12.1 Learn How to Apply Qualitative Methods To Business

Question 1

Combination of mathematical equations, formulas, models, and statistics with computer programs

Answer 1

Decision Sciences

Question 2

a measure of dispersion in the data. This measure is the average of the absolute values of all the forecast errors

Answer 2

Mean absolute deviation (MAD)

Question 3

measures the average distance from each number to the mean. We need to square each deviation and then take the average of all the squared deviations.

Answer 3

Variance

Question 4

square root of the variance

Answer 4

Standard deviation

Question 5

Assuming normal distribution, what percent of the data will be within one standard deviation of the mean?

Answer 5

68%, 34 on either side

Question 6

Assuming normal distribution, what percent of the data will be within two standard deviation of the mean?

Answer 6

95%

Question 7

Assuming normal distribution, what percent of the data will be within three standard deviation of the mean?

Answer 7

99%

Question 8

Tells us whether the dispersion is large or small relative to the average. It is computed by dividing the standard deviation by the mean.

Answer 8

coefficient of variation

Question 9

measures the average of the sum of the squared differences between the actual time series data and the forecasted data

Answer 9

Mean squared error (MSE)

Question 10

assigns probabilities based on the assumption that experimental outcomes are equally likely.

Answer 10

Classical Method of Assigning Probability

Question 11

assigns probabilities based on experimentation or historical data.

Answer 11

Relative Frequency Method of Assigning Probability

Question 12

assigns probabilities based on the judgment of the person assigning the probabilities.

Answer 12

Subjective Method of Assigning Probability

Question 13

expression that defines the quantity to be maximized or minimized in a linear programming model.

Answer 13

Objective Function

Question 14

an equation or inequality that rules out certain combinations of decision variables as feasible solutions.

Answer 14

Constraint

Question 15

Controllable input for a linear programming model.

Answer 15

Decision Variable

Question 16

a technique for solving multicriteria decision problems by relaxing the assumption of a single objective

Answer 16

Goal Programming

Question 17

concerned with shipping goods from a variety of origins to a variety of destinations with the goal of minimizing route miles, shipping costs, and delivery delays

Answer 17

Transportation Model

Question 18

an extension of the transportation model to product distribution problems involving transfer points and possible shipments between any pair of nodes

Answer 18

Transshipment Model

Question 19

a network flow problem that often involves the assignment of agents to tasks; it can be formulated as a linear program and is a special case of the transportation model.

Answer 19

Assignment Model

Question 20

Order Quantity that minimizes the total cost (e.g., order costs and holding costs)

Answer 20

economic order quantity (EOQ)

Question 21

reorder point (RP) Calculation

Answer 21

Reorder Point = Lead-Time × Usage Rate or RP = LT × UR

Question 22

shows the relationships among decisions, chance events, and

consequences for a decision problem (nodes)

Answer 22

Influence Diagram

Question 23

shows the financial consequences (payoffs) in terms of the alternative decisions (e.g., manufacture domestic, buy abroad, and buy domestic) that can be made and the alternative states of nature that might result (e.g., low, medium, or high volume).

Answer 23

Payoff Table

Question 24

a diagram showing the logical progression that occurs over time in terms of decisions and outcomes and is particularly useful in sequential decision problems—where a series of decisions need to be made with each in part depending on earlier decisions and outcomes.

Answer 24

Decision Tree

Question 25

5 Methods of Decision Making under Certainty

Answer 25

(1) dominance, (2) lexicographic, (3) additive weighing, (4) effectiveness index, and (5) satisficing

Question 26

Four strategies for making decisions under uncertainty are:

Answer 26

(1) the minimax strategy, (2) the maximax strategy, (3) the Hurwicz strategy, and (4) and the minimax regret strategy

Question 27

a very conservative, pessimistic strategy that assumes that whatever action we choose, nature is against us and will cause the worst possible outcome (worst payoff). The values of the worst outcomes are the row minima. This strategy calls for choosing the action that gives us the best (largest) of these minima. That is, it chooses the action whose worst possible outcomes are not as bad as the worst possible outcomes of the other actions.

