Operations Research

CHAPTER ONE

INTRODUCTION TO OPERATIONS RESEARCH

Management science or operations research uses a logical approach to problem solving. The problem is
viewed as the focal point of analysis, and quantitative models are the vehicles by which solutions are
obtained. This quantitative approach is widely employed in business. Areas of application include
forecasting, capital budgeting, capacity planning and scheduling, inventory management, project
management, and production planning.

In this first unit, some of the basic of management science are covered, included answers to such
questions: what is management science? Who uses it? Who use a quantitative approach? What are models
and how they used? And what are the different types of models?

1.1. DEFINITION OF MANAGEMENT SCIENCE OR OPERATIONS RESEARCH

Operations research has been defined so far in various ways and it is perhaps still too young to be defined
in some authoritative way. It is not possible to give uniformly acceptable definitions of OR/MS. A few
opinions about the definition of OR/MS are given below. These have been changed according to the
development of the subject.

Management Science: can be defined as a problem solving process used by an interdisciplinary team to
develop mathematical models that represent simple to complex functions relationships and provide
management with a basis for decision making and a means of uncovering new problems for quantitative
analysis.

Moreover, management science encompasses:

 Development of models for specific problems,
 It makes a substantial contribution in a much broader area: the application of the output from MS
models for decision making at the lower, middle, and top management levels,
 A manager’s experience, upcoming business conditions and the output from a mathematical
models form the best combination for planning, organizing, directing and controlling the
company's activities.
 OR is a scientific method of providing executive departments with a quantitative basis for
decisions regarding the operations under their control.
 OR is the scientific method of providing executive with an analytical and objective basis for
decisions.
 OR is the art of giving bad answers to problems to which otherwise, worse answers are given.

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 It is a systematic method oriented study of the basic structures, characteristics, functions and
relationships of an organization to provide the executive with a sound, scientific and quantitative
basis for decision making.
 OR is a scientific approach to problem solving for executive management.

Management Science: is the application of a scientific approach to solving management problems in

order to help managers make better decisions.

As implied by this definition, management science encompasses a number of mathematically oriented

techniques that have either been developed with in the field of management science or been adapted from
other disciplines, such as the natural sciences, mathematics, statistics, and engineering.

Management Science: is a discipline devoted to solving certain managerial type problems using
quantitative models. This quantitative approach is widely employed in business.

Operation Research: is the application of scientific methods, techniques, and tools to problems involving
the operations of systems so as to provide those in control of operations with optimum solutions to the
problem.

Thus, it may be regarded as the scientific method employed for problem solving and decision making by
the management. The following indicates the significant features of operation research:
 Decision making
 Scientific approach: it employs scientific methods for the purpose of solving problems, and there is
no place of whims and guess-work in it. It is a formalized process of reasoning.
 Objective: it attempts to locate the best or optimal solution to the problem under consideration.
 Inter-disciplinary team approach: no single individual can have a through knowledge of the myriad
aspects of OR and how the problems may be addressed.
 Digital computer: use of a digital computer has become an integral part of the operations research
approach to decision making.

1.2. CHARACTERISTICS OF MANAGEMENT SCIENCE/OPERATION RESEARCH

There are four major characteristics of management science. These are:

a. Examine Functional Relationships from a Systematic Overview
The activity of one function or part of a company will have some effect on the activity of each of the other
functions or parts. In order to make effective evaluations of decisions or actions in a company, it is
necessary to identify all important interactions and determine their impact on the company as a whole.
Initially, the functional relationships in an MS project are expanded deliberately so that all the

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significantly interacting parts and their related components are contained in a statement of the problem. A
systems overview examines the entire area under the manager's control rather than just one specialized
area. This approach provides a basis for initiating inquiries into problems that seem to be affecting
performance at all levels.

b. Use the Interdisciplinary Approach

During the early years of management science there was a great shortage of scientists (mathematicians,
physicists, chemists, engineers and statisticians). The military groups interested in MS at that time had to
hire their personnel not by selection, but by acquisition. Out of this forced approach, management science
comes to recognition of the value inherent to the interdisciplinary team. Although we often speak of
physical problems, chemical problems, biological problems, psychological problems, social problems and
economic problems as though such problems are in some way categorized in nature, the fact is that
various disciplines actually describe different ways of studying similar problems.

c. Uncover New Problems for Studying

A third characteristic of MS, one which is often overlooked is that the solution of an MS problem brings
new problems to light. All interrelated problems uncovered by the MS approach do not have to be solved
at the same time. However, each must be solved with consideration for other problems if maximum
benefits are to be obtained. It can be said that management science is never effectively used when it is
restricted to "one-shot" projects. Its greatest benefits are those obtained through a continuity of research.

d. Uses a Modeling Approach to Problem Solving

MS, like many disciplines, takes a systematic approach to problem solving. Although several approaches
to solving MS problems can be advanced, we may stress the modeling process, in which both manager and
management scientist interact throughout the problem solving process. Great emphasis is placed on the
participation of both these parties in the modeling of the problem, but before examining the details of the
interaction between the manager and the Management Scientist, we will look first at the essentials of
mathematical models and consider some of their advantages and disadvantages.

1.3. DECISION MAKING AND RELEVANCE OF OR/MS

The role of quantitative analysis in the managerial decision making process is perhaps best understood by
considering the decision making process. Note that the process is initiated by the appearance of a problem.
The manager is responsible for making a decision or selecting a course of action will probably make an
analysis of the problem, which includes a statement of the specific goals or objectives, an identification of
constraints, an evaluation of alternative decisions, and a selection of the apparent "best" decision or
solution for the problem.

