis c. Linear programming
b. Queuing theory d. Sensitivity Analysis

7. What are the four components of a time series?

a. Trend, cyclical, seasonal and irregular c. Alpha, cyclical, seasonal and repetitive
b. Alpha, cyclical, seasonal and irregular d. Trend, cyclical, seasonal and repetitive

8. The modelling technique to be used for situations involving a sequence of events with several possible outcomes
associated with each event Is
a. Queuing theory c. The critical path method
b. Dynamic programming d. Decision tree analysis

9. Which of the following statements does not apply to decision tree analysis?
a. The sum of the probabilities of the events is less than one
b. All of the events are mutually exclusive
c. All of the events are included in the decision
d. The branches emanate from a node from left to right

10. A quantitative technique useful in projecting a firm’s sales and profits is

a. Probability distribution theory c. Leaning curves
b. Gantt chart d. Queuing theory

11. A company is preparing its 20X1 budget and, taking into consideration the recent pace of economic recovery,
has developed several sales forecasts and the estimated probability associated with each sale forecast. To
determine the sales forecast to be used for 20X1 budgeting purposes, which one of the following techniques
should the company use?
a. Expected value analysis c. Monte Carlo simulation
b. Continuous probability simulation d. Sensitivity analysis

12. The expected value of perfect information is the

a. Same as the expected profit under certainty
b. Sum of the conditional profit (loss) for the best event of each act times the probability of each events
occurring
c. Difference between the expected profit under certainty and the expected opportunity loss
d. Difference between the expected profit under certainty and the expected monetary value of the best
act under uncertainty

13. In evaluating projects, a popular approach to recognize uncertainty about individual items and to obtain an
immediate financial estimate of the consequences of possible predicting errors is
a. Exponential analysis c. Learning curve analysis
 b. Sensitivity analysis d. Expected value analysis

14. A bank is designing an on-the-job training program for its branch managers. The bank would like to design the
program so that participants can complete it as quickly as possible. The training program requires that certain
activities be completed before others. For example, a participant cannot make credit loan decisions without first
having obtained experience in the loan department. An appropriate scheduling technique for this training
program is
a. PERT-CPM c. Queuing theory
b. Linear programming d. Sensitivity analysis

15. When using the PERT method for network analysis, the critical path through the network is
a. The least cost path c. The path with the most slack
b. The longest path through the network d. The shortest path through the network

16. In the PERT, slack is the

a. Uncertainty associated with time estimates
b. Path that has the largest amount of time associated with it
c. Excess time available in the completion of the project after crashing the critical path
d. Number of days an activity can be delayed without forcing a delay for the entire project

17. The process of adding resources to shorten selected activity times on the critical path in project scheduling is
called
a. A branch-and-bound solution c. Material-requirements planning
b. Crashing d. The Delphi technique

18. The calculation of reasonable probabilities about the future, based on the analysis of all the latest relevant
information by tested and logically sound statistical and economic techniques, and applied in terms of an
executive’s personal judgement and knowledge of his business is
a. Budgeting c. Planning and control
b. Business forecasting d. Project feasibility studies

19. The moving-average method of forecasting

a. Is a cross-sectional forecasting method
b. Regresses the variable of interest on a related variable to develop a forecast
c. Derives final forecast by adjusting the initial forecast based on the smoothing constant
d. Includes each new observation in the average as it becomes available and discards the oldest
observation

20. Which formula describes the learning curve?

a. y = axb c. y = ax-b
b. y = abx d. x = ayb

PROBLEMS
21. A company has two products, Product X and Product Y, that it manufactures through its production facilities. The
contribution margin for Product X is P15 per unit, whereas Product Y’s contribution is P25. Each product uses
Materials A and B. Product X uses 3 pounds of Material A and Product Y uses 6 pounds. Product X require 6 feet
of Material B and Product Y uses 4 feet. The company can only purchase 600 pounds of Material A and 880 feet
of Material B. The optimal mix of products to manufacture is
Product X Product Y Product X Product Y
a. 146 units 0 units c. 120 units 40 units
b. 0 units 100 units d. 40 units 120 units

22. In the two following constraint equations, X and Y represent two products (in units) produced by the Harris
Products Corporation.
Constraint 1: 3X + 5Y < 4,200
Constraint 2: 5X + 2Y > 3,000
Question 1: What is the maximum number of units of Product X that can be produced?
a. 4,200 c. 600
b. 3,000 d. 1,400

Question 2: What is the feasible range for the production of Y?

a. 840 to 1,500 units c. 0 to 631 units
b. 0 to 840 units d. 0 to 1500 units

Question 3: A solution of X = 500 and Y = 600 would violate

a. Constraint 1 c. Both constraints
b. Constraint 2 d. Neither constraint
23. Andrea Company has available production capacity of 180,000 hours. This can be used to produce 3 products in
any combination. Total fixed cost is P180,000, other facts are:
PRODUCTS
X Y Z
Selling price P 8 P 23 P 5
Variable cost 7 12 2
No. of hours per unit 1 hr. 10 hrs. 2 hrs.
Market limits 5,000 50,000

Question 1: The best possible combination of product is:

A B C D
Product X 4,000 30,000 30,000 80,000
Product Y 4,000 3,000 5,000 0
Product Z 50,000 50,000 50,000 50,000

Question 2: The net profit associated with the best combination of products is:
a. P33,000 c. P54,000
b. P50,000 d. P55,000

24. A beverage stand can sell either soft drinks or coffee on any given day. If the stand sells soft drinks and the
weather is hot, it will make P2,500; if the weather is cold, the profit will be P1,000. If the stand sells coffee and
the weather is hot, it will make P1,900; if the weather is cold, the profit will be P2,000. The probability of cold
weather on a given day at this time is 60%.
Question 1: The expected payoff for selling coffee is
a. P1,360 c. P3,900
b. P2,200 d. P1,960

Question 2: The expected payoff if the vendor has perfect information is

a. P3,900 c. P1,960
b. P2,200 d. P1,950

Question 3: If the probability of hot weather given a hot weather forecast is 50%, how much would the vendor is
willing to pay for the forecast?
a. P600 c. P1,000
b. P300 d. P800

25. The following information applies to a project:

Activity Time Immediate Activity Time Immediate
(days) Predecessor (days) Predecessor
A 5 None D 2 B
B 3 None E 6 C, D
C 4 A
The earliest completion time for the project is
a. 11 days c. 15 days
b. 14 days d. 20 days

26. A company uses the critical path method to monitor construction jobs. The company is currently 2 weeks behind
schedule on Job 101, which is subject to a P10,500-per-week completion penalty. Path A-B-C-F-G-H-I has a normal
completion time of 20 weeks, and critical path A-D-E-F-G-H-I has a normal completion time of 22 weeks. The
following activities can be crashed:
Cost to Crash Cost to Crash
Activities 1 week 2 weeks
BC P8,000 P15,000
DE 10,000 19,600
EF 8,800 19,500
The company desires to reduce the normal completion time of Job 101 and, at the same time, report the highest
possible income for the year. The company should crash
a. Activity BC 1 week and activity EF 1 week c. Activity EF 2 weeks
b. Activity DE 1 week and activity BC 1 week d. Activity DE 1 week and activity EF 1 week

27. The learning curve rate of a company is 80% and it takes 100 hours to produce the first unit. The hours required
to produce the sixteenth unit is
a. 32.77 c. 51.2
b. 40.96 d. 64