Answer 27

minimax strategy

Question 28

For a maximization problem, the conservative approach is referred to as the ________, which is maximizing the minimum profits.

Answer 28

maximin criterion

Question 29

For a minimization problem, the conservative approach is referred to as the _________, which is minimizing the maximum losses.

Answer 29

minimax criterion

Question 30

an optimistic strategy that assumes that nature will cooperate with us to provide the best possible outcome for the action we choose—the row maxima. This strategy chooses
the action yielding the best of the possible outcomes (best payoff).

Answer 30

maximax strategy

Question 31

For a maximization problem, the optimistic approach is referred to as the ___________, which is maximizing the maximum profits.

Answer 31

maximax criterion

Question 32

For a minimization problem, the optimistic approach is referred to as the _________, which is minimizing the minimum losses or maximum profits (not worth pursuing).

Answer 32

minimin criterion

Question 33

a compromise between the very pessimistic minimax strategy and the very optimistic maximax strategy. A value between 0 and 1 is chosen for the coefficient of optimism, A, keeping in mind that low values of A are an indication of pessimism and high values of A are an indication of optimism. The goal is to find both the row minima and the row maxima and choose the activity
that yields the maximum of the computed quantities.

Answer 33

Hurwicz strategy

Question 34

minimizing the maximum regret value or opportunity loss. good for situations where the expected values concept fails. (e.g. when averages of values do not make sense because they are very far apart)

Answer 34

minimax regret strategy

Question 35

Decision making under conflict or competition

Answer 35

Game Theory

Question 36

When one opponent gains at the loss of the other, involving complete conflict of interest

Answer 36

Zero-Sum Game

Question 37

the gains of one competitor are not completely at the expense of the other competitors., less-than-complete conflict of Interest

Answer 37

Non-Zero-Sum Game

Question 38

Prisoner ’s dilemma

Answer 38

a type of business game situation where one firm is concerned about the actions of its rivals; a classic conflict-of-interest situation.

Question 39

a decision that gives the best result for either party regardless of the action taken by the other.

Answer 39

Dominant Strategy

Question 40

a decision that guarantees the best possible outcome given the worst possible scenario.

Answer 40

secure strategy (also called the maximum strategy)

Question 41

a set of decision strategies where no firm can improve its own payoff by unilaterally changing its own strategy

Answer 41

Nash equilibrium

Question 42

a statistical technique that can be used to develop a mathematical equation showing how variables are related. Causal Forecasting Method

Answer 42

Regression Analysis

Question 43

useful in studying the evolution of certain systems over repeated trials as it shows the probability of moving from a current state to any future state.

Answer 43

Markov-process analysis

Question 44

a set of observations measured at successive points in time or over successive periods of time.

Answer 44

seasonalized time-series

Question 45

a set of observations that has had the effect of season removed. calculated by dividing original time-series data by corresponding seasonal index values. The monthly or quarterly forecast is obtained by multiplying the trend forecast by seasonal index values.

Answer 45

deseasonalized time-series

Question 46

an evaluation of how certain changes in inputs result in what changes in outputs of a model or system.

Answer 46

Sensitivity ANalysis

Question 47

Money received today has a different value in the future, and money to be received in the future has a different value today due to

Answer 47

Time Value of Money

Question 48

the process of determining the future value of present cash flows, which is equal to the beginning principal plus the interest earned.

Answer 48

Compounding

Question 49

the process of finding the present value of future cash flows, which is the reciprocal of compounding.

Answer 49

Discounting

Question 50

a cost allocation in the form of an expense for using tangible fixed assets such as plant and equipment

Answer 50

Depreciation

Question 51

a cost allocation for using tangible natural assets such as coal and iron ore resources.

Answer 51

Depletion

Question 52

a cost allocation for using intangible assets such as patents and copyrights.

Answer 52

Amortization

Question 53

establish a quantitative relationship between sales volumes and costs.

Answer 53

Profit Models

Question 54

a statistical technique to identify groups of entities that have similar characteristics that can be applied to data mining and market research areas.

Answer 54

Cluster Analysis