Quantitative Tools for Planning - Principle of Management

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Quantitative Tools for Planning

Quantitative tools for planning:

There are some quantitative tools which aid managers in performing their planning functions. They are as follows:

1. PERT (Program Evaluation and Review Technique) or Network Technique: The PERT is used as a tool of project planning. It is a flow chart diagram that shows the sequence of activities need to complete a project and the time or cost associated with each activity. To apply the PERT it is essential to know about events, activities, slack time and critical path.

  1. Events: They are the end points of activities.
  2. Activities: They represent the time or resources to complete on event to another.
  3. Slack Time: It represents the amount of time that can be delayed in some activity without delaying the project.
  4. Critical Path: It is a longest and time consuming sequence of events and sequence of events and activities.

PERT Network:

PERT Network

In the network above there are 8 events and activities. The critical path represents the longest weeks 14 (2, 3, 6, 1, 2) required to complete the total 8 activities.

2. Break Even Analysis: Break Even (BE) Analysis is also called Cost-Volume Profit Analysis. It gives information about price and profit decision .The objective of BE analysis is to determine the quantity at which the product or services will generate enough revenue to start earning a profit.

The equation used to calculate the BE analysis is:

BE analysis

In the above figure, the area between AO is loss area because cost of output is higher than revenue. The point C is known as Break Even Point (BEP).The DE area is profit area resulting from the earning of higher revenues compare to the costs.

3. Linear Programming: Linear Programming Technique is mostly useful for maximizing an objective such as profit or minimizing an objective such as cost. Under limited resources, what combination of variables gives the optimal solution (i.e., in maximizing profit or minimizing costs) is identified through this technique. It includes maximizing production, minimizing distribution cost and determining optimal inventory level.

4. Gant Chart: Gant Chart is another very useful tool for planning and monitoring project activities. It has a X-axis and Y-axis. On the horizontal axis, the duration of project in days or weeks is shown. On the vertical axis each individual activity is shown. A bar is then drawn for each activity that shows the beginning and ending times of different stages in the process. This enables the manager to monitor progress and deviation from the plan at a glance.

The Gantt chart:

The Gantt chart

3. Forecasting: Forecasts are prediction, projections or estimates of future situation. It is primarily concerned with trying to reduce the uncertainty that exists about some part of the future. In the forecasting techniques, the role of information collected from different sources is very significant. Wrong information may lead to wrong forecast. The number of tools is available for quantitative forecasting. They are;

  1. Moving Average method: This method gives a time series of moving averages. It helps to eliminate the effects of seasonality and other irregular trends while forecasting the future figures.
  2. Time Series Analysis: Under this technique past information related to sales volume are used to predict the future demand of the product. The assumption of time series analysis is that the future will reflect the past. This method is especially suited for long range forecasting.
  3. Extrapolation method: It is a projection or trend method. It involves the plotting of the figures for the past several years and stretching of the line. This extrapolation gives the figure for the coming years.
  4. Regression analysis: Under this technique linear equation is used to interpret the relation between variables and forecasting the relation between independent and dependent variables.

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