Operational Re

ADDIS ABABA UNIVERSITY SCHOOL OF COMMERCE
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OPERATIONS RESEARCH TEACHING MATERIAL
Table of Contents
GENERAL INTRODUCTION
COURSE/MODULE OBJECTIVES
CHAPTER ONE........................................................................................................................................2
INTRODUCTION TO OPERATIONS RESEARCH.............................................................................5
1.1. CHAPTER OBJECTIVES:..............................................................................................................5
1.2. CHAPTER INTRODUCTION.........................................................................................................5
1.3. HISTORY OF OPERATIONS RESEARCH...................................................................................6
1.4. MODEL.........................................................................................................................................11
1.5. OPERATIONS RESEARCH APPROACH....................................................................................13
CHAPTER SUMMARY...................................................................................................................14
SELF ASSESSMENT QUESTIONS AND EXERCISES................................................................15
CHAPTER TWO.....................................................................................................................................16
LINEAR PROGRAMMING PROBLEM AND MODELS (LPPM)...................................................16
2.1. CHAPTER OBJECTIVES:............................................................................................................16
2.2. CHAPTER INTRODUCTION.......................................................................................................16
2.3. LINEAR PROGRAMMING PROBLEM MODELS.....................................................................17
2.4. FORMULATION OF LPP.............................................................................................................19
2.5. SOLVING FOR LPPs: APPROACHES TO SOLVE FOR LPPs...................................................23
2.6. SPECIAL CASES IN SIMPLEX METHOD..................................................................................53
2.7. SENSITIVITY ANALYSIS (POST OPTIMALITY ANALYSIS)................................................59
CHAPTER SUMMARY...................................................................................................................74
SELF ASSESSMENT QUESTIONS AND EXERCISES................................................................76
CHAPTER THREE.........................................................................Error! Bookmark not defined.
TRANSPORTATION AND ASSIGNMENT MODELS..............Error! Bookmark not defined.
3.1. CHAPTER OBJECTIVES.............................................................................................................81
3.2. CHAPTER INTRODUCTION........................................................Error! Bookmark not defined.
3.3. TRANSPORTATION PROBLEMS...............................................................................................81
3.3. SPECIAL CASES IN TRANSPORTATION PROBLEMS.........................................................106
3.4. ASSIGNMENT PROBLEMS......................................................................................................115
CHAPTER SUMMARY.................................................................................................................134
SELF ASSESMENT QUESTIONS AND EXERCISES.................................................................135
CHAPTER FOUR.....................................................................................................................137
DECISION THEORY...............................................................................................................137
4.1. CHAPTER OBJECTIVES...........................................................................................................137
4.2. CHAPTER INTRODUCTION.....................................................................................................137
4.3. DECISION THEORY: OVERVIEW...........................................................................................137
4.4. DECISION THEORY: PROCESS AND COMPONENTS..........................................................137
CHAPTER SUMMARY.................................................................................................................148
SELF ASSESMENT QUESTIONS AND EXERCISES................................................................149
CHAPTER FIVE.......................................................................................................................152
PROJECT MANAGEMENT...................................................................................................152
5.1. CHAPTER OBJECTIVES...........................................................................................................151
5.2. CHAPTER INTRODUCTION.....................................................................................................151
5.3. PLANNING AND SCHEDULING OF PROJECTS....................................................................152
5.4. PROJECT DIAGRAMS (NET- WORK DIAGRAMS)...............................................................154
5.5. COMPUTING TIME ALGORITHMS.........................................................................................161
CHAPTER SUMMARY.................................................................................................................169
SELF ASSESMENT QUESTIONS AND EXERCISES.................................................................169
ANSWER KEY FOR SELF ASSESSMENT QUESTIONS..............Error! Bookmark not defined.
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COURSE INTRODUCTION
Management is multidimensional and dynamic concept. It is multidimensional, because management
problems and their solutions have impacts on several factors, such as human, economic, social and political
fields. Hence any manager, while making decisions, considers all aspects in addition to economic aspect,
so that his/her solution should be useful in all directions. Having such significance, management can be
considered as the process of integrating the efforts of a purposeful group, or organization, whose members
have at least one common goal.
Today’s manager is working in a highly competitive and dynamic environment. In this environment, the
manager has to deal with systems of complex interrelationship among various factors. Since the
performance of the system is defined by how well it deals with these factors, traditional methods of
decision-making are found very much inadequate. In view of this reality, Operations Research is
concerned with helping managers and executives to make better decisions.
OPERATIONS RESEARCH/ MANAGEMENT SCIENCE, in essence is a special branch of applied

mathematics, used to provide a scientific base for management to take timely and effective decisions to
address organizational problems. It helps management avoid/minimize the risks related to decision making
through the provision of analyzed and reliable information. It also motivates management to practice
rational models/approaches to decision making rather than merely intuitive and subjective approaches.
This is an integrated module on Operations Research, which is an introductory course on the use of
quantitative models that can be used to describe and solve certain kinds of problems that confront
management.
The main purposes of this module are to introduce you to the models that comprise the field of
management science (operations research) and to help you develop and improve your problem solving
skills. The presentation of the material is more student - oriented. An in depth math background is not
needed; rather, an understanding of basic algebra is sufficient
This material, therefore, is prepared in a way that you shall be able to understand the concepts of
Operations Research through its fundamentals: meaning, characteristics, and importance and most
importantly the models in the management science; i.e., linear programming, transportation and
assignment models, decision theory and project management.
The module shall help you deal with empirical management problems through the formulation of the
problems, development of initial solutions, and optimization of the alternative solutions. However any
analysis on the solution models begins with you understanding & internalizing the conceptual and
empirical elements of Operations Research. All the chapters and their sub topics , illustrations, self-
assessment questions, activities, tips, and exercises are designed in association to the contents of the
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subject matter but with an objective that you will be able to associate the concepts of the course to the
realities in your environment.
COURSE OBJECTIVES
The fundamental objective of the course/this material is for you to look in to the concepts and practice the
tools/techniques of Operations Research.
When and after covering the contents of this material, you are expected to:
 Be clear with the meaning, characteristics & importance Operations Research.
 Have the basic knowledge and experience on how to formulate, analyze, solve, and interpret
problems using Linear Programming Models.
 Have the basic knowledge and experience on how to formulate, analyze and interpret problems
using Transportation Models.
 Have the basic knowledge and experience on how to formulate, analyze and interpret problems
using Assignment Models.
 Understand and practice on the approaches of decision making techniques according to the
principles and rules of the decision theory under different decision making situations.
 Be familiar with the basics of Project Management and appreciate the techniques of project
planning and scheduling, namely the Gantt Chart and Critical Path Analysis Methods.
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CHAPTER ONE
OPERATIONS RESEARCH: AN OVER VIEW

1.1. CHAPTER OBJECTIVES
After completing this chapter, you should be able to:
 Explain the origin and historical development of Operations Research
 Define operations research
 Distinguish between the quantitative and qualitative decision making tools as well as their
merits
 Explain the meaning, rationales, and types of model and how models are used in
Operations Research
 Construct the management science/operations research approaches to problem solving.
1.2. INTRODUCTION
Operations Research is discipline devoted to solving certain managerial types of problems using
quantitative models. Being initiated mainly during the Second World War, these quantitative approaches
are widely employed in various organizations across the world.
It is assumed that you have studied various schools/views of management so far. Operations research
finds its roots from two of these schools:
(i) The Decision Theory/Decisional Management School and
(ii) The Mathematical or Quantitative Measurement School.
These schools of management strongly advocate the use of mathematical methods or quantitative tools
for making management decisions. Quantitative approach to management requires that decision
problems be defined, analyzed, and solved in a conscious, rational, logical and systematic and scientific
manner - based on data, facts, information and logic, and not on mere guess work or thumb rules.
Management is expected to associate alternatives courses of action to objectively measured decision
criteria before selection, hence, implementation. Operations Research is the body of knowledge, which
uses mathematical techniques to solve management problems and make timely optimal decisions.
Though common sense, experience, and commitment of the manager is essential in making decisions, we
cannot deny the role-played by scientific methods in making optimal decisions. Operations Research
uses logical analysis and analytical techniques to study the behaviors of a system in relation to its overall
working as resulting from its functionally interconnected constraints, whose parameters are recognized,
quantified wherever possible relationships identified to the extent possible and alterative decisions are
derived.
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Areas of application of Operations Research include forecasting, capital budgeting, capacity planning,
scheduling, inventory management, project management and production planning.
In this chapter, the basics of Operations Research are covered including the answers to such questions as:
what is Operations Research? Who, why, and where to use it? What are the common approaches to
address management problems? How did Operations Research emerge as an organized set of tools to
decision making? What is a model? What is the role of model in solving for management problems? Our
discussion in this chapter concludes with developing the process structure of management
science/Operations Research as a an approach to management decision making.
1.3. HISTORY OF OPERATIONS RESEARCH

Operations Research is usually referred as a ‘war baby’. It is because, the first problem attempted to solve
using this approach was concerned with how to set the time fuse bomb to be dropped from an aircraft onto
a submarine. In fact, the main origin of Operations Research was the Second World War. At the time of
outbreak of the Second World War, the military management in England invited a team of scientists to
study the strategic and tactical problems related to air and land defense of the country. At that time the
resources available with England were very limited and the objective was to win the war with the available
meager resources. The country had to find ways to allocate such resources as food, medicine, ammunition,
manpower etc., to manage the war without resulting in a supply crisis in the civil communities. It was
necessary to decide upon the most effective utilization of the available resources to achieve the objective.
It was also necessary to utilize the military resources cautiously. Hence, the generals of military invited a
team of experts in various walks of life such as scientists, doctors, mathematicians, business people, and
professors, engineers etc., to address the problem of resource utilization. These specialists handled
successive and intensive brain storming sessions and came out with a method of solving the problem.
They coined it with the name “Operations Research”.
As the name indicates, the word ‘Operations’ was used to refer to the problems of military and the word
‘Research’ was used for inventing new method. After the World War, scarcity of industrial materials
emerged as the most serious economic problem and industrial productivity reached the lowest level
leading to Industrial recession. To solve the industrial problem, the method called linear programming
was used.
After seeing the success of British, the United States military started applying the OR techniques to solve
military, civil and industrial problems. The Americans have added various names to this discipline. Some
of which are Operational Analysis, Operations Evaluation, Operations Research, System Analysis,
System Evaluation, Systems Research, Quantitative methods, Optimizations Techniques and
Management Science etc. ultimately, however, the name OPERATIONS RESEARCH prevailed and still
serves as most common reference of the discipline.
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Before being introduced to the industry OR attracted little interest from the academic and research world.
But, the introduction of Linear Programming and Simplex method of solution by an American
Mathematician called George B. Dontzig in 1947 motivated others in the academic fields and various
industrial sectors. Their works resulted in many more techniques and models.
When initially introduced to the industrial world, the most critical problems addressed through these
techniques were related to how to optimize: profit maximization or minimization of costs. Today,
however, OR enjoys a considerable number of techniques applied across an extensive set of
organizational problems. In one word, we can say that Operations Research play a vital role in every
organization, especially in decision-making process.
1.3.1. The Nature and Meaning of Operations Research (OR)
Throughout its evolutionary development, OR has been offered with various definitions by different
scholars. This module emphasizes definitions that provide a useful basis for an initial understanding of the
nature of OR.
According to Mores and Kimball (1943) OR should viewed as scientific method of providing executive
management with a quantitative base for decisions regarding operations under their control. This view is
shared by Wagner (1969) who described OR as the scientific approach to problem solving for executive
management. The most extensive description, however, came from Hiller and Lieberman, where OR is
addressed as Optimal decision-making in, and modeling of, deterministic and probabilistic systems that
originate from real life. These applications, which occur in government, business, engineering, economics,
and the natural and social sciences, are largely characterized by the need to allocate limited resources. In
these situations, considerable insight can be obtained from scientific analysis, such as that provided by OR
(Hiller-Lieberman 1974). Others (Gross, 1979) tried to associate OR to its set of quantitative tools describing
it as a branch of applied mathematics where in the application is to the decision-making process. Those, who
studied OR at its contemporary development (Stevenson, 1989), tried to present it as a discipline devoted to
solving certain managerial type problems using quantitative models.
Working definition
For the purpose of this course; we can define Operations Research as a systematic analysis of a
problem through scientific methods, carried out by appropriate specialists, working together as
a team, constituted at the instance of management for the purpose of finding an optimum and
the most appropriate solution, to meet the given objective under a given set of constraints.
Key points
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From the back ground and definitions given above, Operations Research can be understood as:
1. The application of scientific methods, techniques and tools to a problem to find an optimal
solution.
2. A management tool in the hands of a manager to make a decision
3. A scientific approach to decision making process
4. An “applied research” aims at finding a solution for an immediate problem facing a society,
industry or a business enterprise .This is not “fundamental research”
5. A decision-oriented research, using scientific methods, for providing management a
quantitative basis for taking decision regarding operations under its control
6. Applied decision theory-It uses scientific, mathematical and logical means to take decisions.
The Five functions of Operations Research
A. objective: helps managers to make objective decision
B. scientific approach: helps decision makers to follow scientific approach to solve managerial
problems
C. inter disciplinary team work: it allows for and encourages team work
D. digital computers: over reliance on scientific calculators and other computing machines
E. decision making : helps decision makers to solve managerial problems
1.3.2. Decision Making

Decision making is the most vital aspect in management. Every one of us takes a number of decisions
every day. Some are important; some may not be necessarily so. Some decisions initiate a set of activities;
some put an end to them. In the business environment decisions made at the right time and place with
adequate analysis and deliberations ensure success. This shows the importance of decision making.
Though it is one of the most dynamic and situational management practices, decision making is most
commonly defined as:
Note
Decision making: The process of identifying, developing, and evaluating alternative courses of
action to select the most feasible and optimal one, in order to solve identified problems or achieve
predetermined objectives.
The following key issues can be generated from this definition.

Problem
 any variation between what was planned and what is actually achieved.
Problem solving
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 the process of identifying a difference between some actual and some desired states of
affairs and then taking action to resolve the difference.
decision making
 rational and universal of analysis of and selection among alternatives.
The Decision Making Process

As stated above, decision making is a rational process. It is composed of interdependent steps. Each step
presented below serves as an input to the next until the process is completed.
1. Identifying and defining the problem
 Problem is a necessary condition for a decision. i.e.: There would be no need for
decisions if problems did not exist.
2. Determining the set of alternative solutions
3. Determining the criteria to evaluate alternatives
 Involves identifying those characteristics that are important for making the decision
4. Analyzing the alternatives
 Focuses on the advantages and disadvantages or costs versus benefits of each alternative.
5. Selecting the best alternative
 Is responsible to select the most feasible alternative to solve our decision problem. In
selecting the best alternative, factors such as risk, timing and limiting factors should be
considered objectively.
6. Implementing the solution
 Guides the task of putting the decision into action.
7. Establishing a control and evaluation system
 Ongoing actions need to be monitored following the decision to evaluate the results and
determine if a satisfactory solution has been obtained.
1.3.3. The Decision-Making Environment

The environmental circumstances under which decisions are made dictate the degrees of certainty felt by
the decision maker. Relative to the quality and volume of information available, ability to determine the
possibility and nature of decision forces, and ability to determine the values and consequences of each
alternative, management decisions are assumed to be made under the following three basic conditions:
 certainty
 risk
 uncertainty
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These situations represent various the levels of certainty of a particular decision making environment and
are discussed with some details here under.
i. Decision making under conditions of certainty
In this situation, the decision maker has perfect knowledge about the outcome. We are
reasonably sure what will happen when we make a decision. Adequate and reliable information
is available. We know the cause & effect relationships.
Example
If you decide to invest your money in saving account in the commercial Bank of Ethiopia,
you are certain that you will earn five percent (5%) interest. If the bank changes the rate, you
will definitely know about it.
ii. Decision making under condition of risk

Usually, decision makers cannot have a precise knowledge about the outcome of a decision. In
such cases, decision makers may only be able to attach a probability to the expected outcomes of
each alternative. Under this situation, one may have factual information, but it may be
incomplete.
Example
If we gamble by tossing a fair coin, the probability that a tail will turn up is 50%.
iii.Decision making under conditions of uncertainty

It is a case where neither there is complete data nor probabilities can be assigned to the
surrounding condition. It is the most difficult condition for a manager. Some conditions that are
uncontrollable by management include competition, government regulations, technological advances, the
overall economy, as well as changes in the social and cultural tendencies of an environment.
Example
A corporation that decides to expand its operation, launching a new product, or
developing of a new technology in a foreign country may know little about its culture,
laws, economic environment, or politics. The political situation may be so volatile that
even experts cannot predict a possible change in government .
1.3.4. Decision Making Approaches
Decision making can be handled using either quantitative or qualitative tools. The choice and use of these
approaches usually is made with consideration of such issues as the nature, complexity, and significance
of the decision problems on the one hand and availability of information and time on the other.
Qualitative approach
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In qualitative decision making, intuitions and subjective judgments are used. Past experience with similar
problems is often an important factor in choosing a qualitative approach, as in the complexity and
importance of a problem. Managers tend to use a qualitative approach to problem solving when:
 The problem is fairly simple
 The problem is familiar
 The cost involved are not great
 Immediate decisions are not needed
Quantitative approach
In quantitative decision making, managers use mathematical methods to solve the problem. Conversely
managers generally prefer to use a quantitative approach when one or more of the following conditions
exist:
 The problem is complex
 The problem is not familiar
 The costs involved are substantial
 Enough time is available to analyze the problem
1.4. MODEL
Model is an abstraction of a reality. It is a simplified and often idealized representation of real
objects/situations. By its very nature a model is incomplete. Still, a good model will capture the important
details of reality with out including innumerable minor details that would obscure rather than illuminate.
Given their level of abstraction, structure and allowance for analysis, models can be classified in the
following way:
a. Physical (iconic) Model
Iconic models are the least abstract. They are physical models that look like the reality. They are
also called Static Models.
They may be developed with two or three dimensions. They are supposed to be the closest
representation of the real object as it is.
Example
 Model of an airplane
 Photograph of a machine
 Layout drawing of a factory
 Globe
b. Analogue Models
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They are also physical models but more abstract than iconic models. Instead of replicating
physical appearance as iconic models do, these models substitute some physical analogy for
important aspects of the reality. They are two dimensional.
These models mostly show inter and intra relationships between two or more parameters. They
may show the relationship between an independent variable (input) with that of a dependent
variable (output).
Example
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 histogram  Gantt charts

 frequency table  price-demand graph
 cause-effect  world map with different colors
diagram  Organizational chart
 flow charts
c. Mathematical Models (Symbolic Models)
These are the most abstract reflections of the reality. They incorporate numbers and algebraic
symbols to represent important aspects of a problem often in equation form.
Here, a set of relations is represented in the form of mathematical equations, using symbols to
represent various parameters.
Example
Max Z=3000x1 +2500x2
Subject to:
2x1+x2 < 40
x1+3x2 < 45
x1 , x2 > 0
Where
 The first line represents the objective function - A mathematical statement of the goal of an
organization, stated as intent to maximize or to minimize some important quantity such as profits
or costs.
Max Z=3000x1 +2500x2 is the objective function
 Line three to five represent constraints - A restriction on the resources available to a firm (stated
in the form of an inequality or an equation.)
2x1+x2 < 40
x1+3x2 < 45 Are constraints
x1 < 12
x1, x2 > 0 x1, x2 > 0 is non-negativity constraint
 x1 and x2 are decision variables-the unknown values that the problem is solved for.
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1.5. THE FRAMEWORK OF OPERATIONS RESEARCH APPROACH
At its current state of application, OR mobilizes a large number of tools and techniques to help
management address its decision making commitments. Some of these tools are Probability
theory, Linear Programming, Transportation algorithm, Assignment problems, Queuing
Theory, PERT/CPM Method , etc.
All OR techniques are ’application specific’. Maximum benefit can be derived from selecting most
appropriate techniques for each specific area or problem. Appropriate selection of OR technique is
an equally important task. Each technique has its own advantages and limitations. In all such cases,
the ability of the manager is tested in the appropriate selection of OR technique
However different the OR techniques could be, they adopt similar procedural structures. This
procedural approach in OR is quite similar to the scientific approach commonly used in the physical
sciences. As presented here under, the OR approach involves a logical sequence that includes careful
definition of the problem, use of models to formulate the problem, and adequate analysis leading to
solution of the problem.
Problem Definition
Model
Construction
Analysis
Implementation and
follow up
Fig.1.1. the framework of OR approach
CHAPTER SUMMARY
Operations Research is a discipline devoted to the solution of management problems using a
scientific approach. Its focus is on problem solving using quantitative models. The OR approach is
designed to define the problem, construct a model that reflects the important aspects of the problem,
analyze the model to identify an appropriate solution to the problem, implement the solution and
check to see that the problem has been solved.
The core of Operations Research is the scientific approach to problem solving. An important part of
this is the use of quantitative models. Models are abstractions of reality: ideally a model will capture
the important aspects of a situation excluding the minor details that would increase complexity and
there by reduce the chance of finding a solution to the problem.
Various types of model are employed in decision making environment. Operations Research utilizes
the symbolic models that use numbers and symbols to form mathematical compositions to represent
an aspect of a real life problem. Using these models tends to be a more objective approach than
using qualitative models, although in symbolic models the more important qualitative aspects of a
problem may be ignored. Furthermore quantitative models enable users to take advantage of the
tremendous computational abilities and calculators.
Operations Research has applications in forecasting, inventory management, production

planning, capital budgeting, capacity planning and other important areas of management
decision making.
SELF ASSESSMENT QUESTIONS AND EXERCISES

Give short answers for the following questions based on the discussions we have handled in
this chapter.
1. Briefly describe the three common model types and give an example of each:
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2. Discuss the various steps used in solving Operations Research problems.
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3. Your manager has faced a difficulty with making a choice between quantitative and
qualitative decision making approaches. As a student of operations research please
help him under what circumstances would he chose the quantitative methods and
under what circumstances qualitative approach.
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CHAPTER TWO
LINEAR PROGRAMMING PROBLEM AND MODELS (LPPM)

After completing this chapter, you should be able to:
 Explain what Linear Programming is;

 Explain what is meant by the term constrained optimization;
 List and briefly explain the components and assumptions of Linear Programming
models;
 Recognize problems that can be solved using Linear Programming Models and
formulate linear programming models;
 Explain the approaches to solving Linear Programming Models;
 Solve problems using Graphical Method for solving Linear Programming problems;
 Solve problems using Simplex Method for solving Linear Programming Problems;
 Use sensitivity analysis to evaluate a change in the RHS of a constraint and changes in
the value of an objective function coefficient.
2.2. CHAPTER INTRODUCTION

Linear Programming is one of the most versatile, powerful and useful techniques for making
managerial decisions. Linear programming technique may be used for solving broad range of
problems arising in business, government, industry, hospitals, libraries, etc.
Linear programming (LP) model enables users to find optimal solutions to certain problems in
which the solution must satisfy a given set of requirements or constraints. It is a model used for
optimum allocation of scarce or limited resources to competing products or activities under such
assumptions as certainty, linearity, fixed technology, and constant profit per unit.
As a decision making tool, it has demonstrated its value in various fields such as production,
finance, marketing, research and development and personnel management.
Determination of optimal product mix (a combination of products, which gives maximum profit),
transportation schedules, Assignment problem and many more are the techniques managers use to
make optimal decisions.
In this chapter, you will learn about linear programming models where emphasis will be given to
such issues as familiarization of the model, problem recognition and formulation using the model,
solving linear programming problem for feasibility and optimality, and post optimality analysis.
2.3. LINEAR PROGRAMMING PROBLEM AND MODELS

2.3.1. Meaning and Definition
Managers encounter decision making situations in which the set of acceptable solutions is some how
restricted. The restrictions may be imposed internally or externally. An internal restriction might be
the amount of raw materials, availability of labour time, machine time, technical requirements and
budgets that a department has to produce its products. An external restriction might be labour
regulations (e.g. safety equipment, training requirements overtime) that limit the options open to
decision maker. The restrictions are referred to as constraints.
The goal in linear programming is to find the best solution given the constraints imposed by the
problem; hence it is constrained optimization.
Linear Programming is one of the most versatile, powerful and useful techniques for making
managerial decisions. Linear programming technique may be used for solving broad range of
problems arising in business, government, industry, hospitals, libraries, etc whenever we want to
allocate the available limited resources for various competing activities for achieving our desired
objective. As a decision making tool, it has demonstrated its value in various fields such as
production, finance, marketing, research and development and personnel management.
A model, which is used for optimum allocation of scarce or limited resources to competing products
or activities under such assumptions as certainty, linearity, fixed technology, and constant profit per
unit, is linear programming.
It is the mathematical representation of LP problems that has been developed to help management in
decision making, involving the efficient allocation of scarce resources to achieve an optimization
objective.
Scares Resource
To be allocated to: Objectives Optimization
Subject to Maximization Minimization

Constraints
Non-negativity Resource
Constraints constraints
Figure 2.1. The linear programming problem/model
2.3.2. Components of LP models

A. Objective Function
 is the goal or objective of a management, stated as intent to maximize or to minimize some
important quantity such as profits or costs.
B. Decision Variables
 represent the unknown values to be solved by the decision makers.
 are the variables whose values are unknown and are searched.
C. Parameters:
 are fixed values that specify the impact of one unit on the objective function and the
constraint.
D. Constraints
 are limitations or restrictions imposed by the problems. It includes:
 Resource constraints: are restrictions that should be clearly identifiable and measurable
in quantitative terms, which arise from limitation of available resources.
Examples of limited resources are:
 Plant capacity
 Raw materials availability
 Labor power
 Market demand, etc
 Individual constraints: are constraints which are subject to individual decision
variables.
 Non-negativity constraints: are constraints that require the decision variables not to take
on negative values.
Generally speaking, a constraint consists of four elements . These are:
I. A right hand side value (RHS): represents quantity that specifies the limit for that
constraint. It must be a constant, not a variable.
II. An algebraic sign: represents whether the limit is:
 An upper bound (< )that cannot be exceeded
 A lower bound (> )that is the lowest acceptable limit
 An equality (=) that must be met exactly.
III. The decision variable: to which the constraint applies.
IV. Parameters: The impact that one unit of each decision variable will have on the right
hand side quantity of the constraint.
2.3.3. Assumptions of LPP models
The following are some important assumptions made in formulating a linear programming model:
A. Linearity
 The Objective Function and the constraints must be linear in nature in order to deal with a
Linear Programming Problems (LPP). Here the term linearity implies proportionality and
additively.
B. Certainty
 It is assumed that the decision maker here is completely certain (i.e., deterministic
conditions) regarding all aspects of the situation, i.e., availability of resources, profit
contribution of the Products, technology, courses of action and their consequences etc.
C. Divisibility
 It is assumed that the decision variables are continuous. It means that companies
manufacture products in fractional units. For example, a company manufactures 2.5
vehicles, 3.2 barrels of oil etc.
D. Non- Negativity
 indicate all variables are restricted to non-negative values (i.e., their numerical value will be
≥ 0).i.e. negative values of variables are unrealistic or meaningless.
2.4. FORMULATION OF LPPM

