Practical Application: Using Quantitative Decision Making Tools

Instructor: Amanda Robb
This activity will help you practice identifying which quantitative decision-making tools are best for a given scenario. After analyzing each scenario and deciding on the correct tool, we'll talk about how to apply these strategies to your own practice.

Quantitative Decision Making Tools

Have you ever wondered how executives make so many decisions? How does the boss always seem to know what to do? It's not magic, but rather that the people in charge have been trained in quantitative decision making tools.

As you read in the lesson Quantitative Decision Making Tools: Decision Trees, Payback Analysis & Simulations, these tools won't make you always make the right decision, but they will help you work through your choices to make the most informed decision.

There are three main tools used to make quantitative decisions:

  1. Decision trees
  2. Payback analysis
  3. Simulations

But, how do the people in charge know which tool to use? Here, we're going to look at three scenarios that each require a different tool. By analyzing these examples, you'll get a better handle on using these tools to make informed decisions for yourself.

Scenario 1: Taco Truck Profits

Marco is running a food truck in the financial district in town that focuses on tacos and quesadillas. His truck has been so busy, they often have to turn people away because the line is so long!

With such great success, Marco wants to open another food truck in a different neighborhood. However, he needs to consider how much it will cost to open another truck, versus the profits he's currently making and could possibly make with the new truck.

  • What type of quantitative decision-making tool do you think Marco should use?
  • What is he trying to figure out?

Marco's decision depends mostly on the financial gains or loses of opening a new truck. So, the payback analysis would be the best option for him. This method weighs the financial benefits of making a decision to the potential costs.

Marco could want to estimate how much more money he could make opening a second truck. He might look at early sales records for his first truck to get an estimate. But, he should also consider what neighborhood he would open in and how the sale might be different there. He can then compare those potential profits to the costs associated with opening a new truck. If it looks like he could make a good profit, Marco should go for it and open the new branch.

Scenario 2: Earthquake Precautions

Joshua is the senior architect in a firm in California. They are constructing a new office building and need to know what materials they should use for the building. Joshua knows that earthquakes are a common problem in California and wants his building to be prepared. He has the choice of using steel beams or a new polymer material that has been shown to hold up better in earthquakes. However, the new material is three times as expensive as the traditional steel beams.

  • How will Joshua decide what to do?

Luckily, earthquakes are such a serious problem for the area, that the government has simulation software available. The software can take into account different building materials.

  • Based on this information, what tool do you think would be best for Joshua?

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