Quantitative factors definition
/What are Quantitative Factors?
Quantitative factors are numerical outcomes from a decision that can be measured. These factors are commonly included in various financial analyses, which are then used to evaluate a situation. Managers are typically taught to rely on quantitative factors as a large part of their decision-making processes.
The decision to use quantitative factors is considered more important when a large amount of funding will be deployed, since there is a greater risk of losing or at least under-utilizing the money. Quantitative factors are less important when there is less money that will be impacted by the decision.
Related AccountingTools Courses
Financial Forecasting and Modeling
Examples of Quantitative Factors
Examples of quantitative factors are noted below:
Direct labor hours. A change in the number of labor hours required to complete a task if automation is used.
Direct materials cost. A change in the per-unit cost of materials if a purchase is placed in a larger order volume.
GDP growth rate. Managers may keep a close eye on the rate of growth of the gross domestic product, since a changing growth rate can inform decisions to increase or decrease the amount of funds invested in a market.
Interest cost. The amount of additional expense that will be incurred if a loan is used to buy a fixed asset, rather than selling stock.
Inventory turnover. The speed at which inventory is turning over is a key determinant of how much a business must invest in working capital; managers are likely to prune away inventory that is sitting unused for long periods of time.
Product returns. The cost of the product returns that will occur if the decision is made to use lower-quality materials in the construction of a product.
Sales by product line. The revenues generated by a product line inform management about where additional investments should (or should not) be made to support further sales.
Advantages of Using Quantitative Factors
There are multiple advantages associated with the use of quantitative factors, which are as follows:
Eliminates biases. The use of quantitative factors eliminates any personal biases and subjective interpretations that might otherwise result in skewed outcomes.
Enhanced analysis precision. The use of quantitative factors allows for more precise measurements, which in turn leads to more accurate analyses and evaluations.
Use of trend analysis. It is quite easy to compare quantitative factors over time in trend analyses. This makes it easier to identify patterns and trends in the underlying data. These outcomes can then be used to predict future outcomes, such as changes in unit sales within individual sales regions.
Alternatives to Quantitative Factors
While quantitative factors should certainly form a large part of any decision, there are other issues to consider. For example, the outcome of a decision to shut down a factory will impact the local community, which has supported the business for many years. Or, the numbers may state that a single product within a product line should be cancelled, but the company needs to present a complete product line to its customers, and so elects to retain the product.