Formulating linear programming problem models involves the following steps
1. Identify the decision variables and represent them in terms of X1, X 2…..
2. Determine the objective function:
 First decide whether the problem is maximization or minimization problem.
 Second identify the coefficients of each decision variable.
 If the problem is a maximization problem, the profit per unit for each variable must
be determined.
 If the problem is a minimization problem the cost per unit must be determined.
 Make sure the units of measurements of all coefficients in the objective functions
must be the same.
3. Identify the constraints
 First, express each constraint in words.
 Second identify the coefficients of the decision variables in the constraints; and the
RHS values of the constraints.
 Determine the limits for the constraints i.e. see whether the constraint is of the form
(<), (>) or (=).
 Write the equation.
4. Using the above information (step 1 to 3), build the model.
Note
 The coefficients of the variables in the Objective Function are called the profit or
cost coefficients. They express the rate at which the value of the Objective Function
increases or decreases by including in the solution one unit of each of the decision
variables.
 The coefficients of the constraints’ variables are called the input- output coefficients
that indicate the rate at which the given resources are depleted or utilized.
Example 1
 A firm that assembles computers and computer equipment is about to start production two
new microcomputers. Each type of microcomputers will require assembly time, inspection
time and storage space. The amount of each of these resources that can be devoted to the
production of these microcomputers is limited. The manager of the firm would like to
determine the quantity of each microcomputer to produce in order to maximize the profit
generated by sales of these microcomputers.
Additional information
 In order to develop a suitable model of the problem, the manager has met with design and
manufacturing personnel. As a result of these meetings the manager has obtained the
following information.
TYPE ONE TYPE TWO

Profit per unit Birr 60 Birr 50
Assembly time per unit 4 hours 10 hours
Inspection time per unit 2 hours 1 hour
Storage space per unit 3 cubic feet 3 cubic feet
 The manager has also acquired information on the availability of company resources. These
weekly resources are:
RESOURCE AMOUNTS AVAILABLE

Assembly time 100 hours
Inspection time 22 hours
Storage space 39 cubic feet
 The manager also met with the firm’s marketing manager and learned that demand for the
microcomputers was such that what ever combination of these two types of microcomputers
is produced, all of the outputs can be sold.
Required:
 Formulate the LPPM of the problem.
Solution
Step 1: identify the decision variable
 the quantity/ amount/ units of each microcomputer( microcomputer type 1 and
microcomputer type 2) to be produced
Let x1= represent quantity of microcomputer type 1 to be produced

x2= represent quantity of microcomputer type 2 to be produced
Step 2: Identify the objective function
 The problem is maximization problem, as indicated in the problem (5 th line of the problem)
 To write the equation both the objective function and the constraints
summarize the given information in tabular form accordingly
RESOURCE TYPE ONE TYPE TWO AVAILABILITY

Assembly time per unit 4 hours 10 hours 100 hours
Inspection time per unit 2 hours 1 hour 22 hour
Storage space per unit 3 cubic feet 3 cubic feet 39 cubic feet
Profit per unit Birr 60 Birr 50
Hence, the objective function is
 Max Z = 60x1 + 50 x2
Step 3: identify each constraints and write the equation

 Assembly time 4x1 + 10x2< 100
 Inspection time 2x1 + x2< 22
 Storage space 3x1+ 3x2 < 39
 Non negativity constraint x1 & x2 > 0
Step 4: write the summarized form of the model
In summary, the mathematical model of the microcomputer

problem is:
Max Z= 60x1 + 50x2
Subject to
4x1 + 10x2< 100
2x1 + x2< 22
3x1+ 3x2 < 39
x1 & x2 > 0
Example 2
A firm is engaged in breeding pigs. The pigs are feed on various products grown on the
farm. In view of the need to ensure certain nutrient constituents (call them vitamins,
minerals and proteins) it is necessary to buy two additional products say A and B. One
unit of product A contains 36 units of vitamins, 3 units of minerals and 20 units of proteins.
One units of product B contains 6 units of vitamins, 12 units of minerals and 10 units of
proteins. The minimum requirement of vitamins, minerals and proteins is 108units, 36units
and 100 units respectively. Product A costs birr 20 per unit and product B costs birr 40 per
unit
Required
Formulate the LPPM of the problem
Solution
Step 1: identify the decision variables
 Product A and B to be purchased to prepare the food for pigs
Let x1 represent product A to be purchased
X2 represent products B to be purchased
Step 2: identify the objective function
 The problem is a minimization problem, so the equation;
Min Z = 20x1 + 40 x2
 we can put the information in a tabular form as follows
NUTRIENT
CONSTITUENTS PRODUCT A PRODUCT B REQUIREMENT
Vitamins 36 units 6 units 108 units
Minerals 3 units 12 units 36 units
Proteins 20 units 10 units 100 units
Cost per unit Birr 20 Birr 40
Step 3: identify each constraints and write the equation
 Vitamins 36x1 + 6x2> 108
 Minerals 3x1 +12 x2> 36

 Proteins 20x1+ 10x2 >100
 Non negativity constraint x1 & x2 > 0
Step 4: write the summarized form of the model
In summary, the mathematical model of the problem is:

Min Z=20x1 + 40x2
Subject to
36x1 + 6x2> 108
3x1 +12 x2> 36
20x1+ 10x2 >100
x1 & x2 > 0
2.5. APPROACHES TO SOLVE LPPM

There are two methods used to solve LP problems
1. Graphical methods
2. Simplex methods
2.5.1.Graphical methods
 Is used to find solutions for LPP when the decision variables of the problem are not
greater than two.
Note: Graphical LP is a two-dimensional model
Procedure
To apply this method, we should follow the following steps.
1. Draw a graph including all the constraints
2. Identify the feasible solution region
3. Identify the corner points and their respective coordinates
4. Evaluate the objective function at each corner point and obtain a point on the
feasible region that optimizes the objective function-optimal solution
5. Interpret the results
Example 1
Consider the microcomputer problem formulated above and solve it using the graphical
approach.
Step one: Graph each constraints:
 To draw the graph first change the inequality to equality i.e. replace the < and > sign
into = sign.
Max Z=60x1 + 50x2
Subject to
36x1 + 6x2> 100 36x1 + 6x2= 100
3x1 +12 x2> 22 3x1 +12 x2= 22
20x1+ 10x2 >39 20x1+ 10x2 =39
x 1 & x2 > 0 x 1 & x2 = 0
 Then find the x and y intercepts (in our case x 1 and x2 respectively) - points where each
constraint intersects the axis. To do so, set x 1 = 0 to find values for x 2 and set x2= 0 to
find values for x1.
For the first constraint:

4x1 + 10x2 = 100 4x1 + 10x2 = 100
4(0) + 10 x2 = 100 4x1 + 10(0) = 100
10x2= 100 4x1= 100
X2= 10 x1 = 25
The x1 and x2 intercepts are (0, 10) (25, 0). Similarly calculate for the second and third constraints.
For the second constraint the intercepts are (0, 22) (11, 10)
For the third constraint the intercepts are (0, 13) (13, 0)
Graph the constraints using the intercepts calculated above. The graph is:
 As indicated in the graph, the corner points of the feasible region (the corner points of
the shaded region) are A, B, C, D and E. The next task is to find the coordinates of
these corner points, some are determined by observation and some are through
simultaneous equation. Then we test each corner points to find the points that results the
optimal solution. These activities are indicated in the following table.
Evaluating the corner points

Point Coordinates How determined Value of the objective function
X1 X2 Max Z=60x1 + 50x2
A 0 0 Inspection 60(0) + 50(0) = 0
B 11 0 Inspection 60(11) + 50(0) =660
C 9 4 Simultaneous equation 60(9) + 50(4) =740
D 5 8 Simultaneous equation 60(5) + 50(8) =700
E 0 10 Inspection 60(0) + 50(10)=500
Since the maximum value (because the objective function of the problem is maximization) is 740,
the solution is:
X1= 9, X2= 4 and The Maximum Profit is Birr 740.
When we interpret the result, we state the company should produce 9 units of microcomputer type
one and 4 units of microcomputer type two to get a maximum profit of Birr 740.
Example 2
Max.Z  50 X 180 X 2
St :
X 12 X 2 32
X 12 X 2 82
X1, X 2  0
Note: Try to solve the problem by yourself, in separate piece of paper before you
check the answer.
Example 3
Consider two models of color TV sets; Model A and B, are produced by a company to
maximize profit. The profit realized is $300 from a TV set of model A, and $250 from that
of set B. The limitations are:
A. availability of only 40hrs of labor each day in the production department
B. a daily availability of only 45 hrs on machine time
C. ability to sale 12 set of model A
Required
How many sets of each model will be produced each day so that the total profit will be as
large as possible?
Resources used per unit

Constraints Model A Model B Maximum Available hrs.
(X1) (X2)
Labor hr. 2 1 40
Machine hr. 1 3 45
Marketing hr. 1 0 12
Profit $300 $250
Note: Try to solve the problem by yourself, in separate piece of paper before you
check the answer.
Solution
1. Formulation of mathematical modeling of LPP
Max Z=300X1 +250X2
St:
2X1 +X2< 40
X1 +3X2< 45
LPP Model
X1 < 12
X1, X2 >0
2. Convert constraints inequalities into equalities
2X1 +X2 = 40
X1 +3X2= 45
X1 = 12
3. Draw the graph by intercepts
2X1 +X2 = 40 ==> (0, 40) and (20, 0)
X1 +3X2= 45==> (0, 15) and (45, 0)
X1 = 12==> (12, 0)
X1, X2 >0
2X1 +X2 = 40
X2
X1=0
40 X1=12
15 B
X1 +X2 = 45
Feasible C(12, 11)

Region X2=0
X1
D
A 12 20 45
4. Identify the feasible area of the solution which satisfies all constrains.
5. Identify the corner points in the feasible region
A (0, 0), B (0, 15), C (12, 11) and D (12, 0)
6. Identify the optimal solution point
Corners Coordinates Max Z=300 X1 +250X2

A (0, 0) $0
B (0, 15) $3750
C (12, 11) $6350
D (12, 0) $3600
Interpretation
12 units of product A and 11 units of product B should be produced so that the total
profit will be $6350
Example 4
A manufacturer of light weight mountain tents makes two types of tents, REGULAR tent
and SUPER tent. Each REGULAR tent requires 1 labor-hour from the cutting department
and 3 labor-hours from the assembly department. Each SUPER tent requires 2 labor-hours
from the cutting department and 4 labor-hours from the assembly department .The
maximum labor hours available per week in the cutting department, and the assembly
department are 32 and 84 respectively. Moreover, the distributor, because of demand, will
not take more than 12 SUPER tents per week. The manufacturer sales each REGULAR
tents for $160 and costs$110 per tent to make. Where as SUPER tent ales for $210 per tent
and costs $130 per tent to make.
Required
A. Formulate the mathematical model of the problem
B. Using the graphic method, determine how many of each tent the company should
manufacture each tent the company should manufacture each week so as to maximize its
profit?
C. What is this maximum profit assuming that all the tents manufactured in each week are
sold in that week?
Solution
______________________________________________________________
Labor hours per tent
Department REGULAR (X1) SUPER(X2) Maximum labor-hours
available per week
___________________________________________________________________
Cutting department 1 2 32
Assembly department 3 4 84
Selling price per tent $160 $210
Cost per tent $110 $130
Profit per tent $50 $80
 The distributor will not take more than 12 SUPER tents per week. Thus, the
manufacturer should not produce more than 12 SUPER tents per week.
Decision variable: number of regular and super tent to be produced per week.
Let X1 =The No of REGULAR tents produced per week.
X2 =The No of SUPER tents produced per week.
X1 and X2 are called the decision variables
Max.Z ……….Cutting
50 X 180 X 2department constraint
St : ……….Assembly department constraint
X 12 X 2……….Demand
 32 constraint
LPP Model
X 14 X 2……….Non-negativity
 82 constraints
X 2  12
X1, X 2  0
Corners Coordinates Max Z=50 X1 +800X2

A (0, 0) $0
B (0, 12) $960
C (8, 12) $1360
D (20, 6) $1480
E (28, 0) $1400
Interpretation
The manufacturer should produce and sale 20 REGULAR tents and 6 SUPERS tents to
get a maximum weekly profit of $1480.
X2
Example 5 X1 =0
21 Suppose that a machine shop has two different types of machines; machine 1 and machine 2,
which can be used to make a single product .These machine vary in the amount of product
produced per hr., in the amount of labor used and in the cost of operation. Assume that at
16 least a certain amount of product must be produced and that we would like to utilize at least
B (0, 12)
C(8,12) D (20, 6) X2 =0
Feasible
Region
X1
A(0,0) E (28, 0) 32
the regular labor force. How much should we utilize each machine in order to utilize total
costs and still meets the requirement?
Solution: The key information inputs in the problem are provided as follows
_______________________________________________________________
Resource used
Machine 1 (X1) Machine (X2) Minimum required hours
_________________________________________________________________________
Product produced/hr 20 15 100
Labor/hr 2 3 15______
Operation Cost $25 $30____________________________________
The problem is formulated in the next model
Min.Z  25 X 130 X 2
St :
20 X 115 X 2 100 LPP Model
2 X 13 X 2 15
X1, X 2  0
Constraint equation:
20X1 +15X2=100 ==> (0, 20/3) and (5, 0)
2X1+3X2=15 ==> (0, 5) and (7.5, 0)
X1 X2> 0
the feasible solution space and the corner points are specified on the graph below
X2
X1 =0
A (0, 20/3)
Feasible Region
B (2.5, 3.33)
X2 =0
X1
___________________________________________________________________________________________
5 C (7.5, 0)
Corners Coordinates MinZ=25 X1 + 30X2
A (0, 20/3) 200
B (2.5, 3.33) 162.5
C (7.5, 0) 187.5
_____________________________________________________________
The optimal solution mix is represented by X1 =2.5, X2=3.33, and Min Z= 162.5
Example 6
A company owns two flour mills (A and B) which have different production capacities for
HIGH, MEDIUM and LOW grade flour. This company has entered contract supply flour to
a firm every week with 12, 8, and 24 quintals of HIGH, MEDIUM and LOW grade
respectively. It costs the Co. $1000 and $800 per day to run mill A and mill B respectively.
On a day, mill A produces 6, 2, and 4 quintals of HIGH, MEDIUM and LOW grade flour
respectively. Mill B produces 2, 2 and 12 quintals of HIGH, MEDIUM and LOW grade
flour respectively.
Required
How many days per week should each mill be operated in order to meet the contract order
most economically standardize? Solve graphically.
Solution
No of days per week of Minimum flour in
Mil A (X1) Mill B(X2) quintals
HIGH Capacity (in quintal) 6 2 12
MEDIUM Capacity (in quintal) 2 2 8
LOW Capacity (in quintal) 4 12 24
Running cost/day $1000 $800
Max.Z  100 X 1800 X 2
St :
6 X 12 X 2 12
2 X 12 X 2 8
4 X 1  12 X 2  24
X1, X 2  0
Optimal Solution values: X1 =1 X2=3 and Min Z= $3400

Note
In maximization problems, our point of interest is looking the furthest point from the origin.
In minimization problems, our point of interest is looking the point nearest to the origin.
2.5.2. Solving for LPPs using the Simplex method

The graphical method to solving LPPs provides fundamental concepts for fully understanding the
LP process. However, the graphical method can handle problems involving only two decision
variables (say X1 and X2).
In the 1940s George B. Dantzig developed an algebraic approach called the Simplex Method, which
is an efficient approach to solve applied problems containing numerous constraints; and involving
many variables that cannot be solved by the graphical method.
The simplex method is an ITERATIVE or “step by step” method or repetitive algebraic approach
that moves automatically from one basic feasible solution to another basic feasible solution
improving the situation each time until the optimal solution is reached at.
Similar to the graphical solution approach, this method can be applied to solve for LPPs of different
objectives with various set of constraints.
SOLVING MAXIMIZATION PROBLEMS

1. Maximization having all the constraints in “<”form
Example 1
Consider the microcomputer problem which is solved with graphical method so that you can
compare and contrast the two approaches.
Max Z= 60x1 + 50x2
Subject to
4x1 + 10x2< 100
2x1 + x2< 22
3x1+ 3x2 < 39
x 1 & x2 > 0
Solution procedure
To solve the problem using the simplex approach, follow the following steps.
Step 1: Formulate LPP Model:
In our example it is already done.
Step 2: Standardize the problem
Convert each constraint into a standard form by introducing a variable called Slack variable,
surplus variable and artificial variable
Slack Variables(S): is /are added to the left hand side of a < constraint to convert the
constraint into its standard form. The value of the slack variable shows unused or
underutilized resource.
Surplus variables(S): is/are added to the left hand side of a > constraints to convert the
constraint into its standard form. The value of the surplus variable shows the excess
resources used.
Artificial variables (A): somewhat analogous to slack variables in that they are added to
equality and a > constraints in the same way that slack variables are added to a <
constraints. However artificial variables have no physical interpretation, they merely serve
as a device to enable us to use the simplex process.
Since the above problem constraints have all a < algebraic sign, we use slack variables for
standardizing the problem.
Note
 A slack variable is always added for a < constraint to convert the constraint to a
standard form.
Slack variables represent unused resource or idle capacity. Thus, they don’t produce any product and
their contribution to profit is zero.
Slack variables are added to the objective function with zero coefficients.
Max Z= 60x1 + 50x2+0s1+0s2+0s3
Subject to
4x1 + 10x2+s1=100
2x1 + x2+s2= 22
3x1+ 3x2 +s3=39
x1 , x2 ,s1,s2,&s3= 0
Note
 To standardize an LPP, start from the constraint and finally move to the objective function.
 When you add the slack variables, it should be according to the existence of the constraints
(how it is written in the model).
 Add S1 to the first constraint, s2 to the second constraints etc
Step 3
 Obtain the initial simplex tableau
To make the data ready for analysis, the simplex method uses a table called the simplex tableau or
the simplex matrix.
In constructing the initial simplex tableau, the search for the optimal solution begins at the origin.
Indicating that nothing can be produced;
Thus, based on this assumption, no microcomputer type one and microcomputer type two is
produced, which implies that x1 =0 and x2=0
==>4x1+10x2 + s1 +0 s2+ 0 s3= 100 ==> 2x1+x2 +0s1 + s2+ 0s3= 22
4(0) +10(0) + s1 +0 s2+ 0 s3= 100 2(0) +0 + 0s1 + s2+ 0 s3= 22
s1= 100 – Unused assembly time. s2= 22 – Unused inspection time.
==> 3x1+ 3x2+0s1 +0s2+ s3= 39

3(0) +3(0) +0s1 +0 s2+ s3= 39
s3= 39 – Unused storage space.
Therefore, Max Z=60x1 +50x2 + 0 s1 +0 s2+ 0 s3
=60(0) +50(0) + 0(100) +0(22) + 0(39)
=0
Note
 In general, whenever there are n variables and m constraints (excluding the non-
negativity), where m is less than n (m<n), n-m variables must be set equal to zero before
the solution can be solved algebraically.
a. Basic variables
 are variables with non-zero solution values
 are variables that are in the basic solution
 have 0 values in the C-Z row
b. Non-basic variables
 are variables with zero solution values
 are variables that are out of the solution
From the above example n=5 variables (x1, x2, s1, s2, and s3) and m=3 constraints (assembly,
inspection and storage space constraints), excluding non-negativity.
Therefore, n-m=5-3=2 variables(x1 and x2) are set equal to zero in the 1 st simplex tableau. These are
non-basic variables. 3 Variables (s1, s2, and s3) are basic variables (in the 1st simplex tableau) because
they have non-zero solution values.
Step 3: Construct the initial simplex tableau

Initial simplex tableau
Slack variables
variables column
Real or decision
Solution quantity
columns
Profit per unit
Basic or DV
column
column
column
C 60 50 0 0 0
BV X1 X2 S1 S2 S3 Q
S1 0 4 10 1 0 0 100 Profit per unit row
R1
S2 0 2 1 0 1 0 22 R2
S3 0 3 3 0 0 1 39 R3
Z 0 0 0 0 0 0
C–Z 60 50 0 0 0 Constraint
equation rows
Gross Profit row

Step 4: Choose the “incoming” or “entering” variables
Net Profit row
Note: /Indicator row/
 The entering variable is the variable that has the most (the largest) positive value in
the C - Z row (indicator row).
 It is the variable that has the highest contribution to profit per unit.
 X1 in our case is the entering variable. (Because the maximum number in the c-z row
is 60)
 The column associated with the entering variable is called key or pivot column X1
Step 5: Choose the “leaving “or “outgoing”variable and the “pivot element”
In this step, we determine the variable that will leave the solution for X1.
To identify the leaving variable, we should calculate the ratio first and then we should select the
minimum non negative ratio.
Note
 The leaving variable is the variable that has the smallest replacement ratio.
 S2 in our case is the leaving variable. (Because the smallest replacement ratio is 11
 The row associated with the entering variable is called key or pivot row S2 row in our case.
The pivot element is the intersection point between the pivot row and pivot column; No 2 in
the above example
Replacement Ratio (RR) = Solution Quantity (Q)
Corresponding values in pivot column
In our case
100 =25
4
22 = 11 is the minimum
2
39 =13
3
It is interesting to note that the three ratios (25, 11, 13) corresponding to the intersections of the
constraints with the x1(look the graphical solution). Note that the smallest of the ratios represents
the extreme point of the feasible solution space; the other points lie beyond the feasible solution
space. Hence by selecting the smallest ratio, the simplex procedure stays within the feasible solution
space. It sometimes happens that some of the substation rates for the variable we want to bring into
solution are zero or negative. We don’t nee to divide the quantity values by a negative or a zero
substitution rates.
Step 6:
 Perform row operations. Perform algebraic operations on the PIVOT COLUMN to
convert the pivot element into 1 and the remaining pivot column numbers into 0. Obtain
the new row values through the following two operations:
 Multiply (divide) all of the elements in a row by a constant
 Add or subtract the multiple of the row to or from another row
After identifying the entering, leaving and pivot element construct the second tableau by replacing
the S2 by X1 in the basic solution.
2nd tableau
C 60 50 0 0 0
SV X1 X2 S1 S2 S3 Q RR
S1 0 0 8 1 -2 0 56 56/8=7 R’1=R1+ (-4R’2)
X1 60 1 1/2 0 1/2 0 11 11/1/2=22 R’2=R2/2
S3 0 0 3/2 0 -3/2 1 6 6/3/2=4 R’3=R3+ (-3R’2)
Z 60 30 0 30 0 660
C–Z 0 20 0 -30 0
Note the following to see how it is calculated

Since the minimum replacement ratio (RR) is associated with the 2 nd row we should start the
operation on the second row i.e. we should change the pivot element into 1. To do so we should
divide the whole elements of the 2nd row by the pivot element of the first tableau.
See the analysis below.
2 1 0 1 0 22 when we divide it by 2 we get 1 ½ 0 ½ 0 11 so this will be
the new set row values of the second tableau.
Then calculate the new values of the first row and the third row of the second tableau. You can
begin in ether row one or row three.
Let’s start with the first row
Bring the first row values of the initial tableau
4 10 1 0 0 100
Then take the second row values of the 2nd tableau
1 ½ 0 ½ 0 11
Then, in order to change 4 into 0, ask your self what algebraic operation should be done.
Very simple, multiply the whole elements of the second tableau’s value by -4.
You get
-4 -20 -2 0 -44, then add this value to the first row value of initial tableau.
Look at the summary below.
4 10 1 0 0 100 4 10 1 0 0 100 4 10 1 0 0 100
1 ½ 0 ½ 0 11 -4( 1 ½ 0 ½ 0 11) + -4 -2 0 -2 0 -44
0 8 1 -2 0 56 will be the
new values of the first row of the second tableau. To put it in a simple formula
R’1=R1 + (-4R’2)
Similarly calculate for row three of the second tableau
3 3 0 0 1 39 3 3 0 0 1 39 3 3 0 0 1 39
1 ½ 0 ½ 0 11 -3( 1 ½ 0 ½ 0 11) + -3 -3/2 0 -3/2 0 -33
0 3/2 0 -3/2 1 6 will be the
rd
new values of the 3 row value of the second tableau. To put it in a simple formula again it will be:
R’3=R3 + (-3R’2)
Note
Then calculate
Divide the Z row
each element values
of the pivoti.e.
rowthese are pivot
by the foundelement
by multiplying the values
to find new values in
in each column
the key by row.
or pivot the
corresponding
Perform row coefficients
operations toinmake
the Callcolumn
otherand adding
entries forthem.
the pivot column equal to zero.
BV C X1 x2 s1 s2 s3 Q
S1 0 0(0 ) =0 0 (8 )=0 0 (1)=0 0(-2 ) =0 0(0)=0 0(56)=0
X1 60 60(1 )=60 60 (1/2) =30 60( 0 )=0 60(1/2)=30 60 (0)=0 60(11)=660
S3 0 0(0 )= 0 0(3/2) =0 0( 0 )=0 0(-3/2)=0 0( 1)=0 0(6)= 0
Z 60 30 0 30 0 660
Then finally calculate C – Z row. It is simply about following the formula.
Step 7
 Repeat step 4-6 till optimum basic feasible solution is obtained. I.e. repeat these steps till no
positive value occurs in the C – Z row.
Note
 A simplex solution in a maximization problem is optimal when the C-Z row consists entirely
zeros and negative No (when there are no positive values in the C-Z row.
3rd simplex tableau
BV C 60 50 0 0 0 Q
X1 X2 S1 S2 S3
S1 0 0 0 1 6 24 R’’1=R’1+ (-8R’3)
-16/3
R’’2= R’2+ (-1/2R’3)
X1 60 1 0 0 1 -1/3 9
R’’3=R’3/3/2
X2 50 0 1 0 -1 2/3 4
Z 60 50 0 10 40/3 740
C-Z 0 0 0 -10 - 40/3
 The entire C – Z < 0 indicating that no additional potential for improvement exists.
 Optimal solution is reached.
 the optimal solution is where X1=9, X2=4, S1=24and Max Z=740
Interpretation of the Results
The last step is interpreting the result: in order to achieve the maximum weekly profit of
birr 740, the company should produce 9 units of microcomputer type one and 4 units of
microcomputer type two. This will leave no slack in either inspection (s 2=0) or storage
space (s3 =0). How ever, there will be 24 hours of assembly time that is unused.
Example 2
A Juice producing Company has available two kinds of fruit Juices: Orange Juice and
Grape Juice. The company produces two types of punches: Punch A and Punch B. One
bottle of punch A requires 20 liters of Orange Juice and 5 liters of Grape Juice. Where as 1
Bottle of punch B requires 10 liters of Orange Juice and 15 liters of Grape Juice. .From each
bottle of Punch A; a profit of $4 is made and from each bottle of Punch B; a profit of $3 is
made. Suppose that the company has 230 liters of Orange Juice and 120 liters of Grape Juice
available
Required
a. Formulate this problem as a LPP
b. How many bottles of Punch A and Punch B the company should produce in order to
maximize profit? (Using the simplex method)
c. What is this maximum profit?
Solution
Juice needed for one bottle of
Juice Punch A Punch B Juice Available
__________________________________________________________________________
Orange Juice (lt) 20 10 230
Grape Juice (lt) 5 15 120
Profit per tent $4 $3
Let X1= the No of bottles of punch A produced.
X2= the No of bottles of punch B produced.
The LPP Model of the problem is:
Max Z=4X1 +3X2
St:
20X1 +10X2 < 230 Orange Constraint
5X1 +15X2 < 120 Grape Constraint
X1, X2 >0 Non-negativity constraint
The Standard form of this model will be

