Quantitative Theory of Management: Branches, Evaluation and Limitations

After reading this article you will learn about:- 1. Branches of Quantitative Management 2. Evaluation of Quantitative Management 3. Limitations.

Branches of Quantitative Management:

The branches of quantitative management are:

(a) Management Science,

(b) Operations Management, and 

(c) Management Information Systems.

(a) Management Science:

“Management science is an approach that aims at increasing decision effectiveness through the use of sophisticated mathematical models and statistical methods.”

According to R.M. Hodgetts, “The Quantitative School, which is also called Management Science School, consists of those theorists who see management as a body of quantitative tools and methodologies designed to aid today’s manager in making the complex decisions related to operations and productions.”

Management science also known as operations research uses mathematical models such as linear programming, PERT, CPM, games theory, probability, sampling theory, capital budgeting, financial structure theories and symbols to solve organisational problems.

Whenever management has a problem, it calls a team of experts from relevant disciplines which analyses business problems and frames a mathematical model by collecting the relevant data (like cost of machine, cost of raw material, selling price of the product etc.) and tries to maximise the output and minimise the cost, Computers have simplified application of these models to deal with various problem-solving situations.

By changing values of variables in the model, different equations can be solved through computers and the OR team can find the effect of each change on the dependent variable to arrive at the optimum and rational solution to managerial problems.

Management science and operations research are often considered indistinguishable. “While operations research tends to focus on formulation and manipulation of mathematical models for common operational processes, management science tends to focus on the use of models in the practice of management.”

(b) Operations Management:

“Operations management is the function, or field of expertise, that is primarily responsible for managing the production and delivery of an organisation’s products and services.” In operations management, people use quantitative techniques of forecasting, inventory analysis, statistical quality control methods, networking models etc. in areas such as inventory management, production planning, designing the production process, purchasing raw materials, storing and selling the final products and similar areas in manufacturing units.

(c) Management Information System (MIS):

“MIS is the field of management that focuses on designing and implementing computer-based information systems for use by management.” Large amount of information is quickly processed (conversion of raw data into useful information) to make useful business decisions.

Problem-solving process in the quantitative theory is depicted below:

Assumptions of Quantitative Theory:

1. Organisations are decision-making units which make efficient decisions through mathematical models.

2. Business problems can be solved through joint efforts of a team that consists of experts from the fields of mathematics, statistics, accountancy, engineering etc.

3. Business problems can be expressed in mathematical models where relevant factors can be quantified in numerical terms. Management is seen as mathematical process expressed in terms of mathematical symbols and relationships.

Evaluation of Quantitative Management:

The quantitative theory (or management science theory) considers solving complex business problems in financial management, inventory valuation, inventory control, production scheduling, human resource planning and other areas where quantifiable data can be obtained.

Some of the positive attributes of this theory are:

1. It establishes relationships amongst quantifiable variables of decision-making situations and facilitates disciplined thinking.

2. Mathematical models help to derive precise and accurate results by analysing complex statistical data.

3. This approach is useful in areas of planning and control where data is available in quantitative terms. Decisions are based on data and logic rather than intuition and judgement.

4. Computers have facilitated analysis of almost every variable that affects the workplace that might otherwise have been overlooked. Statistical packages are available which facilitate analysis of qualitative data also (dummy variables are used to analyse the non-quantifiable data).

Limitations of Quantitative Management:

Despite its widespread use in the business world, its application is restricted in certain areas. All managerial problems cannot be solved by mathematical models.

This theory, therefore, suffers from the following limitations:

1. Its application is restricted in areas that deal with human behaviour. Human behaviour cannot be predicted through mathematical equations. Use of behavioural techniques is more appropriate in such situations.

2. Amongst different functions of management, its use is limited in organising, staffing and directing. It applies more in planning and control functions.

3. Even where this theory is applicable, it does not eliminate risk but only attempts to reduce it. In fact, in many situations mathematical models may just be used as models for analysing the results rather than used as the basis for making decisions.

4. This approach assumes that all the variables affecting the problem can be quantified in numerical terms which is not always true.

5. In some cases, managers are constrained by time, cost and technological considerations in collecting data relevant for decision-making. Decisions in such cases are based on availability of limited information. Such decisions are not optimum decisions but only ‘satisfying decisions’. Though this theory has restricted use in certain areas, it is of immense use in areas where data can be obtained in quantitative terms.