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MODELS 13

MANAGEMENT SCIENCE IN ACTION

Quantitative Analysis At Merrill Lynch*
errill Lynch, a brokerage and financial services on developing solutions that provide significant
M firm with more than 56 000 employees in 45 value and are easily implemented. As the work
countries, serves its client base through two busi- progresses, frequent meetings keep the clients
ness units. The Merrill Lynch Corporate and Institu- up-to-date. Because people with different skills,
tional Client Group serves more than 7 000 corpora- perspectives and motivations must work together
tions, institutions and governments. The Merrill for a common goal, teamwork is essential. The
Lynch Private Client Group (MLPC) serves approxi- group’s members take classes in team
mately four million households, as well as 225 000 approaches, facilitation and conflict resolution.
small to mid-sized businesses and regional financial They possess a broad range of multifunctional
institutions, through more than 14 000 financial con- and multidisciplinary capabilities and are motivated
sultants in 600-plus branch offices. The manage- to provide solutions that focus on the goals of the
ment science group, established in 1986, has been firm. This approach to problem solving and the
part of MLPC since 1991. The mission of this group implementation of quantitative analysis has been a
is to provide high-end quantitative analysis to hallmark of the group. The impact and success of
support strategic management decisions and to the group translates into hard dollars and repeat
enhance the financial consultant–client relationship. business. The group recently received the annual
The group has successfully implemented models Edelman award given by the Institute for Operations
and developed systems for asset allocation, finan- Research and the Management Sciences for effec-
cial planning, marketing information technology, tive use of management science for organizational
database marketing and portfolio performance success. As Launny Stevens, Merrill Lynch Vice
measurement. Although technical expertise and Chairman commented, ‘Operational Research
objectivity are clearly important factors in any ana- allowed us to seize the initiative in the marketplace.
lytical group, the group attributes much of its suc- We have moved forward like a bullet train and it is
cess to communications skills, teamwork and con- our competitors that are scrambling not to get
sulting skills. Each project begins with face-to-face run over’.
meetings with the client. A proposal is then pre-
*Based on Russ Labe, Raj Nigam, and Steve Spence, ‘Manage-
pared to outline the background of the problem,
ment Science at Merrill Lynch Private Client Group’, Interfaces 29,
the objectives of the project, the approach, the no. 2 (March/April 1999): 1–14. and The Guide to Operational
required resources, the time schedule and the Research, http://www.theorsociety.com/Science_of_Better/htdocs/
implementation issues. At this stage, analysts focus prospect/or_executive_guide.pdf

items sold to the price charged. In this case we know that if we increase the price of
the product it will affect sales but we may not know for certain the exact numerical
effect – the exact value of the parameter. Here, we would have to estimate the parameter
value and recognize that this may affect the reliability of the model results – the model
can only be as accurate as the data used in its construction. Understandably this is why so
much effort goes into data collection in management science.
The purpose, or value, of any model is that it enables us to make inferences about
the real situation by studying and analyzing the model which in turn can help us make
decisions. For example, an aeroplane designer might test an iconic model of a new
aeroplane in a wind tunnel to learn about the potential flying characteristics of the full-
size aeroplane. Similarly, a mathematical model may be used to make inferences about
how much profit will be earned if a specified quantity of a particular product is sold.
According to the mathematical model of Equation (1.1), we would expect selling three
hundred units of the product (x ¼ 300) would provide a profit of P ¼ 10(300) ¼ E3000.

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