Max Z=4x1 +3x2 + 0 s1 +0 s2+ 0 s3
St:
20 x1+10x2 + s1 +0 s2 = 230
Standard form
5x1+15x2 +0s1 + s2+ = 120
x1 , x2 , s1 , s2 =0
Where, s1 =Unused orange juice
s2 =Unused grape juice
Initial feasible solution
1st tableau
B C 4 3 0 0
X1 X2 S1 S2 Q RR
S1 0 20 10 1 0 230 11.5
S2 0 5 15 0 1 120 24
Z 0 0 0 0 0
C–Z 4 3 0 0
2nd simplex tableau
B C 4 3 0 0
X1 X2 S1 S2 Q RR
X1 4 1 ½ 1/20 0 11.5 23
S2 0 0 25/2 -1/4 1 62.5 5
Z 4 2 1/5 0 46
C–Z 0 1 -1/5 0
Optimal solution mix: the 3rd simplex tableau
4 3 0 0
B C Q
X1 X2 S1 S2
X1 4 1 0 3/50 - 1/25 9
X2 3 0 1 -1/50 2/25 5
4 3 0.18 0.08
Z
51
C- Z 0 0 - 0.18 -0.08
Optimal Solution
X1= 9 X2= 5 s1 =0 s2=0 and Max Z=$51
2. Maximization with Mixed Constraints

In the previous section, we have learned how to solve a maximization problem with all
<constraints. Here you will learn how to solve a maximization problem with mixed constraints ( <
> =). For the most part the technique is identical to that illustrated in the previous section. What is
new is the introduction of the –M coefficients in the objective functions and the use of artificial
variables.
Example1
Consider the following problem and solve it through the simplex procedure
Max Z=6x1 +8x2
Subject to:
x2 < 4
x1+ x2 = 9
6x1+ 2x2 > 24
x1, x2 >0
Standardization of the model
 To standardize the model what we have learned in the previous example is not enough.
Here the model consists <, > & = sign constraints which demands their unique
standardization approach. For < constraint you already know that we add a slack
variable. For the remaining two constraints, consider the following two additional
variables.
Surplus variables (S): refer/s to the excess utilization of resources
 A variable inserted against a minimum constraint (>) to create equality. It
represents the amount of resource usage above the minimum required level.
 Surplus variable is subtracted from a > constraint in the process of converting the
constraint to standard form.
Neither the slack nor the surplus should be of negative value in the initial tableau. They must
have a positive value. Look at the following illustration.
1. 5x1+3x2+ S1 < 45
x1= 0 and x2= 0==> s1 = 45
==> s1=45 unused resource (all resources are idle)
2. 2x1+x2 >40
x1= 0 and x2= 0(No production)==> 5x1+2x2- s1 = 20
==> s1=-6(This is mathematically unacceptable)
 To avoid these problem another variable is inserted which is known as an
Artificial variable (A)
Artificial variable (A)
 It is a variable that has no significant meaning in a physical sense but acts as a tool to
create an initial feasible LP solution. It helps to make the model logical and meaningful. It
represents an extremely insignificant amount of resources and is included to balance the
relationship between the decision variables and RHS constraints. It is added to constraints
having = and > algebraic sign.
 Has a coefficient of [-M] in the objective function for maximization type problem. It
represents an artificial very large negative value.
Consider the above example
2x1+x2 >40
x1= 0 and x2= 0(No production)==> 5x1+2x2- s1 = 20
s1=-6(This is mathematically unacceptable, because it violates the non negativity assumptions
of LPPM)
 5x1+2x2- s1 = 20
 5x1+2x2- s1 + A1= 20
 So when we set x1,x2 and s1 = 0
 The basic solution in the initial solution will be A 1= 20 which is
mathematically correct.
Let us consider another example having = sign
5x1 +9x2=30
To determine the values of the basic variables for the initial tableau, we set x 1& x2=0
5x1 +9x2=30 ==> 5(0) +9(0) =30
==> 0=30 which is mathematically wrong. To avoid this
problem we add an artificial variable to standardize constraints with = sign.
5x1 +9x2=30 ==> 5x1 +9x2+ s1=30 ==> 5(0) +9(0 +s1) =30
==> S1=30 which is logical.
Note
 For the initial basis, use artificial variables for constraints that have > and = sign. For a <
constraint use a slack variable. Hence, surplus variables will not appear in an initial solution.
Now, let’s standardize the problem based on the logic stated above.
Max Z=6x1 +8x2 + 0 s1 +0 s2+ 0 s3-M A2- M A3
St:
x2 + s1 =4
x1+ x2 + A2 =9 Standard form
6x1+2x2 - s3 + A3 =24
All Variables =0
Initial feasible solution
1st tableau
B C 8 0 0 -M -M
X1 X2 S1 S3 A2 A3 Q RR
S1 0 0 1 1 0 0 0 4 4/0=und.
A2 -M 1 1 0 0 1 0 9 9
A3 -M 6 2 0 -1 0 1 24 4
Z -7M -3M 0 +M -M -M -33M

C–Z 7M +6 3M+8 0 -M 0 0
Since 7m+ 6 is the largest, x1 will be the entering variable for the next tableau. Since an artificial
value (A3) leaves the solution it will removed from the next table, so A 3 column will not exist in
the 2nd tableau
2nd tableau
B C 6 8 0 0 -M
X1 X2 S1 S3 A2 Q RR
S1 0 0 1 1 0 0 4 4
A2 -M 0 2/3 0 1/6 1 5 27/2

X1 6 1 1/3 0 -1/6 0 4 12
Z 6 2-3/3M 0 -1-1/6M -M 24-5M
C-Z 0 6+2/3M 0 1+1/6M 0
3rd tableau
BV C 6 8 0 0 -M
X1 X2 S1 S3 A2 Q RR
X2 8 0 1 1 0 0 4 und
A2 -M 0 0 -2/3 1/6 1 7/3 14
X1 6 1 0 -1/3 -1/6 0 8/3 Neg.

Z 6 8 6+2/3m -1-1/6M M 48-7/3M
C–Z 0 0 -6-2/3m 1+1/6M 0
Final tableau
BV C 6 8 0 0 Q
X1 X2 S1 S3
X2 8 0 1 1 0 4
S3 0 0 0 -4 1 14
X1 6 1 0 -1 0 5
Z 6 8 2 0 62
C–Z 0 0 2 0
Since the values on C - Z < 0==>optimal solution is achieved; where,
X1=5 X2 =4 S1=0 S3= 14 and Max Z= 62
Example 2
Max Z=2x1 +x2+3x3
Subject to:
x1+ x2 + 2x3 < 5
2x1+ 3x2 +4x3 = 12
x1, x2 , x3 >0
Solution
Initial feasible solution: 1st tableau
B C 2 1 3 0 -M Q
X1 X2 X3 S1 A1
RR
S1 0 1 1 2 1 0 5
2.5
A1 -M 2 3 4 0 1 12
3
Z -2M -3M -4M 0 -M -12 M
C- Z 2M+2 3M+1 4M+3 0 0
2nd simplex tableau
B C 2 1 3 0 -M Q
X1 X2 X3 S1 A1
RR
X3 3 1/2 ½ 1 1 0 5
10
A1 -M 2 3 4 0 1 12
4
Z 3/2 3/2-M 3 2M+3/2 -M -2M+15/2
C–Z 1/22 M-1/2 0 -2M-3/2 0
3rd simplex tableau
B C 2 1 3 0 Q
X1 X2 X3 S1 RR
X3 3 1/2 0 1 3/2 1.5

6
X2 1 0 1 0 -2 2
Z 3/2 1 3 5/2 13/2 Undefined
C-Z 1/2 0 0 -5/2
4th simplex tableau
B C 2 1 3 0 Q
X1 X2 X3 S1
X1 2 1 0 2 3 3
X2 1 0 1 0 -2 2
Z 2 1 4 4 8
C-Z 0 0 -1 -4
The optimal solution is defined in terms of

X1 = 3 X2 = 2 X3= 0 S1 = 0 and max. Profit (z) = $8
3. Minimization Problems
Manual solution procedure of minimization problems using simplex is handled in the same fashion
as that of maximization problems with mixed constraints. The two exceptions are:
 The M coefficients in the objective function are given positive signs instead of negative
signs
 The selection of the variable to enter the solution is based on the largest negative value
(the negative number far from 0) in the C-Z row of a tableau.
 Solution is optimal when there is no negative value of C-Z.
Note
TYPE OF CONSTRAINT TO PUT INTO STANDARD FORM
< ----------------------------------------Add a slack variable
= -----------------------------------------Add an artificial variable
> ---------------------- Subtract a surplus variable and add an artificial variable
Example 1
Minimize Z=25x1 +30x2
Subject to:
20x1+15x2 > 100
2x1+ 3x2 > 15
x1 & x2 > 0
Solution
Step 1: Standardizing the problem/model
Minimize Z=25x1 +30x2 +0s1+0s2 +MA1+MA2
Subject to:
20x1+15x2- s1+A1 = 100
2x1+ 3x2 –s2+A2 = 15
x1, x2 , s1, s2 ,A1 ,A2 = 0
Step 2: Initial feasible solution
The initial basic feasible solution is obtained by setting x1= x2= s1= s2=0
No production, x1= x2= s1=0==>20(0) +15(0) - 0+A1 = 100 ==> A1 = 100
x1= x2= s2=0==> 0(0) + 3(0) - 0+A2 = 15==> A2 = 15
1st tableau
B C 25 30 0 0 M M Q
X1 X2 S1 S2 A1 A2
RR
A1 M 20 15 -1 0 1 0 100
100/20=5
A2 M 2 3 0 -1 0 1 15
Z 22M 18M -M M M M 115 M 15/2=7.5
C–Z 25 -22M 30- 18M M M 0 0
2nd Simplex Tableau
B C 25 30 0 0 Q
M
X1 X2 S1 S2
A2 R’1=R1/20
X1 25 1 ¾ -1/20 0 0 5
R’2=R2-2 R’
A2 M 0 3/2 1/10 -1 1 5
Z 25 75/4+3/2M -5/4+1/10M M M 125+5 M

C–Z 0 45/4-3/2M 5/4-1/10 M M 0
3rd Simplex Tableau

As shown in the following tableau, all variables on the C - Z > 0==>hence, optimal solution is
reached where, X1=5/2 X2=10/3 and Min Z= $162.5
B C 25 30 0 0 Q
X1 X2 S1 S2
X1 25 1 0 -1/10 1/2 5/2
X2 30 0 1 1/15 -2/3 10/3
Z 25 30 -1/2 -15/2 162.5
C–Z 0 0 1/2 15/2
Example 2
Solve the problem provided below (Minimization with mixed constraint)
Min Z=5x1 +3x2
Subject to:
2x1+4x2 < 12
2x1+ 2x2 = 10
5x1+ 2x2>10
X1 &X2
Solution
Min Z=5x1+3x2 +0s1+0s3 +MA2+MA3
Subject to
2x1+4x2+s1 = 12
2x1+ 2x2+A2 = 10
5x1+ 2x2-S3+ A3=10
X1, X2, S1, S3, A2 and A3 = 0
Min Z=5x1 +3x2, If no production
2x1+4x2+s1 = 12 ==>x1 =x2=0==>s1=0 (Solution Value in the initial simplex tableau)
2x1+2x2 +A1 =10 ==>x1 =x2=0==>A2 =15 (Solution Value in the initial simplex tableau)
5x1+2x2 –s2 +A1=10 ==>x1=2=s3=0==>A3=10(Solution Value in the initial simplex tableau)
x1, x2 , s1, s2 ,A1 ,A2 = 0
Initial feasible solution: 1st tableau
B C 5 3 0 0 M M Q
X1 X2 S1 S2 A1 A2 RR
S1 0 2 4 1 0 0 0 12
A1 M 2 2 0 0 1 0 10 6
A2 M 5 2 0 -1 0 1 10
5
Z 7M 4M 0 M M M 20 M
C–Z 5 -7M 3- 4M 0 -M 0 0 2
2nd simplex tableau
B C 5 3 0 0 M Q
X1 X2 S1 S2 A1
0 S1 0 16/5 1 2/5 0 8
RR
M A1 0 6/5 0 2/5 1 6
5 X1 1 2/5 0 -1/5 0 2 2.5

Z 5M 6/5M +2 0 2/5M - 1 M 10+6 M
5
C-Z 0 -6/5M +1 0 -2/5M+1 0
5
3rd simplex tableau
B C 5 3 0 0 M Q
RR
X1 X2 S1 S2 A1
X2 3 0 1 5/16 1/8 0 2.5
20
A1 M 0 0 -3/8 1/4 1 3
X1 5 0 0 -1/8 -1/4 0 1 12
Z 5 3 -3/8M +5/6 M/4-7/8 M 12.5+3 M
-
C- Z
0 0 3/8M -5/6 M/4+7/8 0
4th Simplex tableau
B C 5 3 0 0 Q
X1 X2 S1 S2
X2 3 0 1 1/2 0 1
S2 0 0 0 -3/2 1 12
X1 5 0 0 -1/2 0 4
Z 5 3 -1 0 23
C–Z 0 0 1 0
The values of the optimal solution: X1=4, X 2=1, S1=0, S2=12 and Min Z= $23
Exercises
Find the optimal solution for the LPPs using simplex method
1. Min Z=10x1 +5x2
Subject to:
2x1 + 5x2 > 150
3x1 + x2 > 120
x1, x2 >0
Ans: x1=450/13, x2 =210/13 and Min Z=$540
2. Min Z=4x1 +5x2
Subject to:
X1 + 2x2 > 80
3x1+ x2 > 75
x1, x2 >0
Ans: x1=14, x2 =33 and Min Z=$221
3. Min Z=7x1 +9x2
Subject to:
3x1 + 6x2 > 36
8x1+ 4x2 > 64
x1, x2 >0
Ans: x1=20/3, x2 =8/3 and Min Z=212/3
Note
To get an initial feasible solution
Types of constraint Presence of variables in the initial solution mix
1. < (Slack) Yes
2. > *(Surplus) No
*(Artificial) Yes
3. = (Artificial) Yes
2.6. SPECIAL CASES/ISSUES IN SIMPLEX METHOD
I. Two incoming variables / or Tie for entering variables/

Where two or more variables are represented by the same values on the C-Z row, they are
supposed to have equal chance to enter the solution. This situation is called a tie. In order to break
this tie, the selection for the key column (entering variable) can be made arbitrary. However; the
number of solution can be minimized by adopting the following rules:
1. If there is a tie between two decision variables, then the selection can be made
arbitrarily.
2. If there is a tie between a decision variable and a slack (or surplus) variable, then
select the decision variable to enter into basis first.
3. If there is a tie between slack or surplus variable, then selection can be made
arbitrary.
Example
If the equation is max Z:
B C Q
X1 X2 S1 S3
Z
C- Z 5 2 5 0
Even if X1 has the same coefficient to S1 on the C-Z row (5) X1 is determined to be the
entering variable. This is because X1 represents a decision variable whereas S1 stands for
a slack/surplus variable.
II. Infeasibility
A situation with no feasible solution may exist if the problem was formulated improperly.
Infeasibility comes about when there is no solution that satisfies all the problem’s constraints. In
the simplex method, an infeasible solution is indicated by looking at the final tableau. In it, all C
-Z row entries will be of the proper sign to imply optimality, but an artificial variable (A) will still
be in the solution mix.
Example
Consider the following Minimization problem
B C 5 8 0 0 M Q
X1 X2 S1 S2 A2
X1 5 1 1 -2 3 0 200
X2 8 0 1 1 2 0 100
A2 M 0 0 0 -1 1 20
Z 5 8 -2 31-M M 1,800+200M
C–Z 0 0 2 M-31 0
Even though all C - Z values are positive and 0 (i.e. the criterion for an optimal solution in a
minimization case), no feasible solution is possible because an artificial variable (A2) remains in
the solution mix.
III. Unbounded Solutions

No finite solution may exist in problems that are not bounded.This means that a variable can be
infinitely large without violating a constraint.
In the simplex method, the condition of unbounded ness will be discovered prior to reaching the
final tableau. We will note the problem when trying to decide which variable to remove from the
solution mix.
The procedure in the simplex solution approach is to divide each quantity column number by the
corresponding pivot column number to identify the leaving variable. The row with the smallest
positive ratio is replaced. But if the entire ratios turn out to be negative or undefined, it indicates
that the problem is unbounded.
Example
Note the following LPP of maximization objective.
B C 5 9 0 0 Q RR
X1 X2 S1 S2
X2 5 -1 1 2 0 30 30/-1=-30
Unacceptable RRs
S2 0 -2
Pivot Column 0 -1 1 10
Z -9 9 18 0 270 10/-2=-5
C-Z 15 0 -18 0
The solution in the above case is not optimal because not all C- Z entries are 0 or negative, as
required in a maximization problem. The next variable to enter the solution should be X1.To
determine the variable that will leave the solution, we examine the ratios of the quantity column
values to their corresponding coefficients in the X1 or pivot column. Since both pivot column
values are negative, an unbounded solution is indicated.
IV. Degeneracy /Tie for leaving basic variable (key row)/

If there is a tie for the smallest ratio of the quantity column values to their corresponding
coefficients in the pivot column, it is a signal that degeneracy exists. Degeneracy can occur right
in the first (initial) tableau. This normally happens when the number of constraints is less than the
number of variables in the objective function.
Example
The following tableau shows the case of degeneracy
B C 5 8 2 0 0 0 Q
X1 X2 X3 S1 S2 S3
X2 8 1/4 1 1 -2 0 0 10 RR
S2 0 4 0 1/3 -1 1 0 20 10/1/4=40
S3 0 2 0 2 2/5 0 1 10 20/4=5 Tie for the smallest
ratio indicates deg.
Z 2 8 8 16 0 0 80
10/2=5
C-Z 3 0 -6 -16 0 0
Degeneracy could lead to a situation known as cycling, in which the simplex algorithm
alternatives back and forth between the same non-optimal solutions, i.e., it puts a new variable in,
then takes it out in the next tableau, puts it back in ,and so on. This situation (cycling) can be
overcome by trial and error method.
One simple way of dealing with the issue is to select either row (S2 or S3 in this case) arbitrary. If
we are unlucky and cycling does occur, we simply go back and select the other row.
V. Multiple Optimal Solutions

Multiple optimal solutions exist when non-basic variable contains zero on its C – Z row.
Example: Max Z=3X1+2X2
B C 3 2 0 0 Q
X1 X2 S1 S2
X2 2 3/2 1 1 0 6
S2 0 1 0 1/2 1 3
Z 3 2 2 0 12
C-Z 0 0 -2 0
X1=0, X2=6, S2=3 and Max Z=12 or: X1=3, X2=3/2 and Max Z=12
The C – Z value of the Non-basic variable (X1) is 0.Thus, there is alternative optimal
solution.
Exercises
1. Solve the following LPP using the simplex algorithm
Min Z=6x1 +8x2
Subject to:
x1+ 2x2 > 80
3x1+ x2 > 75
x1, x2 >0
Required
 What are the values of the basic variables at each iteration?
 Which are the non-basic variables at each iteration?
Ans: X1=14, X2=33, and Min Z=221
2. At the 3rd iteration of a particular LP maximization problem, the following tableau is
established:
B C Q
X1 X2 X3 S1 S2 S3
X3 5 0 1 1 -2 0 0 5
X1 6 1 -3 0 0 0 1 12
S2 0 0 2 0 1 1 -1 10
Z 6 -13 5 5 0 21 97
C-Z
0 16 0 -5 0 -21
Required
 What special condition exists if you improve the profit and move to the next iteration?
 Proceed to solve the problem for optimal solution
Ans: Degeneracy; X1=27, X2=5, X3=0, and Max Z=$177
3. Convert the following constraints and objective function into the standard form for use in the
simplex method
Min Z=4x1 +x2
Subject to:
3 x1+ x2 = 3
4x1+ 3x2 > 6
x1+ 2x2 < 3
x1, x2 > 0
Answer:
Min.Z=4x1 +x2 + 0 s1 +0 s2+ M A1+M A3
St:
3x1+ x2 + A1 =3
4x1+ 3x2 -s1 + A2 = 6
x1+ 2x2 + s2 =3
All Variables >0
4. Solve the following LPP using simplex method

Max Z=9x1 +7x2
Subject to:
2x1+ x2 < 40
x1+ 3x2 < 30
x1, x2 >0
Ans: X1=18, X2=4, and MaxZ=$190
5. Solve the following LPP to show that it has alterative optimal solutions.
a. Max Z=6x1 +3x2 Ans: i. X1=4, X2=0, and Max Z=24
Subject to: ii. X1=5/2, X2=3, and Max Z=24
2x1+ x2 < 8
3 x1+ 3x2 < 18
x2 < 3
x1, x2 >0
b. Min Z=2x1 +8x2 Ans: i. X1=32/6, X2=10/6, and Min Z=24
Subject to: ii. X1=12, X2=0, and Min Z=24
5x1+ x2 > 10
2x1+ 2x2 > 14
x1+ 4x2 > 14
x1, x2 >0
6. Solve the following LPP to show that it has unbounded solution.
a. Max Z=-2x1 +3x2 b. Max Z=3x1 +6x2
Subject to: Subject to:
x1 <5 3x1+ 4x2 > 12
2 x1-3x2 < 6 -2x1+ x2 < 4
x1, x2 >0 x1, x2 >0
7. Solve the following LPP to show that it has no feasible solution.

a. Max Z=-2x1 +3x2 Ans: X1=2, X2=0, A1=2 and Max Z=4-2M
Subject to:
x1 - x2 > 4
x1+ x2 < 6
x1 <2
x1, x2 > 0
b. Max Z=3x1 +3x2 Ans: X1=0, X2=2, A2=2 and MaxZ=4-4M
Subject to:
2x1+ x2 < 2
3x1 + 4x2 > 12
x1, x2 >0
2.7. SENSITIVITY ANALYSIS (POST OPTIMALITY ANALYSIS)
Sensitivity Analysis is the study of how changes in the coefficients of LPP affect the optimal
solution. It is initiated after the optimal solution is obtained.
The purpose is to see the effect on the value of the optimal solution of changes in RHS of a
constraint, coefficients of objective function, changes in the coefficients of the constraints,
changes of the input-output coefficient, addition/deletion of constraints and the addition of a new
variable to the problem
It starts from the final tableau because it is concerned with the study of ‘Sensitivity’ of the optimal
solution of an LPP with changes in parameters of the variables. The degree of sensitivity of the
solution due to those variations can range from no change at all to a substantial change in the
optimal solution of the given LPP. Thus, in sensitivity analysis, we determine the range over
which the LP model parameters can change with out affecting the current optimal solution. The
process of studying the sensitivity of the optimal solution of an LPP is called post-optimal
analysis/what-if analysis/.
In this module/level, we will see the following two aspects post optimality analysis
A. Changes in the RHS Quantity of a constraint (b)
B. Changes in the coefficients of the objective function (C)
2.7.1. Change in the Right Hand Side Quantity (RHS)

The first step in determining how a change in RHS of a constraint would influence the
optimal solution is to examine the shadow prices in the final simplex tableau.
Shadow price
o is a manager’s window for guessing the impact of one unit change has on the value
of the objective function
o is the maximum amount that should be paid for one additional unit of resource
o is a marginal value, i.e. it indicates the impact a one unit change in the amount of a
constraint would have on the objective function
For illustration purpose, let’s look at the microcomputer (whose optimal solution has been
already generated) case.
Max Z= 60x1 + 50x2
Subject to:
Assembly time 4x1 + 10x2 < 100
Inspection time 2x1 + x2 < 22
Storage space 3x1+ 3x2 < 39
X1 & x2 > 0
Its optimal solution is represented in the final tableau as follows
60 50 0 0 0 Q
BV C X1 X2 S1 S2 S3
S1 0 0 0 1 6 -16/3 24
X1 60 1 0 0 1 -1/3 9
X2 50 0 1 0 -1 2/3 4
Z 60 50 0 10 40/3 740
C-Z 0 0 0 - 10 -40/3
To deal with shadow prices you should focus on the slack variable column. Because each slack
variable’s column represents each constraint, i.e. S 1 represents the first constraint; S2 represents the
second constraints and so on. The values in the slack variable columns of the C - Z row (the
magnitude) of the final tableau provide us with the shadow prices. Therefore, the shadow prices
for the above example are:
S1=0
S2=10
S3= 40/3
What does this indicate? You know that shadow prices signify the change in the optimal value of
the objective function for 1 unit increases in the value of the RHS of the constraint that represent
the availability of scarce resources. Based on this logic, we can interpret it as follows:
1. If the amount of assembly time (S1) was increased by one hour, the effect would
be no effect on the profit (objective function)
2. If the amount of inspection time (S2) was increased by one hour, the effect would
be an increase in total profit by 10 birr.
3. If the amount of storage space (S 3) was increased by one cubic feet, the effect
would be an increase in total profit by 40/3 birr.
But what the shadow prices do not tell us is the extent to which the level of a scarce resource can
be changed and still have the same impact per unit. Therefore, we need to determine the range
over which we can change the RHS quantities and still have the same shadow prices. This is called
the range of feasibility or right- hand side range.
Note
 Range of feasibility: is the range over which the RHS value of a constraint can be
changed without changing the optimal solution mix of a problem (still have the
same shadow prices)
The values in the body of the final tableau in each slack column are used to compute the range.
To compute the range of feasibility for the corresponding constraint, the entries in the associated
slack column must be divided into the values in the quantity column.
Example 1
Determine the range of feasibility for each of the constraints in the microcomputer problem.
S1 S2 S3 Q S1 ( assembly time) S2(inspection time) S3( storage space )

1 6 -16/3 24 24/1= 24 24/6= 4 24/-16/3= -4.5
0 1 -1/3 9 9/0= und 9/1= 9 9/-1/3= -27
0 -1 2/3 4 4/0= und 4/-1= -4 4/2/3=6
0 10 40/3 740 100 hours 22 hours 39 cubic feet
0 -10 -40/3
Upper None( no upper limit) 22 + 4=26 39 + 4.5= 43.5
limit
Range
Lower 100 - 24= 76 22 - 4= 18 39 - 6= 33
Limit
To calculate the limits, use the following general rules. (Take only the magnitude, don’t
consider the sign)
For maximization problem (with all < constraints)

