Mathematics: the foundation of modern decision-making
Mathematics is at the heart of a multitude of decisions: whether it’s the design and operation of a highly reliable electricity supply network, the creation of a public transport schedule, in satellite navigation, in pension fund risk management, or even in the development of effective cancer treatments. This centrality has proven that even in business, mathematics can create paradigm shifts: as was the case in 1978 when American Airlines used mathematics to turn the effects of the Airline Deregulation act into an opportunity. By developing a pricing strategy, which is now referred to as Revenue or Yield Management, American Airlines completely changed the way in which the airline industry operates. And according to the airline company, this was the single most important technological development in transportation management and one that used mathematics as the enabling force.
Over the past few decades, economic, political, regulatory and social changes have led to an increase in business complexity. New technology, although offering opportunities, has actually increased this complexity even further. It is new technology, coupled with the never-ending search to reduce costs that are the driving forces in the evolution of the supply chain. As a result, supply chains now span the globe, are much longer and also far more complex. However, increasing complexity lowers the speed and quality of decision-making and eventually leads to rising costs.
This is why today’s companies are in need of ways in which to improve their organizational performance and unravel their business complexity, while sifting through mountains of information to identify the best possible alternatives in the decision-making process.
Exposing blind spots
Mathematical models enable companies to improve their decision-making capabilities. Mathematics provides a standardized format for analyzing business challenges and because it requires the organization and quantification of facts and figures, it exposes blind spots and reduces complexity. With mathematics, a business problem can be analyzed and solved in a systematic and consistent way, which results in improved decision-making quality. If you think about developing a plan to build a complex system for an aircraft or oil rig, which sequence of tasks will best advance the completion of the project and at what cost? Which tasks are potential bottlenecks? In this example, mathematics can help identify the tasks so that each part is in place at the right time for the minimum cost.
Mathematics is multifaceted because it is applied in a multitude of diverse settings. Marketing managers utilize it to increase their understanding of the phases of product life. Financial managers use it to analyze investment alternatives. Operations managers use it to determine lot sizes, material requirements, and assembly-line schedules. With the decision-making power afforded by mathematics, senior management is able to unravel business complexity, improve or even change business models, open up new markets and improve business performance. That is why mathematics really is the foundation of modern decision-making.
Written by John Poppelaars, Director of Business Analytics at ORTEC Consulting Group