To calculate the upper range, take the smallest negative ratio (a number closest to zero).
To calculate the lower range, take the smallest positive ratio (a number closest to zero).
For minimization problem (with all > constraints)

(The rules will be reversed)
To calculate the upper range, take the smallest positive ratio (a number closest to zero.
To calculate the lower range, take the smallest negative ratio (a number closest to zero.
Based on the rules illustrated above:
 The upper range for assembly time (S1) would be 100 hours as a result of the original
availability plus the smallest negative ratio. But, since there is no negative ratio, there is
no upper limit.
 the lower limit will be 100 hours minus the smallest positive ratio. Therefore, it will be
100 - 24= 76.
 The ranges of feasibility for the other constraints shall be calculated similarly.
Now let’s see the application (relaxation and tightening of constraints)
Example 2
The manager in the microcomputer problem is contemplating one of two possible changes in
the level of the storage space constraints.
 One change would be an increase of 3 cubic feet in its level and
 the other would be an increase of 8 cubic feet in its level.
Required
 Determine the revised optimal solution for each possible change.
Solution
 For purposes of simplicity first let’s see the effects of a one unit change in storage space. The analysis should focus on the values of S3 column because
storage space is represented by S3.
Basis S3 Q
S1 -16/3 24
X1 -1/3 9
X2 2/3 4
Z 40/3 740
Hence, any potential increase of storage space (S3) by 1 unit
 Causes S1 (assembly time) to decrease by 16/3 units ( i.e. S1 will become 18.6)
 Causes x1(micro computer type one) to because by 1/3 units
 Causes x2(micro computer type two) to increase by 2/3 units
 Causes profit to increase by $40/3
Now let’s come to the proposed changes.
Case 1: a three unit increase on storage space.
 Given the analysis of the impacts of change in a unit of storage space, it is very simple to
calculate the impact of a three unit change in this constraint on the optimal solution
values. But we have to first check if the change is within the range of feasibility.
 We have already calculated the range for storage space to be between 33 and 43.5 cubic
feet. In the original model of the problem the maximum availability of this resource was
specified at 39 and the increase is 3; therefore, the changed value is 39+3= 42; which is,
within the range. So the impact of the shadow prices is valid. Therefore, the effects of an
increase of three cubic feet can be computed in the following way.
Basic S3 Quantity Current Change Revised solution
solution
S1 -16/3 24 24 24+3(-16/3) 8
X1 -1/3 9 9 9+3(-1/3) 8
X2 2/3 4 4 4+3(2/3) 6
Z 40/3 740 740 740+3(40/3) 780
Case 2: an increase of 8 cubic feet in storage space

 For an increase in storage space of 8 cubic feet, since the upper limit of the feasible range
for storage is 43.5 (39+4.5) the amount of increase above 4.5 cubic feet will be excess or
slack. Moreover, the new optimal solution will occur at the point where the constraint
level equals its upper limit.
 Therefore, the additional amount needed to achieve the upper limit is used to
compute the revised solution.

solution
S1 -16/3 24 24 24+4.5 (-16/3) 0
X1 -1/3 9 9 9+4.5 (-1/3) 7.5
X2 2/3 4 4 4+4.5(2/3) 7
Z 40/3 740 740 740+4.5 (40/3) 800
Note that beyond the upper limit, S3 would come into solution replacing S1 which would no longer
be slack. The amount of slack would be 8-4.5= 3.5 cubic feet. Consequently the revised solution
would be
S3= 3.5
X1= 7.5
X2= 7
Example 3
Suppose the manager in the microcomputer problem is contemplating a decrease in storage
space due to an emergency situation. There are two possibilities being considered.
 A decrease of 6 cubic feet in its level
 A decrease of 9 cubic feet in its level
i. A decrease of 6 cubic feet
 Since the change is within the range we can calculate it straight forward.

solution
S1 -16/3 24 24 24 - 6(-16/3) 56
X1 -1/3 9 9 9 - 6(-1/3) 11
X2 2/3 4 4 4 - 6(2/3) 0
Z 40/3 740 740 740-6 (40/3) 660
ii. A decrease of 9 cubic feet

 Since the change is beyond the lower limit the substitution rates and the shadow prices do
not hold. Consequently for a decrease in the level of a constraint beyond the lower limit a
new simplex solution must be generated.
Example 4
Max Z=3x1+4x2
Subject to:
3 x1+5x2 < 15
2x1 + x2 < 8
x2 < 2
x1, x2 > 0
The optimal tableau is given as:
B C 3 4 0 0 0 Q
X1 X2 S1 S2 S3
X1 3 1 0 -0.143 0.714 0 3.57
S3 0 0 0 -0.286 0.428 1 1.143
X2 4 0 1 0.286 -0.428 0 0.857

Z 3 4 0.714 0.428 0
C- Z 0 0 -0.714 -0.428 0
Required
1. Determine the shadow price for each constraint
2. Determine the RHS ranges over which the shadow prices are valid
Solution
 Analysis of the 1st constraint (S1)
Q S1 Q/ S1
3.57 -0.143 -24.96
1.143 -0.286 -3.99
0.857 0.286 3.00
Lower Limit= b1 - the smallest positive number in the Q/ S1column

=15-3=12
Upper Limit= b1 +the smallest negative number in the Q/ S1 column
=15 + (3.99) =18.99
Therefore, 12< b1< 18.99 (The range of resource 1 over which the shadow price $0.714 per
unit is valid).
 Analysis of the 2nd constraint (S2)
Q S2 Q/ S2
3.57 0.714 5
1.143 0.428 2.67
0.857 -0.428 -2
Lower Limit=b2-the smallest positive number in the Q/ S2 column
=8-(2.67) =5.33
Upper Limit=b2+ the smallest negative number in the Q/ S2 column
=8 +2 =10
Therefore, 5.33< b1< 10 (The range of resource 2 over which the shadow price $0.428 per unit
is valid).
 Analysis of the 3rd constraint (S3)
Q S3 Q/ S3
Lower
3.57 0 -
Limit=b3-
1.143 1 1.143 the
0.857 0 -
smallest
positive
number in the Q/ S3 column
=2-(1.143)= 0.857
Upper Limit=b3 + the smallest negative number in the Q/ S3 column
=2 +∞ =∞
Therefore, 0.857< b3< ∞ (The range of resource 3 over which the shadow price $0 per
unit is valid).
Exercises
1. Max Z=50x1+40x2
Subject to:
3 x1+5x2 < 150 (Assembly time)
x2 < 20 (Portable display)
8x1 + 5x2 < 300 (Warehouse space)
x1, x2 > 0
The final simplex tableau is:
B C 50 40 0 0 0 Q
X1 X2 S1 S2 S3
X2 40 0 1 8/25 0 -3/25 12
S2 0 0 0 -8/25 1 3/25 8
X1 50 1 0 -5/25 0 5/25 30
Z 50 40 14/5 0 26/5 1980
C–Z 0 0 -14/5 0 -26/5
Required
Determine the shadow prices for the three constraints of the High Tech Co.
Answer:
The Z values for the three slack variables are 14/5, 0 and 26/5, respectively. Thus, the shadow
price for
 the assembly time constraint is 14/5(i.e.1 additional assembly time over the existing 150
is $2.8).
 the portable display constraint is 0.
 the Warehouse space constraint is 26.5

Therefore, we see that obtaining more warehouse space will have the biggest positive
impact on High Tech’s profit.
2. Solve the following LPP using simplex method. A firm that manufactures both lawn mowers
and snow blowers:
X1 =the number of lawn mowers
X2 =the number of snow blowers
Max Z=$30x1+$80x2
Subject to:
2x1+4x2 < 1000 Labor hours available
6x1 + 2x2 < 1,200lb of steel available
x2 < 20 snow blower engine available
x1, x2 > 0
Required
a. What is the best product mix? What is the optimal profit?
Answer: x1=100, x2=200 and profit =$19,000
b. What are the shadow prices? When the optimal solution has been reached,
which resource has the highest marginal value?
Answer:
 The shadow price for 1 additional labor=$15
 The shadow price for 1 additional pound of steel=0
 The shadow price for 1 additional snow blowers engine made available =$20
Thus, snow blower engine have the highest marginal value at the optimal solution.
c. Over what range in each of the RHS values are these shadows valid?
Answer:
 The shadow price for labor hours is valid from 800 hours to 1,066.66 hours
 The shadow price for pounds of steel is valid from 1,000 pounds up to an infinite number of
pounds
 The shadow price for snow blower engines ranges from 180 engines up to 250 engines
2.7.2. Changes of the coefficients of the objective function (c)

To calculate changes in the coefficients of objective function we should consider only Decision
variables. Decision variables can be:
i. Basic (variable in the solution)
ii. Non-basic (variable out-of the solution)
Note: Instead of resolving the entire problem as a new problem with new parameters, we
may take the original optimal solution table as an initial solution table for the purpose of
knowing ranges both lower and upper within which a parameter may assume value.
a. Range for the coefficients of basic decision variables

There are two cases to consider changes for a variable that is not currently in the solution mix and
changes for a variable that is currently in the solution mix.
The Range of Optimality (RoO)
Is the range over which a basic decision variable coefficient in the objective function can change
without changing the optimal solution mix. However, this change will change only the optimal
value of the objective function. (The profit/cost figure)
Note
The general rule for calculating the upper and lower range is
Allowable increase: the smallest positive ratio of C-Z value and the variable’ substitution rate
Allowable decrease: the smallest negative ration of C-Z Value and the variable substitutions rate
Example 1
Given the final tableau of the microcomputers problem, determine the range/s of
optimality of the variables that are already in the optimal solution mix.
Solution
The final simplex tableau for the problem is repeated here for convenience
B C 60 50 0 0 0 Q
X1 X2 S1 S2 S3
S1 0 0 0 1 6 16/3 24
X1 60 1 0 0 1 -1/3 9
X2 50 0 1 0 -1 2/3 4
Z 60 50 0 10 40/3 740
C- Z 0 0 0 -10 - 40/3
Analysis of X1
Procedure
a. Take the C – Z row of the optimal solution.
b. Take the X1 row values.
c. C – Z row
X1 row
Columns X1 X2 S1 S2 S3
C – Z row 0 =0 0 =und 0 =und -10 =-10 -43/3 =+40
X1 row 1 0 0 1 -1/3
 The positive ratio is +40. Therefore, the coefficients of X 1 can be increased by 40 without
changing the optimal solution. The upper end of its range of optimality is this amount
added to its current (original) value. Thus its upper end is 60+ 40 = 100.
 the smallest negative ratio is -10; therefore the x 1 coefficient can be decreased by as much
as 10 from its current value, making the lower end of the range equal to 60-10= 50
Analysis of X2
Procedure
a. Take the C – Z row values of the optimal solution
b. Take the X2 row values.
c. C – Z row
X1 row
Column X1 X2 S1 S2 S3
C – Z row 0 = und 0=0 0 =und -10 = 10 -43/3 = -20
X2 row 0 1 0 -1 2/3
 The smallest positive ratio is + 10. This tells us that the X 2 coefficient in the objective
function could be increased by 10 to 50+ 10 = 60.
 The smallest negative ratio is -20, which tells us that x 2 coefficient could be decreased by
20 to 50-20 =30.
 Hence, the range of optimality for the objective function coefficient of x2 is 30 to 60.
Example 2
Max Z=5x1 +4.5x2 +x3
Subject to:
15 x1+15.8x2 < 150
5x1+6.4x2+15x3 < 77
2.8x2+11.8x3 < 36
x1, x2 , x3 > 0
The optimal tableau for this solution is:
B C 5 4.5 1 0 0 0 Q
X1 X2 X3 S1 S2 S3
X1 5 1 1.053 0 0.067 0 0 10
X3 1 0 0.67 1 -0.022 0.067 0 1.8
S3 0 0 1.924 0 0.258 -0.773 1 15.12
Z 5 5.342 1 0.311 0.067 0 51.8
C–Z 0 -0.842 0 -0.311 -0.067 0
Required
Determine the range of optimality for the coefficients of the basic-decision
variables.
Solution
Analysis of basic decision variable
 The analysis will be conducted on products on X1 and X3 which are in the basic solution.
Divide each C - Z row entry for variables not in the solution (for instance, by X2, S1 and S2
values) the remaining values result undefined so we can skip it
I. Analysis of X1
a. Take the C – Z row of the optimal solution of the non-basic variables
b. Take the X1 row of the non-basic variables
c. C – Z row
X1 row
 Upper Limit
The smallest positive number in the C- Z row tells how much the profit of
X1
X1 can be increased before the solution is changed.
Upper Limit= C (for X1) +the smallest positive value of C - Z row
=5+∞=∞ X1 row
Note: C (for X1) =5(Look in the OF of the LP problem)
 Lower Limit
The smallest negative ratio (the number closest negative amount closest to 0)
Lower Limit= C (for X1) +the largest negative value of C - Z row
=5+ (-0.8) = 4.2 X1 row
Therefore, the range of optimality for the coefficient of X1 is 4.2< C (for X1) < ∞
(The coefficient of X1 in the objective function can change between 4.2 and ∞ without changing the
optimal solution mix X1=10, X3=1.8 and S3=15.12)
II. Analysis of X3
 Upper Limit= C (for X3) +The smallest positive value of C - Z row

=1- (1) =0 X1 row
 Lower Limit= C (for X3 )+The largest negative value of C- Z row
=1+ (14.13) = 15.13 X1 row
Therefore, the range of optimality for the coefficient of X3 is 0 < C (for X3) < 15.13 (The
coefficient of X3 in the objective function can change between 0 and 15.13 without changing the optimal
solution mix X1=10, X3=1.8 and S3=15.12).However, this change will change only the optimal value of
the objective function (i.e. Max Z will change)
b. The range for the non-basic variables/ range of insignificance

If there is a variable C, not participating in the optimal basis, then, in order for the variable to be
included in the optimal solution, its coefficient in the objective function will have to change from
the existing C to a new level C.
C (new)> Z
The Range of Insignificance (RoI)
 is the range over which Cj rates for non-basic variables can vary without causing a
change in the optimal solution mix (variable) is called the range of insignificance
Example
Max Z=5x1 +4.5x2 +x3
Subject to:
15x1+15.8x2 < 150
5x1+6.4x2+15x3 < 77
2.8x2+11.8x3 < 36
x1, x2 , x3 > 0
The optimal tableau for this solution is:
5 4.5 1 0 0 0
B C
X1 X2 X3 S1 S2 S3 Q
X1 5 1 1.053 0 0.067 0 0 10
X3 4.5 0 0.67 1 -0.022 0.067 0 1.8
S3 0 0 1.924 0 0.258 -0.773 1 15.12
Z 5 5.342 1 0.311 0.067 0 51.8
C–Z 0 -0.842 0 -0.311 -0.067 0
Required
Calculate the range of insignificance for the coefficient of non-basic variable(X2)
Solution
 Because X2 is not in the solution, its objective function coefficient would need to increase in
order for it to come into solution.
 The amount of increase must be greater than its C-Z value which is -0.842. Therefore, its
objective function coefficient must increase by more than 0.842.
 Because its current value is 4.5 as indicated above, the current solution will remain optimal as
long as its objective function coefficient does not exceed 4.5 +0.842= 5.342.
 Since an increase would be needed to bring it into solution, any lesser value of its objective
function coefficients would keep it out of solution, hence the range of insignificance for X 2 is
5.342or less
Mathematically;
Range of insignificance for X2= the OF coefficient of X2 + (C - Z) value of X2
= C (for X2) =4.5 and C-Z ( for X2) =-0.842
= 4.5 + (0.842)
= 5.342
 If the profit contribution of X2 is greater than 5.342, then X2 will be included in the
solution.
 Thus, ∞< C (new for X2)< 5.342 is the range of insignificance for X2.
 C (profit contribution) for X2 can vary with in the given range without causing a change in
the optimal solution mix.
Exercises
1. Max Z=50x1 +120x2
Subject to:
2x1+4x2 < 80
3x1+x2< 60
x1, x2 > 0
Required: Determine the range of optimality for the coefficient of the basic variables for
the given problem.
B C 80 60 0 0 Q
X1 X2 S1 S2
S2 0 5/2 0 -1/4 1 20
X2 60 3/2 1 1/2 0 40
Z 90 60 30 0 $2,400
-10 0 -30 0
C–Z
Ans: The range of optimality for X2’s profit coefficient is: $66.6 < C (for X2) < ∞
CHAPTER SUMMARY
Linear programming models are used to find optimal solutions to constrained optimization
problems. In order for linear programming models to be used, the problems must involve a single
objective, a linear objective function and linear constraints, and have known and constant
numerical values.
We can solve linear programming problems using either graphical solution approach or simplex
approach. The graphical method for solution is used when the problem deals with 2 decision
variables. The inequalities are assumed to be equations (in equalities should be changed to
equations). As the problem deals with 2 variables, it is easy to draw straight lines as the
relationship between the variables and constraints are linear. In cases where the problem deals
with at least three variables, instead of lines we have to draw planes and it will become very
difficult to visualize the feasible area. In contrast to the graphical approach, the simplex approach
is not limited to problems with only two decisions variables. It is a general purpose method to
solve problems with any number of decision variables.
The simplex procedure involves developing a series of tableaus, each of which describes the
solution at a corner point of the feasible solution space beginning with the origin after
standardizing the problem.
The standard form of LP problem should have the following characteristics:
I. All the constraints should be expressed as equations by slack or surplus and/or artificial
variables
II. The right hand side of each constraint should be made non-negative; if it is not,
this should be done by multiplying both sides of the resulting constraint by -1.
Example: 2X1+3X2-4X3+X3<-50, we multiply both sides by negative
III. Three types of additional variables, namely
a. Slack Variable(S)
b. Surplus variable (-S), and
c. Artificial variables (A) are added in the given LP problem to convert it into standard
form for two reasons:
i. to convert an inequality to have a standard form of an LP model, and
ii. to get an initial feasible solution represented by the columns of an identity
matrix
The summery of the extra variables needed to add in the given LP problem to convert it
into standard form is given below:
Types of Extra variables to be added Coefficient of extra variables Presence of variables in the
constraint in the objective function initial solution mix
Max Z Min Z
< Add only slack variable 0 0 Yes
> Subtract surplus variable and 0 0 No
Add artificial variable -M +M Yes

= Add artificial variable -M +M Yes
Sensitivity analysis (post optimality analysis) is an analysis concerned with providing the decision
maker with greater insight about the sensitivity of the optimal solution to changes in various
parameters of the problem. Such changes might involve the specified levels of constraints or
coefficients of the objective function. Interest in changes may arise due to improved information
relating to a problem or because of the desire to know the potential impact of changes that are
contemplated.
1. Test of optimality
i. If all C – Z < 0, then the basic feasible solution is optimal (Maximization case)
ii. If all C – Z > 0, then the basic feasible solution is optimal (Minimization case)
2. Variable to enter the basis
i. A variable that has the most positive value in the C – Z row
(Maximization case)
ii. A variable that has the highest negative value in the C - Z row (Minimization case)
3. Variable to leave the basis
The row with the non-negative and minimum replacement ratio
(For both maximization and minimization cases i.e.: RR > 0
SELF ASSESSMENT QUESTIONS AND EXERCISES

1. A furniture company produces a variety of products. One department specializes in wood tables,
chairs and bookcases. These are made using three resources: labour, wood and machine time. The
department has 60 hours of available each day, 16 hours of machine time and 400 board feet of
wood. A consultant has developed a linear programming model for the department.
X1 = quantity of tables
X2= quantity of chairs
X3= quantity of book cases
Maximize Z= 40x1+ 30x2 45x3[profit]
Subject to
Labour: 2x1+x2+2.5x3 < 60 hours
Machine: .8x1+.6x2+1.0x3 < 16 hours
Wood: 30x1+20x2+30x3 < 400feet
Tables : x1 >10 units
X1+x2+x3 > 0
Required: answer the following questions based on the information given.
a. What is the main purpose of the model?
b. What are the decision variables?
c. What are the system constraints? (name them)
d. What is the meaning of the number 2.5 in the labour constraint?
e. Explain what is meant by x1> 10.
f. What does the term 40x1in the objective function represents?
2. Explain the similarities and differences between graphical method of solving linear
programming problem and the simplex method.
3. Briefly define or explain each of these terms.

Shadow price Incoming variable
Range of feasibility Pivot row
Range of insignificance Pivot column
Range of optimality Key element
Slack variable Maximization problem
Surplus variable Minimization problem
Artificial variable Mixed constraint problem
Outgoing variable
4. A farmer has 1000 acres of land on which he can grow corn, wheat and soybean. Each acre of corn
costs birr 100 for preparation, requires 7 man-days work and yields a profit of birr 30. An acre of
wheat costs birr 120 to prepare, requires 10 man-days of work and yields a profit of birr 20. An acre of
Soybeans costs birr 70 to prepare, requires 8 man-days of work and yields a profit of birr 20. If the
farmer has birr 100,000 for preparation and can count on 8000 man-days of work, how many acres
should be allocated to each crop to maximize profit.
Required: A. formulate the LPPM of the problem.
B. Find the optimal solution using the simplex algorithm
5. Food X contains 20 units of vitamin A and 40 units of Vitamin B per gram. Food Y contains 30
units each of Vitamin A and B. The daily minimum human requirement of vitamin A and B are 900
units and 1200 units respectively. How many grams of each type of food should be consumed so as to
minimize the cost, if food X costs birr 0.60 per gram and food Y costs birr 0.80 per gram.
Required: A. formulate the LPM of the problem
B. Find the optimal solution using graphical solution
6. An air force is experimenting with three types of bombs P, Q, and R in which three kinds of
Explosive viz, A, B and C will be used. Taking the various factors into consideration, it has been
decided to use the maximum 600 kg of explosive A, at least 480 kg of explosive B and Exactly 540 of
explosive C. Bomb P requires 3,2,2 kg of A,B,C respectively. Bomb Q requires 1, 4, 3 kg of A, B, and
C respectively. Bomb R requires 4, 2, 3 kg of A, B, C respectively. Now bomb P will give the
equivalent of 2 ton explosive, bomb Q will give 3 ton explosive and bomb R will give 4 ton explosive.
Under what production schedule can the Air Force make the biggest bang?
Required: formulate the LPPM of the model
7. A furniture workshop makes desks, chairs, and cabinet and bookcases. The work is carried out in
three major departments—designing, fabrication, and finishing. Time required per unit of product in
hours is
Department Desk Chair Cabinet Book Case Time available per week
Designing 4 2 3 3 800
Fabrication 10 6 8 7 1200
Finishing 10 8 8 8 800
Cost of operation per unit of the products is (birr)
Department Desk Chair Cabinet Book case
Designing 15 8 12 12
Fabrication 30 18 24 21
Finishing 35 28 25 21
Selling price/unit 175 95 145 130
Required: a. formulate the LPPM of the model
b. In order to maintain to maximize profits what should be the production program
8. Solve the following problems using graphical method
a. Max Z=15X1-10X2 b. Max Z=2X1+X2
St: St:
4X1+6X2 < 360 X1+2X2 < 10
3X1+0X2< 180 X1 +X2 < 6
0X1+5X2< 280 X1 - X2 < 2
X1, X2 > 0 X1 -2X2 < 1
X1, X2 >0
c. Max Z=10X1+15X2 d. .Min Z=4X1+2X2
St: St:
2X1+X2 < 26 3X1+X2 > 27
2X1+4X2< 56 - X1 -X2 < -27
-X1+X2< 5 X1 + 2 X2 > 30
X1, X2 > 0 X 1, X2 >0
9. Solve the following problems using simplex methods
a. Max Z=3x1 +5x2 b. Max Z=20x1 +10x2
Subject to: Subject to:
x2 < 6 5x1+4x2 < 250
3x1+2x2 < 18 2x1+5x2 < 150
x1, x2 >0 x1, x2 >0
c. Max Z=x1 + 1.5x2 +5x3+2x4
Sub. to
3x1 + 2x2 +x3+4x4 <6
2x1 + x2 +5x3+x4 <4
2x1 + 6x2 -4x3+8x4 =0
x1 + 3x2 -2x3+4x4 =0
X1, x2, x3, & x4 > 0
10. Given the following LPPM and its final simplex tableau answer the questions that follow.
Objective function: _____________________
Subject to
2X1 +X2+2X3 > 72
X1+X2-X3 > 18
X1, X2 & X3 > 0
The final (optimal) simplex tableau is given as follows assuming the X 1 represents food one, X 2
represents food two and X 3 represents food three. More over the first constraint represents
vitamin requirement and the second constraint represent protein requirement.
B C 20 10 14 0 0 RHS
X1 X2 X3 S1 S2
X3 14 1/3 0 1 -1/3 1 /3 18
X2 10 4/3 1 0 -1/3 -2/3 36
Z
C-Z
Required
a. write the objective function_____________________________
b. what is the shadow prices of the second constraints_________________
c. what is the range of feasibility for the first constraint___________________
d. what is the range of feasibility for the second constraint_________________
e. what is the range of optimality / insignificance for food one______________
f. what is the range of optimality/ insignificance for food three_____________
g. What impact on the solution will have a decrease of 9 units in vitamin constraints?
Variable Revised value
X3 ______________
X2 ______________
Z ______________
CHAPTER THREE
TRANSPORTATION AND ASSIGNMENT MODELS
The discussions and analysis on this chapter shall help you
 Describe the nature and use of transportation and assignment problems;
 Use the transportation method to solve problems;

 Deal with special cases of transportation problems;
 Use the assignment models to solve problems;
 Deal with special cases of assignment problems.
3.2. INTRODUCTION
One important application of linear programming has been in the area of the physical distribution
(transportation) of resources, from one place to another, to meet a specific set of requirements. The
transportation and assignment models are designed to address these LPPs of special formation and
objectives. This chapter describes two special –purpose algorithms: the transportation model and the
assignment model. Model formulation and manual solution are covered for each of these classes of
problems.
3.3. TRANSPORTATION PROBLEMS AND MODELS

Transportation problems deal with the distribution of goods from several points of supply (sources) to
a number of points of demand (destinations). They are usually applied to distribution type problems in
which supplies of goods that are held at various locations are to be distributed to other receiving
locations.
Objective of the transportation model
 to identify a distribution plan that would minimize the cost of transporting the goods from the
supply areas to the demand areas taking into account supply capacities and demand requirements
as well as transportation costs.
Application areas
We can use transportation model for various types of problems. For example:
 Shipments from factories to warehouses
 Shipments between departments within a company
 Analysis and selection among location alternative
 scheduling production operations etc
Necessary conditions for the model
A transportation problem typically involves a set of sending locations which are referred to as
origins(supply areas ) and a set of receiving locations which are referred to as destinations ( demand
areas). In order to develop a model of a transportation problem it is necessary to have the following
information:
1. Supply quantity (capacity) of each origin
2. Demand quantity of each destination
3. Unit transportation cost for each origin- destination route
Assumptions
The transportation model works under circumstances defined by certain assumptions some of
which are specified below.
1. All goods be homogeneous
2. Transportation costs are a direct linear function of the quantity shipped over any route
3. The total quantity available for shipment is equal to the total quantity demanded
The characteristics of transportation problem

1. A limited supply of one commodity is available at certain sources or origins.
2. There is demand for the commodity at several destinations
3. The quantities of supply at each source and the demand at each destination are constant.
4. The shipping or transportation costs per unit from each source to each destination are assumed
to be constant.
5. No shipments are allowed between sources or between destinations. All supply and demand
quantities are given in whole number or integers.
6. The problem is about determining how many units should be shipped from each source to each
destination so that all demands are satisfied at the minimum total shipping costs.
Example
Let’s consider that a firm has three factories /sources of supply/ from which it ships its product out
puts to four warehouses /point of demand/ located at various regions where its customer bases are
concentrated. The firm's production capacity at the three factories, the demand for the four distribution
centers located at various regions & the cost of shipping each unit from each factory to the warehouses
through each route is given as follows:
Factories Weekly supply capacity/in units
F1 5000
F2 6000
F3 2500
Warehouses weekly Demand quantity/ in units

W1 6000
W2 4000
W3 2000
W4 1500
Cost (in Birr) per unit

From W1 W2 W3 W4
F1 3 2 7 6
F2 7 5 2 3
F3 2 5 4 5
3.3.1. Solving for transportation problems

Solution Procedure
The solution algorithm to a transportation problem is summarized into the following steps:
Step 1: Formulate the transportation table
o Set up a transportation table with M- rows representing the number of supply areas and N-
columns representing the number of demand areas.
o The formulation of the problem is similar to that of linear programming. Here the
objective function is designed to minimize the total transportation cost and the constraints
are the supply and demand available at each source and destination respectively. The
origins are listed down the left side of the table, and the respective supply quantities are
listed down the right side of the table. The demand destination points are represented at
the top each column where as their respective requirements are specified at the bottom.
Step 2: Obtain an initial basic feasible solution
 For this there are 3 methods to find the initial feasible solution.
 North-West Corner Method (NWCM)
 Least Cost Method (LCM)
 Vogel’s Approximation Method (VAM)
 The initial solution obtained by any of the above three methods must satisfy the following
conditions.
o The solution must be feasible: it must satisfy all the supply and demand
constraints
o The number of positive allocations must equal to m+n-1, where m=the
number of rows (or origins or supply centers) and n= the number of columns (or
destination centers or demand centers)
Example
o If M=3 origins and N=4 destinations ==>M+N-1=3+4 -1=6 (i.e. for problem to have a feasible
solution, the transportation model/table should have 6 occupied cells).
o If the number of occupied cells is less than m+n-1, the solution is said to have degenerated, a
situation we shall discuss as one of the special issues in transportation problems.
Step 3: Test the initial solution for optimality

o If the current solution is optimal, then stop. Otherwise, determine the new improved solution.
o Two methods can be used to test feasible solutions for optimality
1. Stepping stone methods
2. Modified distribution method( MODI)
Step 4: Repeat step 3 until an optimal solution is reached
Example
Now let’s solve the factory-warehouse (the details are already provided above) problem
based on the rules and methods illustrated in the solution procedure.
1. CONSTRUCTING THE TRANSPORTATION TABLE/MODEL
Summarize all the given (supply, demand, and costs) information in the tabular form/model as
follows.
Destinations (dd) =j
Origin W1 W2 W3 W4 Factory
(Supply) Capacity =i
F1 3 2 7 6 5000
F2 7 5 2 3 6000
F3 2 5 4 5 2500
Requirements of the 4000

Warehouses
6000 2000 1500 13500
( Units of demand)
Note that we can solve the problem using LPPM, because transportation problem is a special type of
LPPM. It is just about formulating it as LPPM which can be done as follows:
o Let xij =The amount of commodity to be transported form source i (i =1,2,3) to
destination j ( j= 1,2,3,4).
o Then the objective function of the problem (minimization of the total transportation
cost) can be formulated as:
Min Z = 3x11 +2x12 + 7x13 +6 x14 + 7x21 +5x22 +2x23 + 3x24 + 2x31+5x32 +4x33+5x34
Subject to the constraints
a. Supply constraints:
x11 +x12 +x13 +x 14 =5000 F1 supply constraint
x21 + x22 + x23 +x24 =6000 F2 supply constraint
x31 +x32 +x33+x34 = 2500 F3 supply constraint
b. Demand constraints:
x11 + x21 + x31 = 6000 W1 demand constraint
x12 + x22 + x32 = 4000 W2 demand constraint
x13 + x23 +x33 = 2000 W3 demand constraint
x14 +x24 + x34 = 1500 W4 demand constraint
xij > 0 for all i& j
In the above LPP, there are m x n = 3x4 =12 decision variables & m + n = 3+4 =7 constraints. Thus, if
this problem is solved by the simplex method, then it may take considerable computational time.
To conceptualize the problem easily let’s represent of the problem using a Net work flow diagram
Origin Destination centers

(Sources of Supply)
(Point of demand centers
F1 5000 3
2 W1 6000
6 7
7
F2 6000 5
W2 4000
3 2
2
5
F3 2500 4
W3 2000
5
W4 1500
This LPP has 12 shipping routes. Determining the set of routes with the minimum total cost would be
the objective of the solution procedure and the transportation table prepares the problem for its
feasible then optimal solution.
2. FINDING INITIAL FEASIBLE SOLUTION FOR A TRANSPORTATION PROBLEM

METHODS/TECHNIQUES
There are several methods available to obtain an initial feasible solution of a transportation problem.
Here we shall discuss only three methods to obtain the initial feasible solution: each method has its
own rationales and merits that make it considered under certain circumstances. Our discussion,
therefore, will not be about comparing each method. We will rather try to develop feasible solutions
using each method as a rational approach to solve for transportation problems.
A. North- West Corner Method (NWCM)

This method does not take into account the cost of transportation on any route of transportation. It
rather focuses on physical proximity between supply origins and demand destination points to
generate the feasible solution.
The NWCM gets its name because it argues that the starting point for the allocation process should be
the Upper Left-hand (Northwest) corner of the transportation table.
Northwest corner rules
The following set of principles guides the allocation.
1. Begin with the upper left hand cell (Left, upper most in the table), & allocate as many
units as possible to that cell. This will be the smaller amount of either the row supply or
the column demand. Adjust the row & column quantities to reflect the allocation.
2. Subtract the amount allocated from the row supply & from the column demand and write
the remaining balance on the row and column.
3. If the column demand is zero, move to the cell next to the right, if the row supply is zero,
move down to the cell in the next row. If both are zero, move first to the next cell on the
right then down one cell.
4. Once a cell is identified as per step (3), it becomes a northwest cell. Allocate to it an amount
as per step (1)
5. Repeat, the above steps (1) - (4) until all the remaining supply and demand is gone.
Example
Consider the following transportation problem:
T Store 1 Store 2 Store 3 Store 4 Supply

F
Plant 1 19 30 50 10 7
Plant 2 70 30 40 60 9
Plant 3 40 8 70 20 18
Demand 5 8 7 14 34
Required
a. Develop an initial feasible solution using the NWCM
b. Compute the total cost for this solution.
Solution
a. Table: Initial feasible solution
To Store 1 Store 2 Store 3 Store 4 Supply
From
Plant 1 19 30 50 10 7
5 2
Plant 2 70 30 40 60 9
6 3
Plant 3 40 8 70 20 18
4 14
Demand 5 8 7 14 34
Check that the solution is feasible.

==>m + n-1; m=3 and n=4  3+4-1= 6 cells are occupied, so the solution is feasible.
The total transportation cost of the initial feasible solution derived by the NWCM is:
Route Unit Per unit Total
From To Shipped cost ( $) = Cost ( $)
Plant 1 Store 1 5 19 95
plant 1 Store 2 2 30 60
Total Cost= $ 1015
Note: NWCM does not consider the cost factor for allocation.
Example 2
1. Determine an initial basic feasible solution to the following transportation problem using NWCM
and compute the total cost for this solution
Destination
Origins A B C Supply
S1 2 7 14 5
S2 3 3 1 8
S3 5 4 7 7
S4 1 6 2 14
Demand 7 9 18 34
Answer: X11=5, X21=2, X22=6, X32=3, X33=4, X43=4, and Total cost =$10
Exercise/s
1. Consider that Haile's Sand & Gravel Pit has contracted to provide topsoil for three residential
housing developments. Topsoil can be supplied from three different “farms" as follows:
_______________________________________________________________
Weekly Capacity
Farm (Cubic meters)
A 100
B 200
C 200
_________________________________________________________________
Demand for the topsoil generated by the construction projects is:

_______________________________________________________________________________
Weekly Demand
Project (Cubic meters)
1 50
2 150
3 300
_______________________________________________________________
The manager of the sand & gravel pit has estimated the cost per cubic meter to ship over each
of the possible routes in Birr as follows:
Costs per cubic meter

Destinations
Origins Project # 1 Project #2 Project #3

Farm A 4 2 8
Farm B 5 1 9
Farm C 7 6 3
Required
o Develop the initial feasible solution using NWCM & compute the total cost for this solution.
B. The Least- Cost Method (LCM)

LCM is the method that considers the transportation cost the criteria to select the mix of the routes to
be used for transportation. It begins a solution by sequentially assigning to the cells with the minimum
cost as many units as possible. The first allocation is made to the cell with the lowest cost.
The Least- Cost Method yields not only an initial feasible solution but also one that is close to
optimal in small problems.
Example 1
Suppose that a firm has three factories / sources of supply /& four warehouses/point of
demand/.The firm's production capacity at the three factories, the demand for the four
destination centers located at various regions & the cost of shipping each unit from the
factories to the warehouses through each route is given as follows:
Destinations
Origins W1 W2 W3 W4 Factory
Capacity
F1 3 2 7 6 5000
F2 7 5 2 3 6000
F3 2 5 4 5 2500
Demand 6000 4000 2000 1500 13500
Required
a. Develop an initial feasible solution using NWCM & Compute the total cost
b. Develop an initial feasible solution using least-cost method & compute the total cost.
Solution
a. Initial feasible solution using NWCM
W1 W2 W3 W4 Factory Capacity
F1 3 2 7 6 5000
5000
Factory F2 7 5 2 3 6000
1000 4000 1000
F3 2 5 4 5 2500
1000 1500
Demand 6000 4000 2000 1500 13500
Let’s check the solution for feasibility
m= 3, n =4 ==> 3+4 -1 =6 cells are occupied, indicating a feasible solution
The total cost of the solution is computed as follows
From To Units Shipped Unit Cost Total Cost

F1 W1 5000 3 Br.15000
F2 W1 1000 7 7000
F2 W2 4000 5 20000
F2 W3 1000 2 2000
F3 W3 1000 4 4000
F3 W4 1500 5 7500
Total transportation cost =Br. 55,500
b. Initial feasible solution using LCM

W1 W2 W3 W4 Factory Capacity
F1 3 2 7 6 5000
1000 4000
F2 7 5 2 3 6000
2500 2000 1500
F3 2 5 4 5 2500
2500
Demand 6000 4000 2000 1500 13500
Routes Units Unit Total cost

From To Shipped X Cost
F1 W1 1000 3 Br. 3000
F1 W2 4000 2 8000
F2 W1 2500 7 17500
F2 W3 2000 2 4000
F2 W4 1500 3 4500
F3 W1 2500 2 5000
Total transportation cost = Birr 42,000

Since m= 3, n=4 ==> 3+4-1 = 6 is the number of occupied cells, the solution is feasible.
Example 2
Develop the initial feasible solution for the following TP using the least-cost method (LCM)
To D E F G Supply
From
A 1 5 3 4 100
B 4 2 2 5 60
C 3 1 2 4 120
DD 70 50 100 60 280
Solution
o The 1st allocation should be made to the cell with the least-cost.
o Cells AD & CD both have the lowest cost of $1.
o Cell AD is selected 1st because more units can be allocated to it (70) than to cell CE (50).
The initial solution by the least -cost method
Destination D E F G Supply
Source
A 1 5 3 4 100
70 30
B 4 2 2 5 60
30 30
C 3 1 2 4 120
50 70
Demand 70 50 100 60 280
Routes Units Unit Total

From To Shipped X Cost in birr =Cost
A D 70 1 Br.70
B F 30 2 60
B G 30 5 150
C E 50 1 50
C F 70 2 140
Total transportation cost = Br. 470

m=3, n=4 ==> 3+4-1 = 6 occupied cells meaning the solution is feasible.
C. Vogel's Approximation Method (VAM) or Penalty Cost Method
VAM prefers to solve transportation problems from a different angle other than those considered in
the other two methods described above. In this method each allocation is made on the basis of the
opportunity (or penalty or extra) cost that would have been incurred if allocation in certain cells with
minimum unit transportation cost were missed. VAM determines the penalty for not using the
minimum cost routes, where the objective is to avoid large penalties so that the penalty from not
using the routes is minimized.
In this method allocation is made so that the penalty cost is minimized. The advantage of this method
is that it gives an initial solution which is nearer to an optimal solution or is the optimal solution itself.
The steps in the VAM solution procedure are listed down as follows:
1. Calculate penalties for each row (column) by taking the smallest & the next smallest unit
transportation cost in the same row (column). This difference indicates the penalty or extra cost
which has to be paid if one fails to allocate to the cell with the minimum unit transportation
cost
2. Select the row or column with the largest penalty & allocate as much unit as possible in the cell
having the least cost in the selected row or column satisfying the conditions. If there is a tie in
the values of penalties, then it can be broken by selecting the cell where maximum allocation
can be made.
3. Adjust the supply & demand & cross out the satisfied row or column. If a row or column is
satisfied simultaneously, only one of them is crossed out & the remaining row (column) is
assigned a zero supply (demand). .Any row or column with zero supply or demand should not
be used in computing future penalties.
4. Repeat step 1 to 3 until the entire available supply at various sources & demand at various
destinations are satisfied.
Example 1
Determine an initial feasible solution to the following transportation problem using VAM.
Warehouse
Row difference or Row penalty
A B C D Supply or opportunity cost
F1 2 2 0 4 25
Factory 5 20 2 0 - - -
F2 5 9 8 3 25
15 5 5 2 2 2 2 5
F3 6 4 3 2 10
10 1 2 2 - -
Demand 20 15 20 5 60
Column difference 3 2 3 1
or Column penalty
or opportunity cost 3 2 - 1
1 5 - 1
5 9 - -
5 - - -
Feasibility
o m= 3, n=4 ==> 3+4-1 =6 occupied cells (feasible)
Total transportation cost associated with this solution is:
o Total cost= 5x2 + 20x0+15x5x9 =+95x3+10x4= $185
Exercise
A dairy firm has three plants located in different regions. The list of daily milk production at each
plant is provided as follows:
Plant 1: 6 million liters.
Plant 2: 1 million liters, &
Plant 3: 10 million liters
Each day the firm must fulfill the needs of its four distribution centers. Minimum requirement at
each center is given below.
Distribution center 1: 7 million liters
" " 2: 5 " "
" " 3: 3 " "
" " 4: 2 " "
Cost of shipping one million liters form each plant to each distribution center is given in the
following table in hundreds of dollar.
Distribution Center
D1 D2 D3 D4
P1 2 3 11 7
P2 1 0 6 1
Plant
P3 5 8 15 9
Required
Find the initial basic feasible solution by:
a. North-west corner method
b. LCM
c. VAM
HINTS
a. Total cost of NWCM = $11, 600
b. Total cost of LCM= $11,200
C. total cost of VAM = ?
3. TESTING FEASIBLE SOLUTIONS FOR OPTIMALITY

Once an initial solution is available, the next step is to check it for optimality. An optimal solution is
one in which there is no opportunity cost. That is, there is no other set of transportation routes
(allocations) that will reduce the total opportunity cost. Thus we have to evaluate each unoccupied cell
(represents unused route) in the transportation table in terms of opportunity cost.
Purpose of the optimality test

o To see if the proposed solution just generated can be improved or not. The solution to be
checked for optimality must be non-degenerate i.e. the no of occupied cells must be >m+n-1.
Procedure for testing optimality

It is analogous to that of the simplex method.
o A distinction is made between basic variables, those associated with occupied cells & non-
basic variables, those associated with the empty cells.
o For each empty cell, the effect of changing it to an occupied cell is examined.
o If any of these changes are favorable, the solution is not optimal & a new solution must be
designed. A favorable change means an increase in the value of the objective function in
maximization problems or a decrease in minimization problems.
Optimality Testing Methods

Optimum solution to a TP can be obtained by following two methods. These methods are much
simpler compared to simplex method of an LPP. They are:
A. Stepping stone Method

B. Modified Distribution (MODI ) Method
A. Stepping-stone method
It is an iterative technique of moving from an initial feasible solution to an optimal solution in a
transportation problem.
For the stepping- stone method to be applied to a transportation problem, one rule about the n o of
shipping routes being used must be observed. The rule states that:
o The No of occupied routes (or squares) must always be equal or greater than to one less
than the sum of the no of rows plus the no of columns." i.e. Occupied shipping routes
(squares) > No of rows + No of columns - Non degenerate solution.
Rules for drawing each closed loop:

1. Select an unused square (cell) to be evaluates.
2.Beginning at this cell, trace a closed loop going clockwise draw an arrow to an occupied cell in the
same row ( or column).
3. Move vertically or horizontally (but never diagonally) to another occupied cell “stepping –over”
unoccupied or occupied cells (if necessary) without changing them. Follow the same procedure to
other occupied cells until returning to the original empty cell.
4. Begin with a plus (+) sign at the unused cell, place alternative (-) signs and plus signs on each
corner square of the closed path just traced. I.e. At each turn of the loop (the loop may cross over
itself at times), plus and minus signs are alternately placed in the cells, starting with a + sign in an
empty cell.
5. There must be exactly one cell with a + sign and exactly one cell with a - sign in any row or
column in which the loop turns.
6. An even no of at least four cells must participate in a loop and the occupied cells can be visited
once and only once.
7. Repeat steps 1 to 4 until an improvement index has been calculated for all unused squares (cells). If
all indices computed are greater than or equal to zero, an optimal solution has been reached. If
not, it is possible to improve the current solution and decrease total shipping costs.
Note
In a non-degenerate problem, there is only one possible way of drawing the loop for each
empty cell.
How to find the value of a cell evaluator

o The value of a cell evaluator is the sum of the per unit shipping costs in the gaining cells less
the sum of the per unit shipping costs in the losing cells of the closed loop. This evaluation
process must be extended to all unoccupied cells.
o If one or more of the cell evaluators is negative, the existing solution is not optimal. i.e.: For
minimization (cost) problems, all the cell evaluators must be positive for us to claim
optimality.
Analysis of test
o Check all the empty cells and select for improvement the one with the largest improvement
potential.
Improving a solution/optimization
If the tested solution is not optimal, the next step in the transportation method is to find a better
solution. The operations in this step are:
a. Identify the “incoming" cell (the empty cell to be occupied) - In a minimization case, the
incoming cell is located by identifying the most negative cell evaluator
b. Design an improved solution, by shifting units form cell to cell
Note
 A cell evaluator of 0 indicates the existence of another solution just as good as the current solution. Thus,
in the final solution, if cell evaluators of 0 exist, this indicates the existence of multiple optimal solutions.
 If two or more cells have the same value, then either may be selected.
 If two or more of the "losing" cells contain the same no of units, both will become empty simultaneously
and a “degenerate" solution will result.
 For the minimization case; when one or more cell evaluators are negatives, the cell with the largest
negative should be brought into solution because that route has the largest potential for improvement per
unit.
 The loop starts and ends at the selected unoccupied cell. Every corner element of the loop must be an
occupied cell.
Example 1
Use NWCM to find initial feasible solution and test the solution for optimality.
Solution
Project Project Project ss

A B C
F1 4 2 8 100
50 50
F2 5 1 9 200
100 100
F3 7 6 3 200
200
Dd 50 150 300 500
Feasibility
m=3, n=3==> 3+3-1=5 (Non-degenerate solution)
Total transportation cost = $[50x4+50x2+100x1+100x9+200x3] = $1900
Evaluation path for the unoccupied cells
Table: Test of optimality
Unoccupied cells Cell evaluators

(F2 ,A) +5-4+2-1=+2
(F1 ,C) +8-9+1-2=-2
(F3 ,A) +7-4+2-1+9-3=+10
(F3 ,B) +6-1+9-3=+11
The negative value for cell (F1, C) indicates an improved solution is possible. For each unit we can
shift into that cell, the total cost will decrease by $2. The next question is how many units can be
reallocated into that cell while retaining the balance of supply and demand for that table?
The Stepping- stone path for cell (F1, C) is:

o The + Signs in the path indicate units to be added, the - signs indicate units to be subtracted.
o The limit on subtraction is the smallest quantity in a negative position along the cell path.
o There are two quantities in negative positions, 50 and 100. Because 50 is the smaller quantity
will be shifted in the following manner:
o Subtract 50 units from each cell on the path with a - sign and add 50 units to the quantity of
each cell with a + sign in it.
With each iteration (new solution), it is necessary to evaluate the empty cells to see if further
improvements is possible.
The distribution plan after reallocation of 50 units is:

A B C ss
F1 4 2 8 100
50 50
F2 5 1 9 200
150 50
F3 7 6 3 200
200
Dd 50 150 300 500

(F1 ,B) +2 -8+9-1 =+2
(F2 ,A) +5 -4+8-9 =0
(F3 ,A) +7-4+8-3 =+8
(F3 ,A) +6-1+9-3= +11
Because none of these no is negative, this is an optimal solution. Therefore, the total cost for the
distribution plan is:
The total transportation cost = $ (50x4 +50x8 150x1+50x9 +200x3) = $1,800
Exercises
1. Consider the following transportation problem
Store 1 Store 2 Store3 Supply
A 12 20 15 50
Warehouses
B 9 11 4 15
C 20 14 8 55
DD 25 50 45 120
a. Develop an initial feasible solution using the NWCM. And compute the total cost for this
solution.
b. Evaluate the solution using the stepping-stone method. Is the solution optimal? Explain.
c. What is the total cost for the optimal solution?
B. Modified Distribution Method (MODI Method)

It is another algorithm to find the optimal solution to a transportation problem.
The MODI method allows us to compute improvement indices quickly for each unused cell with out
drawing all of the closed paths. Because of this, it can often provide considerable time savings over
the stepping-stone method for solving transportation problems.
[
MODI provides a new means of finding the unused route with the largest negative improvement
index. Once the largest index is identified, we are required to trace only one closed path. Just as with
the stepping-stone approach, this path helps to determine the maximum N o of units that can be shipped
via the best unused route.
Steps in the MODI Method

The steps to evaluate unoccupied calls are as follows:
1. For an initial basic feasible solution, calculate Ui and Vj ;for rows and columns
Cij = Ui + Vj for all occupied calls (i , j)

i.e.: Cell cost= Raw Index +Column Index
2. For unoccupied cells, calculate opportunity cost by using the relation:
Kij = Cij– Ui - Vj ; for all j and j.

I.e. cell cost –row index- column index
3. Examine the sign of each Kij :

i. If Kij > 0, then current basic feasible solution is optimal.
ii. If Kij = 0, then the current basic feasible solution will remain be unaffected but an
alternative solution exists.
iii. If one or more Kij < 0, then an improved solution be obtained entering unoccupied
cell (i, j), in the basis. An unoccupied cell having the largest negative value of Kij is
chosen for entering into the solution mix (new transportation schedule)
4. Solve the problem as you did using the stepping-stone method.
Construct a closed path (or loop) for the unoccupied cell with largest negative opportunity
cost. Start the close path with the selected unoccupied cell and mark a plus sign (+) and in
this cell, trace a path along the rows (or columns) to an occupied cell, mark the corner
with minus sign (-) and continue down the column (or row) to an occupied cell and mark
the corner with plus sign (+) and minus sign (-) alternatively. Close the path back to the
selected unoccupied call.
Locate the smallest quantity allocated to a cell marked with a minus sign. Allocate this
value to the selected unoccupied cell and add it to other occupied cells marked with plus
signs and subtract it from the occupied cells marked with minus signs.
5. Obtain a new improved solution by allocating units to the unoccupied call and calculate
the new transportation cost.
6. Test the revised solution for optimality.
Note
 Any initial feasible solution will do: NWCM, VAM Solution, or any arbitrary assignment.
 The stepping- stone method is efficient for small sized transportation problems. For larger
problems, however, the MODI method is recommended.
Example 1
Obtain an optimal solution to the following transportation problem through the MODI method
Project Project Project Supply

No 1 No 2 No 3
Farm 1 4 2 8 100
Farm 2 5 1 9 200
Farm 3 7 6 3 200
DD 50 150 300 500
Solution
o Conventionally, we begin by assigning a value of zero as the index for row 1 (U1=0).
o Once row index has been established, it will enable us to compute column index numbers for
all occupied cells in that row.
o Similarly, once a column index number has been determined, index numbers for all rows
corresponding to occupied cells in that column can be determined.
In this view, the NWCM solution can be tested through the MODI as shown below:
Initial solution: NWCM
Project Project Project Supply Ui

No 1 No 2 No 3
Farm 1 4 2 8 100 U1=0

50 50
Farm 2 5 1 9 200 U2=1

100 100
Farm 3 7 6 3 200 U3=-7
200
Demand 150 300 500

50
Vj V1=4 V2=2 V3=10

To determine Cij, use the occupied cells.
For instance, C11=4, C12=2, C22=1, C23=9, and C33=3
Cij= Ui + Vj
==>C11= U1 +V1==>4=0+ V1==> V1=4 , U1=0 by convention
==>C12= U1 +V2==>2=0 +V2==> V1=2
==>C22= U2 +V2==>1= U2+ 0==> U2=-1
==>C23= U2 +V3==>9= -1+V3==> V3=10
==>C33= U3 +V3==>3= U3+10 ==> U3= -7
Now, let’s evaluate the unoccupied cells where:

Cij≠ Ui + Vj (For unoccupied cells)
For instance, from the above information, C32 ≠ U3 + V2==>6≠-7+2
Table: results from Test of optimality

Kij = Cij– Ui - Vj
(1,3) C13 – U1 -V3=8-0-10= -2
(2,1) C21 – U2 -1=5+1-4=+2
(3,1) C31– U3 -V1=7+7-4=10
(3,2) C32– U3 -V2=6+7-2=+11
In this case, we found that cell (1, 3) had an evaluation of -2, which indicates that there is a potential
for improvement of total cost by $ 2 per unit. Hence, an improved solution is possible.
Note
 Solutions tested through the MODI are improved/optimized using the stepping stone
approach
The stepping-stone path for cell (1, 3) is:
Project Project Project Supply

No 1 No 2 No 3
Farm 1 4 2 8 100
50 50
Farm 2 5 1 9 200
100 100
Farm 3 7 6 3 200
200
Demand 150 300 500
50
The distribution plan after reallocation of 50 units is:
Project Project Project Supply Ui

No 1 No 2 No 3
Farm 1 4 2 8 100 U1=0
50 50
Farm 2 5 1 9 200 U2=1
+-100 100 +-
Farm 3 7 6 3 200 U3=-5
200
Demand 150 300 500
50
Vj V1=4 V2=0 V3=8
Cij= Ui + Vj
==>C11= U1 +V1==>4=0+ V1==> V1=4 , U1=0 by convention
==>C13= U1 +V3==>8=0 +V3==> V3=8
==>C23= U2 +V3==>1= U2+ 0==> U2=1
==>C22= U2 +V2==>1= 1+V2==> V2= 0
==>C33= U3 +V3==>3= U3+8 ==> U3= -5

(1,2) C12– U1 -V2=2-0-0= 2
(2,1) C21 – U2 -V1=5-1-4=0
(3,1) C31– U3 -V1=7+5-4=8
(3,2) C32– U3 -V2=6+5-0=+11
Optimality
o Because none of the cell evaluators is negative, this is an optimal solution.
o Thus, the total cost for the distribution plan =$1800
Exercises
1. Consider the transportation problem given below.
D1 D2 D3 D3 Supply
Farm 1 19 30 50 10 7
Farm 2 70 30 40 60 9
Farm 3 40 8 70 20 18
DD 8 7 34
5 14
Required
a. Generate its feasible solution using the NWCM and VAM
b. Test the solutions through stepping stone and MODI
2. A company has four ware houses a, b, c and d. It is required to deliver a product from these
warehouses to three customers P, Q, and R. The warehouses have the following amounts in stock:
Ware house: a b c D
No of units: 15 16 12 13
And the customer’s requirements are:

Customer: P Q R
No of units: 18 20 18
The table below shows the costs of transporting one unit from warehouse to customer.
A b C D
P 8 9 6 3
Q 6 11 5 10
R 3 8 7 9
Required
a. Find the feasible transportation routes using the LCM and test the solution using the stepping stone.
3. A manufacturer owns distribution centers at X, Y and Z. These centers have 40, 20, and 40 units
of his product. His retail outlets at A, B, C, D and E require 25,10,20,30 and 15 units respectively.
The data concerning transportation cost (in $) per unit between each distribution center and retail
outlet is given below:
Retail outlets
Distribution
center
A B C D E
X 55 30 40 50 40
Y 35 30 100 45 60
Z 40 60 95 35 30
Required
 Determine the optimal distribution to minimize the cost of transportation.
3.4. SPECIAL CASES IN TRANSPORTATION PROBLEMS

There are certain situations where we may be challenged by transportation problems whose
nature and composition does not fall in to the domain of the problems that we have addressed
so far. These problems are treated as special cases and need some adjustments before being
solved for feasibility and optimality. Some of these cases are discussed in this section
including the adjustment techniques.
I. Degeneracy
This is a condition that occurs when the No of occupied cells in any solutions is less than the No of
rows plus the No of columns minus 1 in a transportation table.
I.e. No of occupied calls < m+ n -1 .....................Degeneracy
If the No of occupied cells = m+n-1, then the solution is non- degenerate.
The degeneracy in the transportation problems may occur at two stages:

1. when obtaining an initial solution
2. During improvement (or at any stage while moving to wards optimal solution).
Adjustment
To resolve degeneracy, we proceed by allocating a very small quantity (close to zero) to one or more
unoccupied cell/s so as to get m+n-1 = number of occupied cells. This amount is denoted by a Greek
letter  (epsilon) or (delta). This quantity would not affect the total cost as well as supply and
demand values.
 = Almost zero
The purpose of epsilon/delta is to enable evaluation of the remaining empty cells. The choice of
location for the epsilon/delta can be some what tricky: some empty cells may be unsuitable if they do
not enable evaluations of remaining empty cells. Not all choices would be acceptable.
Actually, the No of epsilon/deltas needed will equal the difference between the N o of completed cells
and m+n-1.Howerver; you will only be exposed to the most common case in which one more
completed cell is needed.
Where to place delta/epsilon
 In a minimization transportation problem, it should be allocated to a cell that has the
smallest transportation cost. Insert  when it is able to create a closed loop for each
occupied cell.
 The epsilon/delta cannot be placed in a cell which later turns out to be in a negative
position of a cell path involved in reallocation because epsilon/delta will be the “smallest
quantity a negative position “ and shifting that minute quantity around the cell path will
leave the solution virtually unchanged.
 Its placement should also enable us evaluate all unoccupied cells in the transportation
table
Example
Solve the following transportation problem.
1 2 Supply
1 3 3 50
2 4 6 30
Demand 50 30 80
Solution
Using NWCM and MODI, the initial solution is:
1 2 Supply Ui
1 3 3 50 U1=0
50 
2 4 6 30 U2=3
30
Demand 50 30 80
Vj V1=3 V2=3
Cij= Ui + Vj
==>C11= U1 +V1==>3=0+ V1==> V1=3, U1=0 by convention
==>C12= U1 +V2==>3=0 +V2==> V2=3
==>C22= U2 +V2==>6= U2+3==> U2= 3
==>C33= U3 +V3==>3= U3+8 ==> U3= -5
Note: m=2 and n=2==>2+2-1=3==>Occupied cells=2< 3 (Degeneracy)
Unoccupied cell Cell evaluator

(2,1) C21 – U2 -V1=4-3-3 =-2
The optimal solution is:
1 2 Supply Ui
1 3 3 50 U1=0
50 30
2 4 6 30 U2=1
30
Demand 50 30 80
Vj V1=3 V2=3
Cij= Ui + Vj
==>C11=U1+V1==>3=0+V1==>V1=3, U1=0 by convention
==>C21= U2+V1==>4= U2+3==> U2=3
==>C12= U1 +V2==>3= 0+ V2==> V2= 3

Kij = Cij– (Ui + Vj)
(2,2) C22– U2 -V2=6-1-3= +2
The total cost= $(20x3+30x3+30x40=$270
II. Alternative Optimal solutions

The existence of alternative optimal solution can be determined by an inspection of the opportunity
costs, Kij for the unoccupied cells. If an unoccupied cell in an optimal solution has opportunity cost of
zero, then an alternative optimal solution can be formed with another set of allocations without
increasing the total transportation cost.
Exercise
1. XYZ Tobacco Company purchases tobacco and stores it in warehouses located in the following
four cities.
warehouse location Capacity (Tones)
City A 90
City B 50
City C 80
city D 60
The warehouses supply tobacco to cigarette companies in three cities that have the following demand:
Cigarette Company Demand (Tones)
L 120
P 100
Q 110
The following railroad shipping costs per tone (in hundred dollars) have been determined:
Warehouse L p Q
A 7 10 5
B 12 9 4
C 7 3 11
D 9 5 7
Because of rail road construction, shipments are temporarily from warehouse at city A to L Cigarette
Company.
A. Find the optimum distribution for XYZ Tobacco Company.
B. Are there multiple optimum solutions? If there are alternative optimum solutions, identify
them.
III. Prohibited Transportation Routes

This case arises when it is not possible to transport goods from certain sources to certain destinations.
This may happen due to circumstances such as road hazards (snow, floods, etc), traffic regulation,
equipment break down, labour problem etc,.
To solve such kinds of problem, assign a cost 10 times the largest cost in the table and then it will be
uneconomical to transport to that cell. Then do as usual. (Initial feasible solution by
NWCM/LCM/VAM and optimal solution by stepping stone /MODI)
Example
A B C D Supply
S1 1 5 3 3 34
S2 3 3 1 2 15
S3 0 2 2 4 12
S4 2 7 2 4 19
Demand 21 25 17 17
Note that due to uncontrollable reason it is impossible to transport from S 3 to C. So to solve the
problem fist adjust it as follows
A B C D Supply
S1 1 5 3 3 34
S2 3 3 1 2 15
S3 0 2 70 4 12
S4 2 7 2 4 19
Demand 21 25 17 17
The cell cost of S3C i.e. 2 will be replaced by 70 i.e. 7 * 10, because 7 is the largest cost in the table.
Then do as usual.
IV. Unequal Demand and Supply

Where the total periodic supply quantity is not equal to that of demand, the problem is labeled
unbalanced. Both quantities are assumed to be equal, as required in the transportation solution
procedure.
Adjustments
Convert the unbalanced TP into a balanced TP by using dummy destination/dummy source.
 If total Supply > Total demand, then create a fictitious or artificial destination called
dummy destination i.e.: total Supply > Total demand===> Add dummy column
 But if excess demand (Supply < demand) exists add a dummy source (add a dummy row)
 the cost of “shipments” to the dummy is usually set at zero ==> No real cost. This means
that the cells in the dummy row/column are assigned with zero costs to indicate that
transportation is not really going to take place through these cells.
 Allocation to the dummy cells should take place last.
Example
Consider the following TP
Destination
R S T SS
A 1 2 3 100
Origin
B 4 1 5 110
210
DD 80 120 60
260
Required
a. Obtain the basic feasible solution using VAM
b. Obtain the optimal solution
c. What is the optimal shipping cost?
Solution
a. Initial feasible solution
To
ss
From
R S T
Opportunity cost
1 2 3 100
A 10 10
80 1 1 1 1
4 1 5 110
B 110 3 3 - -
Dummy 0 0 0 50
Dd 80 120 60 260 0 - - -
Opportunity 1 1 3
3 1 2
cost 1 2 3
1 2 -
b. Test of optimality.

(B,R) +4-1+2-1= +4 Since none of the cell evaluators is negative,
(B,T) +5-1+2-3= +3 the above feasible solution is optimal.
(D,R) +0-1+3-0= +2 Thus, the distribution is managed as
(D,S) +0-2+3-0= +1 follows
A Supplies 80 units to warehouse R
B Supplies 10 units to warehouse S
C Supplies 10 units to warehouse T
B Supplies 110 units to warehouse S
c. The total optimal shipping cost is = $240
V. Maximization Problem
Organizations that specialize in providing transportation services, work on transportation type
problems with profit (revenue) maximization objectives.
Adjustments
When facing this situation, we first change the problem to a minimization type. The steps are:
 Select the largest unit profit from the entire transportation table
 Subtract each cell profit/value from the selected/ largest cell profit
 Use the new figures to formulate the minimization/opportunity loss table
 follow the standard procedure to solve for the problem
Example
T A B C SS
F
1 6 8 10 150
2 7 11 11 175
3 4 5 12 275
DD 200 100 300 600
Solution
 To change the above maximization problem to a minimization type first identify the largest
unit profit from the cell (12) then subtract all the cells values from this largest selected value
as indicated below( 12-6=6, for cell1A, 12- 8=4, etc ).
 This yields opportunity loss figures.
 Then proceed as usual.
For example if we use LCM to develop the initial solution and MODI for optimality test the solution
will be as illustrated here under:
A B C SS
F
1 6 4 2 150
150 U1=0
2 5 1 1 175
50 100 25
3 8 7 0 275
275
DD 200 100 300 600
U2=-1
U3=-2
v1= 6 v2= 2 v3= 2

(1,B) 4-0-2=2
(1,C) 2-0-2=0
(3,A) 8+2-6=4
All the improvement index are o and +ve, we
(3,B) 7+2-2=7
reached the optimal solution. The optimal
solution is:
Routes Units Unit Total

From To Shipped X Cost =Cost
1 A 150 6 $ 900
2 A 50 7 350
2 C 100 11 1100
3 C 25 11 275
275 12 3300
Total profit gained =5925
3.5. ASSIGNMENT PROBLEMS AND MODELS

The Assignment Problem(AP) refers to the class of LPPs that involves determining the most efficient
assignment of people to projects, salespeople to territories, contracts to bidders ,jobs to machines,
and so on
The problem of assignment arises because available resources such as personnel, machines, etc have
varying degrees of efficiency for performing different activities/jobs. Therefore, cost, profit or time of
performing the different activities is different.
Objective
 To assign a number of resources to an equal number of activities so as to minimize total costs
or total time or maximize total profit of allocation.
Assumptions
The AP is a special case of TP under the condition that the number of origins is equal to the number of
destinations. That is, m=n .Hence assignment is made on the basis of 1:1relationship.
Following are the assumptions
 Number of jobs is equal to the number of machines or persons
 Each man or machine is loaded with one and only one job.
 Each man or machine is independently capable of handling any of the jobs being presented.
 Loading criteria must be clearly specified such as “minimizing operating time” or “maximizing
profit” ,or “minimizing production cost” or “minimizing throughout (production cycle) time ”
etc.
Note
 The AP is considered as a special TP in which the supply at each source and the demand at each
destination are always one unit.
 Since the supply and demand are always equal to one unit in each row and column, there is no
need to write them in the assignment table.
Example
Service costs of different team assignment ($ in thousands)
Table: The assignment table Z1 Z2 Z3

Zone
SS
Seri
Z Z1 Z2 Z3 S1 20 15 31 1
S2 17 16 33 1
Se
S3 18 19 27 1
S1 20 15 31 ====> DD 1 1 1
S2 17 16 33
S3 18 19 27
The above problem can be presented as a LPP as follows:

MinZ = 20x11 +15x12 + 31x13 +17x21 +16x22 +33x23 +18x31+19x32 +27x33
Subject to the constraints
a. Supply constraints:
x11 +x12 +x13 =1 S1 constraint
x21 + x22 + x23 =1 S2 constraint
x31 +x32 +x33 = 1 S3 supply constraint
b. Demand constraints
x11 + x21 + x31 = 1 Z1 constraint
x12 + x22 + x32 = 1 Z2 constraint
x13 + x23 +x33 = 1 Z3 constraint
xij either 0 or 1 for all i , j
Since all xij can be either 0 or 1, there will be one assignment in each supply constraint and one
assignment in each demand constraint.
As in the transportation problem, assignment problems can be balanced or not. In a balanced case, the
number of objects to be assigned equals the number of objects to which they are assigned. Unbalanced
problem can be balanced by adding a dummy (dummies) with zero cost coefficients.
3.5.1. Methods of solving assignment problems

An assignment problem can be solved by the following methods:
1. Enumeration method
2. Simplex method
3. Transportation method
4. Hungarian method
1. Hungarian Method/Flood’s Technique/

The Hungarian Method (developed by Hungarian mathematician D.Konig) of assignment provides us
with efficient method of finding the optimal solution without having to make a direct comparison of
every solution. It works on the principle of reducing the given cost matrix (the principle of matrix
reduction) to a matrix of opportunity costs, which means that by subtracting and adding appropriate
numbers in the cost table or matrix ,we can reduce the problem to a matrix of opportunity costs.
Opportunity costs show the relative penalties associated with assigning resource to an activity as
opposed to making the best or least-cost assignment. If we can reduce the cost matrix to the extent of
having at least one zero in each row and column, then it will be possible to make optimal assignments.
Solution procedure
The Hungarian method adopts the following steps to generate the feasible then optimal
solutions of assignment problems.
Step.1. Develop the cost table from the given problem
 The model of the assignment problem is a tabular structure with equal number of rows versus
columns. The table includes the jobs to be assigned, the resources to be assigned to, and the
assignment cost per unit. It should show the exclusive combination between the activities/task
and resources to which the activities are to be assigned. If the number of rows does not equal
the number of columns and vice versa, then a dummy row or dummy column must be added.
The assignment costs for dummy cells are always zero.
Step 2.Find the opportunity cost table

 The transformation of the cost matrix that you have learned in TP is termed as a total-
opportunity cost matrix in assignment problem.
 It involves two operations:
a. Perform row operation
 Locate the smallest element in each row of the given cost table and then
subtract that from each element of that row. Use the new figures to formulate
the row opportunity cost table.
b. Perform column operation
 In the reduced matrix obtained from (a), locate the smallest element in each
column and then subtract that from each element of that column. Use the new
figures to formulate the column opportunity cost table.
 Notice that each row and each column now have at least one zero value.
Step 3.Test for an optimal assignment

 Test the table resulting from step 2 to see whether an optimal assignment can be made. The
procedure is:
a. Draw the minimum number of Horizontal and /or Vertical lines necessary to cover all
zeros costs.
Draw the lines by trial and error but always try to cover two or more zeros with one
line.
b. Count the number of lines
If the number of lines equals either the number of rows or columns in the table, an
optimal assignment can be made. If the number of lines is less than the number of
rows or columns, an improvement is possible (we proceed to step 4).
Step 4.Improve the present opportunity cost table (matrix)

 This is done by the following operations:
a. Find the smallest entry in the uncovered cells (cells with no lines through them) and
subtract it from all entries in the uncovered cells.
b. Add the same smallest entry to those cells in which the lines intersect (cells with two
lines them)
c. Cells with one line through them are transferred (i.e. unchanged to the improved table).
In those problems where the first improvement does not yield an optimal solution, we keep
on improving the solution by repeating step 4 until an optimal solution is achieved.
Step 5: Make an optimal assignment

 An optimal assignment should be made to cells with a zero entry, maintaining the one-to-one
requirement
 If more than one optimal solution exists, a trial-and –error approach can be used to find all
possible combination assignments in the zero cells.
 Note that multiple optimal solutions are possible.
Example 1
A computer center has three programmers. The center wants three application programs to be
developed. The head of the computer center, after studying carefully the programs to be
developed, estimate the computer time in minutes required by the experts for the application
programs as follows:
Programs
(Estimated time in minute)
A B C
Programmers 1 120 100 80

2 80 90 110
3 110 140 120
Required
Assign the programmers to the programs in such a way that the total computing time is the
minimum.
Solution
Steps 1 and 2:
a. Perform row reduction
 The minimum time element in row 1, 2, and 3 is 80, 80 and 110

respectively. Subtract those elements from all elements in there respective
row. The reduced time matrix is:
Table: After row reduction
A B C
Row minimum
-80 1 40 20 0
-80 2 0 10 30
-110 3 0 30 10
b. Column reduction
 Since column B has no one ‘0’, perform also column reduction. The minimum
time element in columns A, B and C is 0, 10 and 0 respectively. Subtract these
elements from all elements in their respective column to get the reduced time
matrix.
Table: After column reduction
A B C
1 40 10 0
2 0 0 30
3 0 20 10
Step 3: Test for an optimal assignment

a. Draw the minimum number of horizontal and /or vertical lines necessary to cover all zero
times (costs).
Table: Test of optimal assignment
A B C
1 40 10 0
2 0 0 30
3 0 20 10
b. Count the number of lines

 If the number of lines is equal to the number of rows/columns, the optimal
solution is obtained. Thus proceed directly to step 5.
Step 5.Make an optimal assignment

 An optimal assignment should be made to cells with a zero entry, maintaining the
one-to-one requirement.
Table: optimal assignment
A B C
1 40 10
2 30
3 20 10
0 0
Note
 In optimal assignment, start with row/column having one zero and cancel the alternative
0
zeros(x)
The pattern of assignment among programmers and programs with their respective time (in minute) is
given below:
Programmer Program Time (in minutes)
1 C 80
2 B 90
3 A 110
Total time=280 minutes
Cross Check Formula

We can check for the optimality of the solution by comparing the total assignment cost to the
total of the opportunity costs as presented here.
Optimal solution = total of row minimum + total of column minimum + revised reduction
Considering the above problem:
Total optimal computing time =280=270 +10+0=s
280=280
Example 2
A department has five employees with five jobs to be performed. The time (in hours) each
employee will take to perform each job is given in the effectiveness matrix.
Employees
I II III IV V
A 10 5 13 15 16
Jobs B 3 9 18 13 6
C 10 7 2 2 2
D 7 11 9 7 12
E 7 9 10 4 12
Required
How should the each job be allocated to each employee so as to minimize the total man-
hours?
Solution
All solution operations covered in steps 1 to 3 are reflected as follows
Table: After row and column reductions
-5 A 5 0 8 10 11
-3 B 0 6 15 10 3
-2 C 8 5 0 0 0
-7 D 0 5 2 0 5
-4 E 3 5 6 0 8
Since the number of optimality testing lines is less than the number of rows/columns, an
improvement is possible.
Step 4: Improve the present opportunity cost table
This is done by the following operations;
a. Select the smallest entry (element) among all uncovered elements by the lines and subtract it
from all entries in the uncovered cells.
b. Add the same smallest entry to those cells in which lines intersect (cells with two lines them).
c. Cells with one line through them are unchanged to the improved table
Table: After improvement
A 7 0 8 12 11
B 0 4 13 10 1
C 10 5 0 2 0
D 0 2 0 0 2
E 3 3 4 0 6
Since the number of lines equals to the number of rows/columns, the solution is optimal.
Table: Optimal assignments
I II III IV V
A 7 8 12 11
B 4 13 10 1
C 0
10 5 2
D 2 2
0
E 3 3 4 6
0 0
The pattern of assignments among jobs and employees with respective time (in hours) is given below:
Job Employees Time (in minutes)

A II0 05 0
B I 3
C V 2
D III 9
E IV 4
0 Hours
Total time=23
Example 3
A manager has prepared the following table, which shows the costs for various
combinations of job-machine assignments:
Job Machine (Cost in ’000s))
1 20 15 31
2 17 16 33
3 18 19 27
Required
a. What is the optimal (minimum-cost) assignment for this problem?
b. What is the total cost for the optimum assignment?
Solution
Table: After row reduction Table: After column reduction
A B C
1 5 0 7
2 1 0 8
3 0 1 0
Table: After improvement
A B C
1 4 0 6
2 0 0 7
3 0 2 0
Since the number of lines and the number of rows/ columns are equal the solution is optimal
Table: Optimal Assignment
A B C
1 4 6
2
0 7
3 2
0
0
Job Machine Cost(in $)
1 B 15000
2 A 17000
3 C 27000
Total optimal assignment=$59000
0
0
3.5.2. SPECIAL CASES IN THE ASSIGNMENT PROBLEMS
Certain situations can arise in which the model deviates slightly from that previously described.
Among those situations are the following:
I. Multiple Optimal Solutions

While making an assignment in the reduced assignment matrix, it is possible to have two or more
ways to strike off a number of zeros. Such situation indicates multiple optimal solutions with the same
optimal value of objective function. In such cases the more suitable solution may be considered by the
decision-maker.
In multiple optimal solutions, no unique 0 will exist at some point, resulting in more than one choice
for assignment and hence, more than one optimal solution. It should be noted that all optimal solutions
will yield the same value of the objective function.
Example
Given this final assignment table, identify two optimal solutions.
Job Machine (Estimated time in minute)
1 2 3
A 4 0 0
B 0 3 2
C 1 0 0
Solution
The first assignment must be B-1, because B-1 is the only 0 that appears in a single row or column.
Having made that assignment, there are two choices for the remaining two rows, and two choices for
the remaining two columns. This results in two possible solutions, as shown below:
Job Machine (Estimated time in minute)
1 2 3
A 4
B 3 2
0
C 1 0
0
Example 2
The foreman of a machine shop wants to determine a minimum cost matching for operators and
machines. The foreman has determined hourly cost for of four operators for the four machines, as
shown in the following cost table. 0 0
Machine(Estimated cost in $)
A B C D
1 70 80 75 64
Operator
2 55 52 58 54
3 58 56 64 68
4 62 60 67 70
Required
a. Determine the minimum-cost assignment for this problem
b. What is the total cost for the optimal assignment?
c. Is there an alternative optimal assignment? What is it? Calculate the total cost for the
alternate optimal assignment.
Solution
a. Optimal assignment
Table: After row reduction Table: After column reduction
A B C D
D
1 6 16 11 0
2 3 0 6 2
3 2 0 8 12
4 2 0 7 10
b. total optimal cost of assignment
Operator Machine Cost(in $)

4 A 62
3 B 56
2 C 58
1 D 64
Total cost =$240
c. Yes! There is an alternate optimal solution

Alternative optimal assignment
Operator Machine Cost(in $)

1 D 64
2 C 58
3 A 58
4 B 60
Total cost=$240
II. Maximization case in assignment problems

There may arise situations when the assignment problem calls for maximization of profit, revenue, etc
as the objective function. Such problem may be solved by converting the given maximization problem
into a minimization problem by the following procedure:
i. Find the largest profit coefficient in the entire.
ii. Subtract each entry in the original table from the largest profit coefficient.
The transformed assignment problem so obtained can be solved by using the Hungarian method.
Example
A company has four territories open, and four salesmen available for an assignment. The
territories are not equally rich in their sales potential. Based on the past performance, the
following table shows the annual sales (in $) that can be generated by each salesman in each
territory.
Required
Find the optimal assignment and the maximum expected total sales.
Territory
I II III IV
A 42 35 28 21
Salesmen
B 30 25 20 15
C 30 25 20 15
D 24 20 16 12
Solution
Convert maximization problem into minimization problem by subtracting all elements from
the highest element (i.e. 42)
Thus, the equivalent cost table is:
I II III IV
A 0 3 6 9
B 0 1 2 3
C 0 1 2 3
D 0 0 0 0
After improvement of the table, the optimal assignment is:
I II III IV
A 0 2 4 7
B 0 0 0 1
C 0 0 0 1
D 2 1 0 0
The pattern of two alternative optimal assignments among territories and salesmen with
respective sale is given below:
Assignment set II
Assignment set I
Salesman Territory Sales($) Salesman Territory Sales($)

A I 42 A I 42
B III 20 B II 25
C II 25 C III 20
D IV 12 D IV 12
Total= $ 99 Total= $ 99
Exercise
Five salespersons are to be assigned to five territories based on the past performance. The following
table shows the annual sales performance each person in each territory.
Required
Find the optimal assignment.
T1 T2 T3 T4 T5
S1 26 14 10 12 9
S2 31 27 30 14 16
S3 15 18 16 25 30
S4 17 12 21 30 25
S5 20 19 25 16 10
III. Unbalanced Assignment Problem (unequal number of rows vs columns)

The Hungarian method of assignment requires that the number of columns and rows in the assignment
matrix be equal. However, when the given cost matrix is not a square matrix, the assignment problem
is called an unbalanced problem. In such cases a dummy row(s) or column(s) are added in the matrix
(with zeros as the cost elements) to make it a square matrix. After making the given cost table a
square matrix, the standard procedure of Hungarian method may be used to solve the problem.
Example
MEGA, a printer and publisher headquartered in Addis Ababa, wants to assign three recently hired
college graduates, Marta, Balcha and Hirut to regional sales districts in Mekelle, Bahir Dare, and
DireDawa. But the firm also has an opening in Gambela and would send one of the three there if it
were more economical than a move to Mekelle, Bahir Dar and Dire Dawa. It will cost Br. 1,000 to
relocate Marta to Gambela, Br. 800 to relocate Balcha there, and Br. 1,500 to move Hirut.
Required
What is the optimal assignment of personnel to the field/branch offices?
Office Mekelle Bahir Dare Dire Dawa
Hire
Marta Br.800 Br 1,100 Br 1,200
Balcha Br. 500 Br 1,600 Br 1,300
Hirut Br. 500 Br 1,000 Br 2,300
Solution
To balance the problem, we add a dummy row (person) with a zero relocation cost to each city.
City C1 C2 C3 C4(Gambela)
Person
P1 800 1,100 1,200 1,000

P2 500 1,600 1,300 800
P3 500 1,000 2,300 1,500
Dummy 0 0 0 0
Table: after row reduction Table: Optimal Assignment
C1 C2 C3 C4
Thus, an optimal assignment can be made
P1 100 0 100 0
at zero cells (squares). P2 0 700 400 0
P3 0 100 1400 700
Person City Dummy 400 0 0 100
Dummy(No person) Dire Dawa
Hirut Mekelle
Bekcha Gambela
Marta Bahir Dare
Cost =Br. (0+500+800+1,100)=Br.2,400
IV. Restrictions on Assignments

In certain instances, it may happen that a particular match or pairing may be either undesirable or
otherwise unacceptable. For example, an employee may not have the skills necessary to perform a
particular job or a machine may not be equipped to handle a particular operation. In such cases, the
cost of performing that particular activity by a particular resource is considered to be very large
(written as M or  ) so as to prohibit the entry of this pair of employee-job into the final solution.
When such a restriction is present, a letter (M) is often placed in the table in the position that would
represent a paring. Analysis is performed as usual except the M is ignored throughout the analysis.
That is, M is not used in any reductions, nor is any value added to it or subtracted from it during the
course of the analysis.
Example
As a result of a decision to modify a plant layout of a factory, four new machines M1, M2, M3, and
M4 are to be installed in a machine shop. There are five vacant places A, B, C, D and E available
for this purpose. Because of technical reasons, machine M2 cannot be placed at C and M3 cannot
be placed at A. the cost of placing of machine at place i (in $) is shown below.
Location
A B C D E
M1 9 11 15 10 11
M2 12 9 - 10 9
Machine
M3 - 11 14 11 7
M4 14 8 12 7 8
Required
Find the optimal assignment schedule.
Solution
As the cost matrix is not balanced, add one dummy row (machine) with a zero cost element in that
row. Also assign a high cost, denoted by M, to the pair (M2, C) and (M3, A).
Apply the Hungarian method to solve the problem
A B C D E
M1 9 11 15 10 11
M2 12 9 M 10 9
M3 M 11 14 11 7
M4 14 8 12 7 8
M5 0 0 0 0 0
The total minimum cost ($) and optimal assignments made are as follows:
Machine Location Costs ($)
M1 A 9
M2 B 9
M3 E 7
M4 D 7
M5 (Dummy) C 0
Total = $32
Exercises
1. A car rental company has one car at each of five depots a, b, c, d and e. A customer in each of the
five towns A, B, C, D and E requires a car. The distance in (in kilometers) between the depots and
towns where the customers are, is given in the following distance matrix:
Depots
a b c d E
A 160 130 175 190 200
B 135 120 130 160 175
Towns
C 140 110 155 170 185

D 50 50 90 80 110
E 55 35 70 80 105
Required
How should the cars be assigned to the customers so as to minimize the distance traveled?
Answer:
Minimum distance = 570 km
2. An airline company has drawn up a new flight schedule involving five flights. To assist in
allocating five pilots to the flights, it has asked them to state their preference scores by giving each
flight a number out of 10 .The higher the number , the greater is the preference. Some of these flights
are unsuited to some pilots owing to domestic reasons. These have been marked with an X.
Flight number
a b c d e
A 8 2 X 5 4
B 10 9 2 8 4
Pilot
C 5 4 9 6 X
D 3 6 2 8 7
E 5 6 10 4 3
Required
What should be the allocation of the pilots to flights in order to meet as many performances as
possible?
(Hint: The problem is to maximize the total preference score )
the optimal preference scores are given as follows
Pilot Flight No Preference Score

A 1 8
B 2 9
C 4 6
D 5 7
E 3 10
Total 40
CHAPTER SUMMARY
The chapter describes two types of problems that lend themselves to solution using linear
programming techniques: Transportation Problem and Assignment Problem. The
transportation type problems often involve the distribution of goods, whereas assignment type
problems involve the matching or pairing of two sets of items. Usually such problems have
different costs for different distribution alternatives or different pairings and the objective is to
identify the plan which minimizes total cost.
For each type of problem, a procedure for formulating the problem in a way that lends itself to
solution using simple algorithm is described. Solving such problems manually provides
additional insights into models and their solutions. Such techniques as the North West
Corner, Least Cost, and Vogel's Approximation methods have been discussed as means to
generate feasible solutions to transportation problems. We then proceeded to discuss about
optimizing transportation problems by using the Stepping Stone and MODI approaches. The
Hungarian method was particularly adopted in this chapter to solve for assignment problems.
The chapter also gave us insights to some special transportation and assignment problems
including the techniques that need to be used to transform the problems to a format where the
standard solution procedures can be adopted to generate the required feasible and optimal
solutions.
SELF ASSESMENT QUESTIONS AND EXERCISES
1. Briefly describe the following points

A. Assignment problem E. Northwest corner method
B. Column reduction F. Row reduction
C. Degeneracy G. Stepping stone method
D. MODI H. Transportation problem
I. Dummy
2. Determine an initial feasible solution to the following transportation problem Using the
NWCM, LCM and VAM and compare the feasible solutions found using each method.
A B C D Supply
S1 1 5 3 3 34
S2 3 3 1 2 15
Source
S3 0 2 2 4 12
S4 2 7 2 4 19
Demand 21 25 17 17
3. The Apex Company is the distributor for Television receivers.

It owns three ware houses with weekly stocking capacity given as follows:
Ware house Location Sets in Stock

A 100
B 25
C 75
It has to satisfy the following weekly order for set deliveries:
Market Location Orders

X 80
Y 30
Z 90
Delivery costs for warehouses to each customer are largely a function of mileage
or distance. The per unit costs have been determined to be
X Y Z
A 5 10 2
B 3 7 5
C 5 8 4
Required
Determine the optimal distribution schedule using LCM & MODI methods
4. Solve the following transportation problem assuming that the objective of the firm is
to maximize profit.
I II III IV SS
138
A 40 25 22 33 100
B 44 35 30 30 30
C 38 38 28 30 70
DD 40 20 60 30
139
5. Solve the following Assignment problem. The data given in the table refer to production in
units.
Machine
Operators A B C D
1 10 5 7 8
2 11 4 9 10
3 8 4 9 7
4 7 5 6 4
5 8 9 7 5 CHAPTER FOUR
DECISION THEORY

After completing the discussions and analysis regarding the decision theory and its
application, you will be able to:
 Describe what decision making is;
 Understand and practice the rational [process of decision making;
 Construct a payoff value table as the major tool to apply the decision theory;
 Make decisions under various conditions using such techniques as maxi-max, maxi-min, mini-
max regret, the principle of insufficient reason and expected value criteria
 Determine the expected value of perfect information
4.2. INTRODUCTION
Decision theory represents a generalized approach to decision making which often serves as the bases for a
wide range of managerial decision making. The decision model includes a list of courses of action that are
available & the possible consequences of each course of action. The decisions are classified according to
the degree of certainty as deterministic models, where the manager assumes complete certainty and each
strategy results in a unique payoff, and Probabilistic models, where each strategy leads to more than one
payoffs and the manager attaches a probability measure to these payoffs. The scale of assumed certainty
can range from complete certainty to complete uncertainty hence one can think of decision making under
certainty (DMUC) and decision making under uncertainty (DMUU) on the two extreme points on a
scale. The region that falls between these extreme points corresponds to the concept of probabilistic
models, and referred as decision-making under risk (DMUR). Hence we can say that most of the decision
making problems fall in the category of decision making under risk and the assumed degree of certainty is
only one aspect of a decision problem.
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In this chapter we will see in to the basics and applications of the decision theory concerned with decision
under certainty, decision under risk and decision under uncertainty.
4.3. DECISION THEORY: OVER VIEW

Decision theory framework deals with decision making under conditions of risk and uncertainty. In
management literature, we have several quantitative decision models that help managers identify optimal or
best courses of action. The theory works as a comprehensive frame work for various decision making
models particularly the probabilistic models. In this chapter, however, we shall discuss all types of decision
models including deterministic models under the domain of decision theory.
Before we go to apply the decision theory for decision analysis and selection purposes,let us just discuss
the basic issues.
Basic issues about the decision theory

(i) What is a decision?
(ii) Why must decisions be made?
(iii) What is involved in the process of decision-making?
What is a decision?
A decision is the conclusion of a process designed to weigh the relative utilities or merits of a set of
available alternatives so that the most preferred course of action can be selected for implementation.
Why decision making?

Decision-making involves all that is necessary to identify the most preferred choice to satisfy the desired
goal or objective.
What is involved in the process of decision making?

The decision-making process must involve a set of goals or objectives, a system of priorities, methods of
enumerating the alternative courses of feasible and viable courses and a system of identifying the most
favorable alternative. One must remember that the decisions are sequential in nature. It means to say that
once we select an alternative, immediately another question arises.
For example if you take a decision to purchase a particular material, the next question is how much. The
next question is at what price. The next question is from whom… Like that there is no end.
The nature and significance of the decision theory

Decision theory represents a generalized approach to decision making which often serves as the bases for a
wide range of managerial decision making. The decision model includes a list of courses of action that are
available & the possible consequences of each course of action. The decisions are classified according to
141
the degree of certainty as deterministic models, where the manager assumes complete certainty and each
strategy results in a unique payoff, and Probabilistic models, where each strategy leads to more than one
payoffs and the manager attaches a probability measure to these payoffs. The scale of assumed certainty
can range from complete certainty to complete uncertainty hence one can think of decision making under
certainty (DMUC) and decision making under uncertainty (DMUU) on the two extreme points on a
scale. The region that falls between these extreme points corresponds to the concept of probabilistic
models, and referred as decision-making under risk (DMUR).
Components and steps in the decision theory approach
Though the steps to make the decision differ from problem to problem, the general steps in decision theory
include the following
1. List the viable alternatives (strategies) that can be considered in the decision.
2. List all future events that can occur. These future events (not in the control of decision maker) are
called as states of nature.
3. Construct a payoff table for each possible combination of alternative course of action and state of
nature.
4. An assessment of the degree of certainty of possible future events
5. Choose the criterion that result in the largest payoff.
1. List of alternatives
The list of alternatives must be a set of mutually exclusive and collectively exhaustive decisions that
are available to the decision maker.
For example suppose that a real estate developer plans to develop a building. After careful analysis,
the developer lists the following acceptable alternatives.
 Residential
 Hospital
 Hotel
2. State of nature
State of nature refers to a set of possible future conditions or events beyond the control of the decision
maker that will be the primary determinants of the eventual consequence of the decision. Suppose in
the case of the real state developer, the main factor that that will influence the profitability is the state
of the economic development that will be achieved in the future. Suppose that the developer views the
possibilities as:
142
 Low economic growth
 Medium economic growth
 High economic growth
3. Payoffs
In order for a decision maker to be able to rationally approach a decision problem, it is necessary to
have some idea of the payoffs that would be associated with each decision alternative and the various
states of nature. The payoffs might be profits, revenue, costs, or other measure of value. They may be
weekly, monthly, or annual amounts.
Pay off table

 The payoff table is a device a decision maker can use to summarize and organize
information relevant to particular decision. It includes a list of alternatives, the
possible future state of nature and payoffs associated with each of the alternative /
state of nature combinations.
Now let’s assume that the real estate developer set up the following payoff
Low economic Medium economic High economic

Growth Growth Growth
4 16 12
Residential 5 6 10
Hospital -1 4 15
Hotel
The pay of table for the real state developer’s decision is shown in the above table. The three
alternatives under considerations are listed down the left side of the table and the three possible states
of nature are listed across the top of the table. The pay offs that are associated with each alternative
/state of nature combinations are shown in the body of the table. Suppose that the values represent
profits in million birr. Hence if the residential is chosen and if the economic growth is low the
developer realize a profit of birr 4,000,000. Similarly if hotel is selected and if the economic growth is
low, the developer will lose birr 1,000,000, similarly there are nine payoffs. But the question is which
alternative is the best for the decision maker? To answer the question, it is a must to determine the
degree of certainty i.e. is it certainty, risk or uncertainty.
143
4. Decision making environment
Base on the availability of information during the decision making, there are three decision making
environment. These are:
A. Decision making under certainty
B. Decision making under risk
C. Decision making under uncertainty
a. Decision making under certainty (DMUC)
This assumes that all relevant information required to make decision are certain and well known. It
uses a deterministic model, with complete knowledge, stability and no ambiguity. To make decision,
the manager will have to be quite aware of the strategies available and their payoffs and each strategy
will have unique payoff resulting in certainty. The decision-making may be of single objective or of
multiple objectives.
If the developer mentioned in the previous example knows that the economic growth is low, he/she
select hospital as the best alternatives because it results a profit of birr 5,000,000 and the like.
b. Decision making under uncertainty (DMUU)
It is formulated exactly in the same way as decision making under risk, the only difference is that no
probability to each strategy is attached. In decision making under uncertainty, remember that no
probabilities are attached to set of the states of nature. Sometimes we may have only positive elements
in the given matrix, indicating that the company under any circumstances will have profit only.
Sometimes, we may have negative elements, indicating potential loss. While solving the problem of
decision making under uncertainty, we have two approaches, the first one is pessimistic approach and
the second one is optimistic approach.
c. Decision making under risk (DMUR)
It describes a situation in which each strategy results in more than one outcome or payoffs and
the manager attaches a probability measure to these payoffs. This model covers the case when
the manager projects two or more outcomes for each strategy and he or she knows, or is
willing to assume, the relevant probability distribution of the outcomes. The following
assumptions are to be made:
144
(1) Availability of more than one strategy,
(2) The existence of more than one states of nature,
(3) The relevant outcomes and
(4) The probability distribution of outcomes associated with each strategy.
The optimal strategy in decision making under risk is identified by the strategy with highest
expected utility (or highest expected value).
5. DECISION CRITERIA
The process of selecting one alternative from a list of alternatives is governed by a decision criterion,
which embodies the decision maker’s attitudes towards the decision.
1 Decision Criterion under Certainty
The simplest of all circumstances occurs when decision making takes place in an environment of
complete certainty. For example in the case of real estate problem, an unexpected early announcement
concerning the economic development indicating low economic growth could reduce the problem to a
situation of certainty since the developer focus on the first column of the pay of table.
2 Decision criterion under Uncertainty
Decisions made under these circumstances are at the opposite end of the spectrum from the certainty
case. We shall consider four approaches to decision making under complete uncertainty. They are:
i. Maxi-max: (optimistic view)

 Under this method the best payoff for each alternative is identified and the alternative
with the maximum of these is the designated decision (identifying the best from the
best alternatives). It is the optimistic view because the decision maker assumes the
best things will occur.
 the maxi- max will be converted to mini-min principle under cost scenario
For the real state problem, the maxi-max solution is shown below.

Growth Growth Growth Row max
4 16 12
16 max
Residential 5 6 10
Hospital -1 4 15 10
15
145
Hotel
Therefore, the developer will select Residential as the best alternative, since it
provides the highest pay off i.e. 16,000,000.
ii. Maxi-min: (pessimistic view)

 It is the conservative strategy; it consists of identifying the worst (minimum) payoff for each
alternative and then selecting the alternative that has the best (maximum) of the worst pay off.
 Many people view the maxi-min criterion as pessimistic because they believe the decision
maker must assume the worst will occur.
For the real state problem, the maxi-max solution is shown below.
Growth Growth Growth Row mini
4 16 12 4
Residential 5 6 10
-1 4 15 5 max
Hospital
Hotel -1
Therefore, the developer will select Hospital as the best alternative, since it provides
the highest pay off from the worst alternatives i.e. 5,000,000.
iii. Mini-max regret:

 Both the maxi-max and maxi-min strategies can be criticized because they focus only on a
single extreme payoff and exclude the other payoffs.
 This approach does take all payoffs in to account. In order to use this approach it is
necessary to develop an opportunity loss table.
 The opportunity loss reflects the difference between each payoff and the best possible
payoff in a given state of nature.
For the real state problem, the solution is shown below
Growth Growth Growth
4 16 12
5 6 10 146
-1
OPERATIONS RESEARCH 4 15 TEACHING MATERIAL
Residential
Hospital
Hotel
Column
Max 5 16 15
The opportunity loss table is calculated as follows
5-4 16-16 15-12

5-5 16-6 15-10
5-(-1) 16-4 15-15
The result of the opportunity loss calculation
Maximum loss (regret)

1 0 3 3 Mini
0 10 5
6 12 0 10
12
Therefore, the developer will select Residential as the best alternative; since it provides
the minimum loss pay off from the worst alternatives (highest loss) i.e. 3,000,000.
iv. The principle of insufficient reason
 It offers a method that incorporates more of the information.
 It treats the states of nature as if each were equally likely and it focuses on the
average payoff for each row selecting the one that has the highest row
average.
 We calculate the payoffs by assuming all the states of nature have equal
chance of existence i.e. 1/3 since the number of states of nature is three in our
case.
Alternatives State of nature as if all are equally likely
LEG MEG LEG
RES (4*1/3)+(16*1/3)+(12*1/3)=32/3=10.6
HOT (5*1/3)+(6*1/3)+(10*1/3)=21/3=7
147
HOS (-1*1/3)+(4*1/3)+(15*1/3)=18/3=6
Therefore, the developer will select Residential as the best alternative; since it provides
the maximum pay off from the available alternatives i.e. 10.6 million.
3. Decision Criterion under Risk

The essential difference between decision making under complete uncertainty and decision making
under Risk (partial uncertainty) is the presence of probabilities for the occurrence of the various states
of nature in partial uncertainty. The probabilities may be subjective estimates from managers or from
experts in a particular field or they may reflect historical frequencies. If they are reasonably correct
they provide a decision maker with additional information that can dramatically improve the decision
making process.
Note
 The sum of the probabilities for all states of nature must be 1.
The Expected monetary value (EMV)

 This approach provides the decision maker with a value which represents an average pay off
for each alternative the best alternative is , then, the one that has the highest expected pay offs.
Thus the expected monetary value is:
EMVi = PjVij
Where:
EMVi = the expected monetary value for the i th alternative
Pj = the probability of the j th state of nature
Vij =the estimated payoff for alternative i under state of nature j
For example considering the real estate development problem, assuming the manager estimates the
state of nature as LEG 20%, MEG 50% & HEG 30%. We can compute the expected monetary value
for the real state developer’s alternatives as follows
EMVR= .2(4) +.5(16) + 3(12) =12.40
EMVHT= .2(5) +.5(6) + 3(10) =7.00
EMVHS= .2(-1) +.5(4) + 3(15) =6.30
Because the residential alternative has the largest expected monetary value, it
would be selected using this criterion
The Expected opportunity loss (EOL)
148
 This approach provides an alternative method for incorporating probabilities into the decision
making. The approach is nearly identical to the EMV approach except that a table of
opportunity losses is used rather than a table of returns.
 Hence, the opportunity losses for each alternative are weighed by the probabilities of their
respective states of nature to compute a long run average opportunity loss and the alternative
with the smallest expected loss is selected as the best choice.
For real estate problem, the expected opportunity loss can be calculated as follows (use previously
calculated opportunity loss table)
EOLR =.2(1) +.5(0) + 3(3) =1.10
EOLHT = .2(0) +.5(10) + 3(5) =6.5
EOLHT = .2(6) +.5(112) + 3(0) =7.2
Because the residential alternative has the minimum expected opportunity loss, it
would be selected
 Note that the EOL approach resulted in the same alternative as the EMV approach. This is
more than coincidence; the two methods will always result in the same choice because they
are equivalent ways of combining the values maximizing the pay offs is equivalent to
minimizing the opportunity loss.
Expected value of perfect information:

 It can sometimes be useful for a decision maker to determine the potential benefit of knowing
for certain which state of nature is going to prevail.
 For instance, a decision maker might have the option of delaying a decision until it is evident
which state of nature is going to materialize. The obvious benefit of waiting would be to move
the decision maker into the realm of certainty, there by allowing the decision maker to obtain
the maximum possible payoff.
 The expected value of perfect information (EVPI) is a measure of the difference between the
certain payoff that could be realized under a condition of certainty and the expected under
conditions involving risk.
 Consider the payoff that the real estate developer could expect under certainty. If the
developer knew that the economic growth is low, the hospital alterative would be chosen with
a payoff of 5, 000,000. If the developer knew a medium economic growth would exist, the
residential alternative would be chosen for a payoff of 16,000,000 and if the developer knew
149
that a high economic growth would happen, hotel would be chosen for a payoff of
15,000,000.
 Hence if it were possible to remove the uncertainty surrounding the states of nature, the
decision maker could capitalize on that knowledge. Obviously before investing time or money
in eliminating the probabilities, it will be impossible for the decision maker to say which states
of nature will turn out to be the one that will occur.
 However, what can be said is that the probability that perfect information will indicate that
LEG will happen t is 20%, that the probability that perfect information will indicate a MEG
will happen is 50% and the probability of perfect information indicating a HEG will happen is
30%.
 Thus, these probabilities which are the original state of nature probabilities can be used to
weight the payoffs, one of which will occur under certainty. This is called the expected pay off
under certainty (EPC), and is computed in the following way for the real state problem.
EPC =.2(5) +.5(16) + 3(15) =13.50
 The difference between this figure and the expected payoff under risk (i.e. the EMV) is the
expected value of perfect information. Thus,
EVPI= EPC- EMV
For the real state problem, with EPC 13.5- and EMV = 12.4 we find EVPI= 13.5-12.4= 1.1
 The EVPI represents an upper bound on the amount of money the real state developer would
be justified in spending to obtain perfect information. Thus the real state developer would be
justified in spending up to 1100,000 to find out for certain which h state of nature will prevail
Note that
The EVPI is exactly equal to the previously computed EOL. In fact these two quantities will
always be equal. The EOL indicates the expected opportunity loss due to imperfect
information which is another way of saying the expected payoff that could be achieved by
having perfect information. Hence there are two equivalent ways to determine the expected
value of perfect information:
o Subtract the EMV from the EPC or
o Compute the EOL
For cost scenario
EVPI=EMV-EPC
150
Example 2
An investor has three alternatives which results different payoffs under the three possible
market conditions. The conditional payoffs (in birr) for each alternative – state of nature
combination are given below.
Investment Estimated conditional returns per share under different market conditions
Alternatives Market conditions (state of nature )
LESS ATTRACTIVE MEDIUM VERY
ATTRACTIVE
BANK -2,000 4,000 8,000
BREWERY 6,000 12,000 18,000
CEMENT 7,000 10,0000 8,000
Required
1. Determine which alternative will be selected if the decision maker adopts
a.Maxi-max criterion
b.Maxi- min criterion
c. The principle of insufficient reason
d.Mini-max regret criterion
2. Assume that the probabilities for less attractive and very

attractive market conditions are 30% and 40% respectively. then
a. choose the best alternative using expected monetary value ( EMV) criterion
b. choose the best alternative using the expected opportunity loss ( EOL) criterion
c. calculate the expected value of perfect information (EVPI)
Solution Table
Question 1. Uncertainty Question 2. Risk

Criterion Decision Value Criterion Decision Value
A. Maxi- max
B. Maxi- min
C. Insufficient Reason
D. Mini-max
CHAPTER SUMMARY
151
Decision theory is a general approach to decision making. It is very useful for a decision maker who
must choose from a list of alternatives knowing that one of a number of possible future states of nature
will occur and that this will have an impact on the payoff realized by a particular alternative.
Decision models can be categorized according to the degree of uncertainty that exists relative to the
occurrence of the states of nature. This can range from complete knowledge about which state will
occur to partial knowledge (probabilities) to no knowledge (no probabilities or complete uncertainty).
When complete uncertainty exists the approach a decision maker takes in choosing among alternatives
depends on how optimistic or pessimistic the decision maker is and it also depends on other
circumstances related to the eventual outcome or payoff.
Under complete certainty decisions are relatively straight forward. Under partial uncertainty expected
values often are used to evaluate alternatives. An extension of the use of expected values enables
decision makers to assess the value of improved or perfect information about which state of nature will
occur.

1. Briefly describe the following points.
A. Decision criterion G. Maxi-min

B. Expected monetary value H. Mini-max regret
C. Expected opportunity lose I. Opportunity loss
D. Expected payoff under J. Payoff table
certainty K. Principle of insufficient reason
E. Expected value of perfect L. Risk
information M. State of nature
F. Maxi-max N. Uncertainty
2. Given this profit payoff table:
States of nature
#1 #2 #3
A 12 18 15
Alternatives B 17 10 14
C 22 16 10
D 14 14 14
Required
i. Determine which alternative would be chosen using each of the decision criteria specified below
a) Maxi-max
b) Maxi-min
152
c) Mini-max regret
d) Principle of insufficient reason
ii. Suppose the payoffs in the above problem had been costs rather than profits. Determine which
alternative would be chosen, using these decision criteria:
a) Maxi-max
b) Maxi-min
c) Mini-max
d) Principles of insufficient reason
iii. For the payoff table given in this problem (2), suppose the manager has assigned
probabilities of 20% to the occurrence of state #1, 50% to the occurrence of state #2, and 30%
to the occurrence of state #3.
a. Which alternative would be chosen using maximum expected value as the criterion,
treating the payoff as profits?
b. Calculate the expected value of perfect information.
3. Consider the following payoff table (profits in 00,000).
State of nature
S1 S2 S3 S4
A1 7 14 13 10
Alternatives
A2
A3 3 6 12 15
-8 -1 11 22
Required
i. Which alternative would be chosen for each of the following decision criteria?
a. Maxi-max
b.Mini-max
c. Mini-max regret
d. Principle of insufficient reason
ii. Suppose the probabilities were available for the state of nature in the previous problem
were 20%, 10%, and 40% for S1, S2 & S3 respectively. Which alternative will be selected
using expected pay of and expected opportunity loss methods.
iii. What is the value of perfect information?
4. An assistant procurement officer of a sports wear department in Debrebirhan store must decide on
cloths orders for the summer season. The profits for various states of nature are estimated as
follows.
Alternatives
Style A Style B Style C
153
Style A 80 20 60
Market acceptance Style B 30 90 70
Style C
45 55 96
Required
i. Which alternative would be chosen for each of the following decision criteria?
a. Maxi-max
b.Mini-max
c. Mini-max regret
d. Principle of insufficient reason
ii. Suppose that the assistant buyer is able to estimate the probability for market
acceptance of style A, and style C are 30% and 50% respectively
a. which alternative would maximize the expected profit
b. Which alternative would be selected using expected opportunity loss
approach?
iii. Determine the expected value of perfect information
154
CHAPTER FIVE
PROJECT MANAGEMENT
5.1. LEARNING OBJECTIVES

Our discussions on this chapter are expected to ultimately help you:
 Describe the nature and characteristics of projects;
 Describe the techniques and tools of project planning;
 Give a general description of CPM technique;
 Construct net work diagrams;
 List the kinds of information that a CPM analysis can provide;
5.2. INTRODUCTION
Managers typically oversee a variety of operations. Some of these involve routine, repetitive activities,
where as others tend to vary with the task. Projects fall under the later heading; they are unique one
time operations designed to accomplish a specific set of objectives during a limited time frame.
155
A project is a combination of various activities. For example, Construction of a house can be
considered as a project. Similarly, conducting a public meeting may also be considered as a project. In
the above examples, construction of a house includes various activities such as searching for a suitable
site, arranging the finance, purchase of materials, digging the foundation, construction of super
structure etc.
Conducting a meeting includes printing of invitation cards, distribution of cards, arrangement of
platform, chairs for audience etc. In planning and scheduling the activities of large sized projects, the
two network techniques — PERT and CPM — are used conveniently to estimate and evaluate the
project completion time and control the resources to see that the project is completed within the
stipulated time and at minimum possible cost. But for a simple and small projects Gantt charts will be
employed
5.3. PLANNING AND SCHEDULING OF PROJECTS

Project planning is one of the key components of project management. Though various
authors and institutions use various models, almost all agree about the notion that projects
should be viewed as sets of life cycle stages. This is supposed to result in the successful
completion of a project on a timely and efficient manner. One of the widely accepted models
classifies a project in to the stages of identification, preparation, appraisal, implementation,
and evaluation. Project implementation, in turn, involves planning/scheduling and execution.
Operations research tools are widely used to plan/schedule projects towards their effective
completion.
Of the widely adopted tools/techniques of project planning, the Gantt chart and CPAM are
discussed in this chapter/material.
5.3.1. Planning and scheduling using Gantt chart
The Gantt chart is a two dimensional structure that depicts the list of project activities and their
interdependence. It follows one path to reflect the flow of activities, starting and finishing dates of
activities, and the length of time required to complete the project.
Initially, projects were represented by milestone chart and bar chart. But they had little use in
controlling the project activities. Bar chart simply represents each activity by bars of length equal to
the time taken on a common time scale .This chart does not show interrelationship between activities.
It is very difficult to show the progress of work in these charts. An improvement in bar charts is
156
milestone chart. In milestone chart, key events of activities are identified and each activity is
connected to its preceding and succeeding activities to show the logical relationship between activities.
Here each key event is represented by a node (a circle) and arrows instead of bars represent activities.
The limitations encountered in using these tools led Henry Gantt to develop what is today known as
the Gantt Chart.
The Gantt chart is a popular tool for planning and scheduling simple projects. It enables a manager to
initially schedule project activities and then to monitor progress over time by comparing planned
progress to actual progress.
Procedure of developing project schedule
1. In order to prepare the chart, the project planner had to first identify the major activities
that would be required.
2. Next the time estimates for each activity are made
3. The sequence of activities is determined,
4. Finally the starting and finishing dates of each activity and the entire project are
determined.
As the project progresses, the manager is able to see which activities were ahead of schedule and
which activities are delaying the project. This enables the manager to direct attention where it is
needed most to speed up the project in order to finish on schedule.
If one of the early activities in a project suffers a delay, it would be important for the manager to be
able to easily determine which latter activities would have to be delayed because they could not start
until that activity was completed. Some activities may safely be delayed without affecting the project
schedule
Advantage/s
 It is simple
Disadvantage/s
 Fails to reveal certain relationships among activities that can be crucial to effective
project management
When and where to use the Gantt Charts

 Gantt charts are most useful for simple projects where activities are simultaneous or
where a string of sequential activities is involved.
 On more complex projects Gantt chart can be useful for initial project planning which
then gives way to the use of networks.
157
Example
A Gantt chart for a bank’s plan to establish a new direct marketing department is illustrated as follows.
May 2011 Jun 2011 Jul 2011

ID Task Name Start Finish Duration
5/1 5/8 5/15 5/22 5/29 6/5 6/12 6/19 6/26 7/3 7/10 7/17
1 Locate new facilities 4/28/2011 6/8/2011 4/28/2011

6w Locate new facilities
Interview prospective staffs
2 4/28/2011 5/11/2011 2w
3 Hire and train staffs 5/11/2011 5/24/2011 2w
4 Select and order furniture 4/28/2011 7/6/2011 10w
5 Receive furniture and set up 7/6/2011 7/12/2011 1w
6 Start up 7/12/2011 7/18/2011 1w
Figure 5.1.a project schedule developed using the Gantt Chart

5.3.2. Planning and scheduling projects using CPM/ PERT
Program Evaluation and Review Technique (PERT) and Critical Path Method (CPM) are two of the
most widely used techniques for planning and scheduling projects of considerable size and
complexity. By using PERT/ CPM, managers are able to obtain:
1. A graphical display of project activities
2. An estimate of how long the project will take
3. An indication of which activities are the most critical to timely completion of the project
4. An indication of how long any activity can be delayed with out lengthening the project
5.4. PROJECT DIAGRAMS (NET- WORK DIAGRAMS)

One of the main features of PERT and related techniques is their use of a network or precedence
diagram to depict major project activities and their sequential relationships.
Recall the bank‘s case that we used when discussing the Gantt chart. The network diagram for that
same project can be drawn as follows.
Even
A F t
Even
t B Even
t
C
D Even
t E
158
Even
Figure 5.2.a network diagram t
The network diagram is composed of a number of arrows and nodes. Where the arrows represent the
project activities and the nodes represent the events.
To construct the net work diagram, consider the following points.
1. The project can be sub-divided into a set of predictable independent activities each of which
has a clear beginning and ending.
2. Each activity can be sequenced as to its predecessors or successors.
3. The network is not cyclical i.e. each activity is executed once and only once during the life of
the project.
4. Activity times may be estimated either as a single point estimate (CPM) or as a 3- point
estimate (PERT).The duration of the activities is independent of each other
5.4.1. Components of the network diagram
1. EVENT
Events of the network represent project milestone, such as the start or the completion of an activity
(task) or activities, and occur at a particular instant of time at which some specific part of the project
has been or is to be achieved.
Note
 An event is a point in time that marks the beginning or ending of activity.
 Events are commonly represented by circles (nodes) in the network diagram.
The events can be further classified into the following two categories (types):
1. Merge event: An event which represents the joint completion of more than one activity is
known as merge event.
Even
t
Figure 5.3.merge event in a network diagram

2. Burst event: An event which represents the initiation (beginning) of more than one activity is
known as burst event.
Event
159
Figure 5.4.burst event in a network diagram
Events in the network diagram are identified by numbers. Each event should be identified by a number
higher than that allotted to its immediately preceding event to indicate progress of work. The
numbering of events in the network diagram must start from left (start of the project) to right
(completion of the project) and top to the bottom. Care should be taken that there is no duplication in
the numbering.
2. ACTIVITY
Activity is a time-consuming job or task that is a key subpart of the total project.
Note
 Activities of the network represent project operations or tasks to be conducted.
 Activities are commonly represented by arrows in the network diagram.
Each activity except dummy consumes time and resources and incurs costs. An arrow is commonly
used to represent an activity with its head indicating the direction of progress in the project.
Activities are identified by the numbers of their starting (tail or initial) event and ending (head or
terminals) event. An arrow extended between two events; the tail event represents the start of the
activity and the head event, represents the completion of the activity.
Activity
i j
Starting Event Completion Event
Fig 5.5: Activity -Node relationship in network diagram.

Activities can be further classified into the following three categories:
I. Predecessor activity: is an activity which must be completed before one or more other
activities start.
II. Successor activity: is an activity which started immediately after one or more of other
activities are completed.
III. Dummying activity: is an activity which does not consume either any resource or time. It
is added only to represent the given precedence relationships among activities of the
project and is needed when
a) Two or more parallel activities in a project have same head and tail events,
or
b) Two or more activities have some (but not all) of their immediate
predecessor activities in common.
A
A dummy activity B dotted line in the
is depicted by C network diagram.
Activity Activity Activity
1 2 4
D Dummy Activity 160

B is the predecessor of C and D
OPERATIONS RESEARCH Activity
TEACHING MATERIAL
3
B is the successor of A;
C and D are the successor for B
Rules of Network Construction
Following are some of the rules which have to be followed while constructing a network:
 In network diagram, arrows represent activities and circles the events. The length of an arrow
is of no significance.
 Each activity should be represented by one arrow and must start and end in a circle called
event. The tail of an activity represents the start and head the completion of work.
 The event numbered 1 denotes start of the project and is called initial event. All activities
emerging (or taking off) from event 1 should not be preceded by any other activity or
activities. Event carrying the highest number denotes the completion events. A network should
have only one initial event and only one terminal event.
 The general rule of numbering the event is that the number at an activity’s head should
always be larger than that at its tail. That is, events should be numbered such that for each
activity (i, j), i< j.
 An activity must be uniquely identified by its starting and completion event which implies that
a. an event number should not get repeated or duplicated
b. two activities should not be identified by the same completion event
c. activities must be represented either by their symbols or by the corresponding
ordered pair of starting-completion events.
 The logical sequence ( or interrelationship ) between activities must follow the following rules
o An event cannot occur until all the incoming activities into it have been completed.
o An activity cannot start unless all the preceding activities, on which it depends, have been
completed.
o Though a dummy activity does not consume ether any resource or time, even then it has to
follow the rules 6(a) and 6(b).
Errors and Dummies in Network
I. Looping and Dangling: Looping (cycling) and dangling are considered as faults in a network.
Therefore, these must be avoided.
a.Looping: as shown in figure below, is where activities (see A, B, and C)do not escape from
a cycle.
4
3
C
1
Loopin
g B
A
161
OPERATIONS RESEARCH 2 TEACHING MATERIAL
Fig 5.7: Looping in network diagram
In this case it is difficult to number three events associated with activity A, B, and C so as to satisfy
rule 6 of constructing the network.
b. Dangling: is a case of disconnect activity before the completion of all activities
1 A 2 B 4
C Dangling
Figure 5.8: Dangling in network diagram
In this case, activity C does not give any result as per the rules of the network. The dangling may be
avoided by adopting rule 5 of constructing the network.
II. Dummy or Redundant Activity.

The following is the one of the cases in which the use of dummy activity may help in drawing the
network correctly as per the various rules
When two or more parallel activities in a project have the same head and tail events; i.e, two
events are connected with more than one arrow.
In Figure 5.9.a, activities B and C have a common predecessor activity A. At the same time, they have
activity D as a common successor.
To get the correct network a dummy activity for the ending event of B to show that D may not start
before both B and C are completed is shown in figure b.
2
A B Dummy
1
B 3
D
A C D
1 3
B C Dummy
2 C
A D
1 Fig.a) Parallel Activities 2 Fig: b) Dummy Activity
Note C
The diagram is composed of a number of arrows and nods
 The arrows represent the project activities
 The nodes represent the starting and finishing time the activities , which are called
events 162
 The
OPERATIONS activities have associated time estimates
RESEARCH TEACHING MATERIAL
 Where as the events do not have time estimates
Example 1
An assembly is to be made from two parts X and Y. Both parts must be turned on a lathe and Y need
not be polished. The sequence of activities together with their predecessors is given below:
Activity Description Predecessor Duration in
Activity months
A Open work order _ 5
B Get material for X A 10
C Get material for Y A 3
D Turn X on Lathe B 7
E Turn Y on Lathe B, C 3
F Polish Y E 12
G Assemble X and Y D, F 15
H Pack G 2
Required
Draw a network diagram for the project.
Solution
The network diagram for the project is show as follows:
B 3 D
1 A 2
Dummy
6 G 7 H 8
C
F
4 E 5
163
Example 2
Listed in the following table are the activities (and their sequence) necessary for a maintenance job on
the heat exchangers in a refinery.
Activity Description Predecessor Activity
A Dismantle pipe connections -
B Dismantle header, closure, and floating A

front
C Remove tube bundle B
D Clean bolts B
E Clean header and floating head front B
F Clean tube bundle C
G Clean shell C
H Replace tube bundle F, G
I Prepare shell pressure test D, E, H
J Prepare tube pressure test and reassemble I
Required
Draw a network diagram for the project
Solution
The network diagram for the project is show as follows:
5
F D2
C 4
A 2 B 3
G 6
1 H J
D 8 I 9 1
E 0
D1
7
164
5.5. COMPUTING ALGORITHMS
Many real –life project networks are much larger than the simple network illustrated in the preceding
example; they often contain hundreds or even thousands of activities. Because the necessary
computations can become exceedingly complex and time consuming, large networks are generally
analyzed by computer programs rather than manually. The intuitive approach just demonstrated does
not lend itself to computerization because in many instances path sequences are not readily apparent.
Instead an algorithm is used to develop four pieces of information about net work activities.
The objective of critical path analysis is to estimate the total project duration and to assign starting &
finishing times to all activities involved in the project. This helps in checking actual progress against
the scheduled duration of the project.
The duration of individual activities may be uniquely determined (in case of CPM) or may involve the
three time estimates (in case of PERT) out of which the expected duration of an activity is computing.
Having done this, the following factors should be known to prepare project scheduling
i. Total completion time of the project
ii. Earliest & latest start time of each activity
iii. Float for each activity: i.e. the amount of time by which the completion of an activity can be
delayed without delaying the total project completion time.
iv. Critical activities & critical path.
Consider the following notation for the purpose of calculating various times of event & activities
A. Earliest start time for activity (ES): It is the time at which the activity can start without
affecting the total project time
B. Latest start time for activity ( LS): It is the latest possible time by which an activity
must start without affecting the total project time
C. Earliest finish time for activity (EF): It is the earliest possible time at which an activity
can finis without affecting the total project time.
D. Latest finish time for activity (LF): It is the latest time by which an activity must get
completed with out delaying the project completion.
E. Duration of activity (AD): Expected time estimate of each activity in the project
In a network diagram, there should only be one initial event & one final event, while other events are
numbered consecutively with integers 1,2,……..,n, Such that i < j , fir any two event i & j connected
by an activity which starts at i & finish at j .
For calculating the above mentioned times, there are two methods; namely;
1) Forward pass method &
2) Backward pass method
165
I. Forward Pass Method (For Earliest Event Time)
In this method calculation begin from the initial event 1, proceed through the network visiting event in
an increasing order of event number and end to the final event, say N. At each event we calculate
earliest occurrence event time (E) and earliest start & finish time for each activity that begins at that
event. When calculations end at the final event N, its earliest occurrence time gives the earliest
possible completion time of the entire project.
The method may be summarized as follows:
1) Set the earliest occurrence time of initial event 1 to zero, i.e.
E1 = 0, i =1
2) Calculate earliest start time for each activity that begins at event i where
i(=1). This is equal to earliest occurrence time of event, i (tail event
3) Calculate the earliest finish time of each activity that begins at event i. This
equal to the earliest start time of the activity plus the duration of the activity.
4) Proceed to the next event ,
5) Calculate the earliest occurrence time for the event j. This is the maximum of
the earliest finish times of all activities ending into that event.
II. Backward Pass Method (For Latest Allowable Event Time)
In this method calculations begin from final event N, proceed through the network visiting events in
the decreasing order of event no & end at the initial event 1. At each event, we calculate the latest
occurrence event time (L) for the corresponding event, latest finish & start time for each activity that is
terminating at the event, such that the earliest finish time for the project remains the same. The method
may be summarized as follows.
1. Set the latest occurrence of last event N equal to its earliest occurrence time ( known from
forward pass method),
2. Calculate latest finish time of each activity which ends at event j. This is equal to latest
occurrence time of final event N.
3. Calculate the latest start times of all activities ending at j. It is obtained by subtracting the
duration of the activity from the latest finish time of the activity.
4. Proceed backward to the event in the sequence that decreases j by 1.
5. Calculate the latest occurrence time of event i (i<j). This is the minimum of the latest start
time of all activities starting from that event.
166
Float (or slack) of an Activity and Event
The float of an activity is the amount of time by which it is possible to delay its completion time with
out affecting the total project completion time.
The value of the slack for each activity can be calculated

Slack = LS- ES
or
Slack = LF-EF
Critical Path
Certain activities in a network diagram of a project are called critical activities because delay in their
execution will cause further delay in the project completion time. Thus, all activities having zero total
slack value are identified as critical activities. The path that connects all these critical activities is
known as critical path. The critical path is shown by the thick line or double lines in the network
diagram.
Note
o The critical path is the continuous chain of critical activities in a network diagram. It is
the longest path starting from first to the last event
The length of the critical path is the sum of the individual times of the critical activities living on it &
defines the minimum time required to complete the project.
Example 1
Consider the assembly example and
a. Calculate the ES, EF, LS, LF & slack of the activities of the project
b. Identify the critical path of the project
c. Determine the minimum time to complete the project
Solution
For simplicity purposes, bring the problem and the network diagrams to calculate the above
requirements it is a must to draw the network diagram.
167
Activity Description Predecessor Activity Duration in months
A Open work order _ 5

B Get material for X A 10
C Get material for Y A 3
D Turn X on Lathe B 7
E Turn Y on Lathe B, C 3
F Polish Y E 12
G Assemble X and Y D, F 15
H Pack G 2
a. network diagram
B 3 D
10
1 A 2 7
5
Dummy
6 G 7 H 8
C 15 2
3 F 12
4 E 5
3
b. time analysis/algorithm
Earliest time Last time
Activity Duration Start Finish Start Finish Slack
(ES) (EF) (LS) (LF)
A 5 0 5 0 5 0
B 10 5 15 5 15 0
C 3 5 8 12 15 7
D 7 15 22 23 30 8
E 3 15 18 15 18 0
F 12 18 30 18 30 0
G 15 30 45 30 45 0
H 2 45 47 45 47 0
c. The critical path indicates the path that connects the critical activities i.e., activities with 0 slack
values. These are A, B, E, F, G, and H. so the path is [A B E F G H]
d. The minimum time required to complete the project is the sum of the time required to complete the
critical activities
Therefore we add [5+10+3+12+15+2= 47] so the project requires 47 weeks.
Example 2
Consider the following problem and determine the following
a. Calculate the ES, EF, LS, LF & slack of the activities of the project
168
b. Identify the critical path of the project
c. Determine the minimum time to complete the project
Activity Immediate Duration in

Predecessor days
A - 8
B - 4
C A 6
D A 11
E B 9
F C 3
G E,D,F 1
Solution
a. to calculate ES, EF, LS, LF & slack first we should draw the network of the project
C
4 F
A 2
D
1
G
B 6
E 5
b. time analysis/algorithm
Earliest time Last time

Activity Duration Start Finish Start Finish Slack
(ES) (EF) (LS) (LF)
A 8 0 8 0 8 0
169
B 4 0 4 6 10 6
C 6 8 14 10 16 2
D 11 8 19 8 19 0
E 9 4 13 10 19 6
F 3 14 17 16 19 2
G 1 19 20 19 20 0
Project Evaluation and Review Technique (PERT)
The preceding discussion (CPM) assumed that activity times were known and not subject to variation.
Although the assumption is appropriate in some situations there are many others in which it is not.
Consequently those situations require a probabilistic approach. The main determinant of the way
PERT & CPM networks are analyzed and interpreted is whether activity time estimates are
probabilistic or deterministic. If time estimates can be made with high degree of confidence that actual
time will not differ significantly, we say the estimates are deterministic. On the other hand, if
estimated times are subject to variation, we say the estimates are probabilistic. Probabilistic time
estimates must include an indication of the extent of probable variation. This section describes
analysis of networks with probabilistic time estimates.
The probabilistic approach involves three time estimates for each activity instead of one.
I. Optimistic time: the length of time required under optimum conditions (represented by a
letter ‘a’)
II. Pessimistic time: the amount of time that will be required under the worst condition
(represented by a letter ‘b’)
III. Most likely time: the most probable amount of time that is required (represented by a
letter m)
Of special interest in network analysis are the average of expected time for each activity, t e and the
variance time 2. The expected time is computed as the weighted average of the three time estimates.
Te= a +4m+b
6
The standard deviation of each activities time is estimated as one- sixth of the difference between the
pessimistic and optimistic time estimates. (Essentially, all of the area under a normal distribution lies
within +3 standard deviations of the mean, which is a range of six standard deviations.) The variance
is found by squaring the standard deviations. Thus:
170
2 = [(b-a) ] 2 or (b - a) 2
6 36
The size of the variance reflects the degree of uncertainty associated with an activities time. The larger
the variance, the greater the uncertainty.
It is also desirable to compute the standard deviation of the expected time for each path. This can be
accomplished by summing the variance of the activities on a path and then taking the square root of
that number.
That is:
 Path = (variance of activities on path )
Example 1
A small project is composed of 7 activities whose time estimates are listed below.
Activity Predecessor TIME IN WEEKS

a M B
A - 1 1 7
B - 1 4 7
C - 2 2 8
D C 1 1 1
E B 2 5 14
F A 2 5 8
G E,F 3 6 15
H D,G 1 4 1
Required
1. Draw the network diagram
2. calculate the expected variance
3. find the expected project completed time
4. calculate the probability that the project will be completed at least 3 weeks than expected
5. If the project due date is 18 weeks, what is the probability of not meeting the due date?
Solution
1. network diagram
A 3 D
6
B G
2 E H
171
C 1 7 8
4 F
2. The time required to complete the project 20 weeks

ADGH= 13 weeks
BEGH=20 weeks (the maximum which indicates the critical path )
CFH= 11weeks
Activity Predecessor Te  2
A - 2 1 1
B - 4 1 1
C - 3 1 1
D A 1 0 0
E B 6 2 4
F C 5 1 1
G D,E 7 2 4
H F,G 3 0 0
Critical activities Variance
B 1
F 4
G 4
H 0
2 9
4. The probability of meeting the dead line

 Path = 9=3
The probability of completing the project at least 3 weeks earlier i.e. 17 weeks
TL= 17 WEEKS TE = 20 WEEKS
TL-TE= 3 WEEKS
TL-TE/ 2= -3/3=-1
From the probability table, the probability of completing the project is 15.9%
5. The probability of meeting the dead line
If TL = 18 weeks, the probability of completing is 18-20=2/3.
From the table the probability is 27%.
The probability of not meeting the due date is 100-27=73%.
172
CHAPTER SUMMARY
Projects are composed of a unique set of activities established to realize a given set of objectives
during a limited life span. The non-routine nature of project activities places a set of demands on the
project manager which are different in many respects than those required for the manager of more
traditional operations activities both in planning and coordinating the work.
PERT and CPM are two commonly used technique for developing project plan/schedule. Although
each technique was developed independently, time and practice have erased most of the differences so
that now little distinction can be made between the two. Both depict the sequential relationships that
exist among activities and reveal to managers which activities must be completed on time in order to
achieve timely completion of the project. Managers can use that information to direct their attention
toward the most critical activities.
CPM is used when a deterministic time is fairly established for the duration of the activities. While
PERT is used for probabilistic time estimates is used i.e. when activity time is subject to some
uncertainty.
Two slightly different conventions can be used when constructing a network diagrams. One designates
the arrows as activities; the other designates the nodes as activities. We have seen only one approach,
activities on arrow.

1. Give brief explanation about the following terms
173
A. Critical path
B. Critical activity
C. Early start
D. Early finish
E. Latest start
F. Latest finish
G. Slack
H. Predecessor
I. Activity
J. Node
K. Arrow
L. Node
2. The following are the activities which are to be performed for developing anew computer
system
Activity Predecessor Duration in days

A - 6
B A 8
C A 8
D B 20
E B 18
F C 10
G E 8
H D,F 2
I G,H 7
Required
A. draw the network diagram referring to the data
B. Number the events as discussed earlier.
C. Calculate the ES, EF, LS, LF and slack time for each activitiy
D. Identify the critical path
3. A company manufacturing plant and equipment for chemical processing is in the process
of quoting tender called by public sector undertaking. Help the manager to find the
project completion time to participate in the tender.
S. No Activities Duration in days

1 A 3 -
2 B 4 -
3 C 5 A
4 D 6 A
5 E 7 C
6 F 8 D
7 G 9 B
8 H 3 E,F,G
Required
A. draw the network referring to the data
C. Calculate the ES, EF, LS, LF and slack for each activity
4. Considering the following project activities, answer the following questions
A. Draw the network referring to the data
C. Calculate the ES, EF, LS, LF and slack for each activity
S. No Activities Duration in years Predecessors

1 A 3 -
2 B 4 -
3 C 5 B
4 D 6 A, C
5 E 7 A
6 F 8 D, E
5. Construct a network diagram and find the critical path, earliest start time, latest
start time, earliest finish time, and latest finish time for the following project.
Job Description Successor Times in

minutes
S Start A 0
A Processing letter B,C 4
B Dictating letter D 3
C Order execution E 7
D Supervision E 6
E Dispatching F 2
F Finish None 0

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ADDIS ABABA UNIVERSITY SCHOOL OF COMMERCE

OPERATIONS RESEARCH/ MANAGEMENT SCIENCE, in essence is a special branch of applied

OPERATIONS RESEARCH: AN OVER VIEW

(i) The Decision Theory/Decisional Management School and

(ii) The Mathematical or Quantitative Measurement School.

1.3. HISTORY OF OPERATIONS RESEARCH

1.3.1. The Nature and Meaning of Operations Research (OR)

1.3.2. Decision Making

The following key issues can be generated from this definition.

The Decision Making Process

1.3.3. The Decision-Making Environment

ii. Decision making under condition of risk

iii.Decision making under conditions of uncertainty

 histogram  Gantt charts

Fig.1.1. the framework of OR approach

Operations Research has applications in forecasting, inventory management, production

SELF ASSESSMENT QUESTIONS AND EXERCISES

LINEAR PROGRAMMING PROBLEM AND MODELS (LPPM)

2.1. CHAPTER OBJECTIVES

 Explain what Linear Programming is;

2.2. CHAPTER INTRODUCTION

2.3. LINEAR PROGRAMMING PROBLEM AND MODELS

Subject to Maximization Minimization

2.3.2. Components of LP models

2.4. FORMULATION OF LPPM

TYPE ONE TYPE TWO

RESOURCE AMOUNTS AVAILABLE

Let x1= represent quantity of microcomputer type 1 to be produced

RESOURCE TYPE ONE TYPE TWO AVAILABILITY

Hence, the objective function is

Step 3: identify each constraints and write the equation

 Inspection time 2x1 + x2< 22

 Storage space 3x1+ 3x2 < 39

 Non negativity constraint x1 & x2 > 0

Step 4: write the summarized form of the model

In summary, the mathematical model of the microcomputer

 we can put the information in a tabular form as follows

 Minerals 3x1 +12 x2> 36

 Non negativity constraint x1 & x2 > 0

Step 4: write the summarized form of the model

In summary, the mathematical model of the problem is:

2.5. APPROACHES TO SOLVE LPPM

Note: Graphical LP is a two-dimensional model

2. Identify the feasible solution region

3. Identify the corner points and their respective coordinates

For the first constraint:

Evaluating the corner points

Resources used per unit

Profit $300 $250

Feasible C(12, 11)

6. Identify the optimal solution point

Corners Coordinates Max Z=300 X1 +250X2

Corners Coordinates Max Z=50 X1 +800X2

Machine 1 (X1) Machine (X2) Minimum required hours

Max.Z  100 X 1800 X 2

Optimal Solution values: X1 =1 X2=3 and Min Z= $3400