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The analysis process employed by manager may take two basic forms: qualitative and quantitative.
Qualitative Approach to Decision Making
 The qualitative analysis is based on primarily upon the manager's judgment and experience.
 The type of analysis includes the manager's intuitive "feel" for the problem and is more of an art than a
science.
 If the manager has had experience with similar problems, or if the problem is relatively simple, heavy
emphasis may be placed up on qualitative analysis.
 However, if the manager has had little experience with similar problems, or if the problem is
sufficiently important and complex, then quantitative analysis of the problem can be a very important
consideration in the managers’ final decision.
 It is considered when the decision maker doesn’t have data about the problem.
 The skills in qualitative approach to problem solving are inherent in the decision maker.
 It is used when the problem under consideration doesn't involve too many variables or it is not
complex, it is not new or familiar, when the cost of the decision is not heavy and when immediate
action is required.
Quantitative Approach to Problem Solving
 In this approach, an analyst will concentrate on the quantitative factors or data associated with the
problem and develops mathematical expressions that describe the objectives, constraints and
relationships that exist in the problem.
 It is supported by the available data.
 It uses mathematical models.
 The skills in quantitative approach is acquired by studying the mathematical tools or OR techniques.
 It is used under the following situations
o When the problem involves too many variables
o When the problem is new (not familiar)
o When the decision is very important involving a great amount of money
o When the problem is repetitive (unique)
o This approach is believed to reduce time and effort to make decisions.

Both the qualitative and the quantitative analysis of a problem provide important information for the
manager or decision maker. In many cases, a manager will draw upon both sources and, through a
comparison and evaluation of the information, make a final decision.

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While skills in the qualitative approach are inherent in the manager and usually increase with experience,
the skills of the quantitative approach can be learned only by studying the assumptions and methods of
management science. A manager can increase decision making effectiveness by learning more about
quantitative methodology and by better understanding its contribution to the decision making process. The
manager who is knowledgeable in quantitative decision making procedures is in a much better position to
compare and evaluate the qualitative and quantitative sources of recommendations and ultimately combine
the two sources in order to make the best possible decision.

1.4. OPERATIONS RESEARCH TECHNIQUES

a. Linear Programming Method

It is primarily concerned with optimum allocation of scarce resources subject to certain limitation. It uses
simplex procedure to solve product mix in portfolio analysis and transportation algorithm.
b. Decision Analysis (Theory)
It is concerned with making decision under conditions of risk and uncertainty. Decision theory represents
a generalized approach to decision making which often serves as the basis for a wide range of managerial
decision making. The decision model includes a list of courses of action that are available and the possible
consequences of each course of action. An important factor in making decision is the degree of certainty
associated with the consequences. This can range anywhere from complete certainty to complete
uncertainty, and it generally affects the way a decision is reached.
c. Network Analysis
It is considered under risk and uncertainty situation, and involves determination of an optimum sequence
of performing certain activities in a project - this is to minimize the overall cost (time).

Networks are important tools of management science. Not only can networks are used to models a wide
variety of problems they can often be solved more easily than other models of the same problem, and they
present models in a visual format. The techniques in network analysis includes PERT, CPM, & Gant
Chart.
d. Inventory Model
It is a model which operates to optimize inventory levels. The main emphasis is minimizing, carrying,
ordering and being out of stock costs.
e. Queuing Model (Waiting Line Model)
It determines the average time spent in line waiting for service.
f. Markov Analysis
It is used to determine the purchasing behavior of customers-brand loyalty of customers- given that the
behavior of customers is known.

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Significance of Operation Research

 It provides a tool for scientific analysis and provides solution for various business problems.
 It enables proper deployment and optimum allocation of scarce resources.
 It helps in minimizing waiting and servicing costs.
 It enables the management to decide when to buy and how much to buy through the technique of
inventory planning.
 It helps in evaluating situations involving uncertainty.
 It enables experimentation with models, thus eliminating the cost of making errors while
experimenting with reality.
 It allows quick and inexpensive examination of large numbers of alternatives.
 In general OR facilitates and improves the decision making process.
Areas of Application
 Inventory control
 Facility design (distribution decision)
 Product mix determination
 Portfolio analysis
 Allocation of scarce resources
 Investment decisions (constructing new plant, expanding programs, sub contracting and the like)
 Project management.

1.5. QUANTITATIVE APPROACH TO DECISION MAKING

The role of quantitative analysis in the managerial decision making process is perhaps best understood by
considering the flowchart below:

Qualitative
Analysis

Managerial Summary &

Problem Evaluation Decision

Quantitative
Analysis

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We begin our study of quantitative approaches to decision making by considering a five step procedure:

a. Problem definition
The problem definition step is the most critical phase of the quantitative analysis process. It usually takes
imagination, teamwork, and considerable effort to transform a rather general problem description in to a
well-defined problem that can be approached quantitatively.
b. Model development
Models are representations of real objects or situations. These representations or models can be
represented in various forms. They are constructed to make conclusion about the real thing and show the
relationship between an action and reaction or cause and effect. Depending up on the degree of abstraction
model is classified in to three formats:
 Iconic Model: it is a physical representation of a system or real object on a different scale than the
original. Example:
- A scale model of an airplane is a representation of a real airplane.
- A child's toy truck is a model of a real truck
 Analog Model: it includes those that are physical in form but doesn't have the same physical
appearance as the object being modeled. Example:
- The speedometer of an automobile is an analog model; the position of the needle on the dial
represents the speed of the automobile
- A thermometer is an analog model representing temperature or Barometer for atmospheric
pressure.
 Mathematical Model: it is a model which represents a problem or reality by a system of symbols
and mathematical expressions. Example: TR = PQ

The purpose or value of any model is that it enables us to draw conclusions about the real situation by
studying and analyzing the model. For example, an airplane designer might test an iconic model of a new
airplane in a wind tunnel in order to learn about the potential flying characteristics of the full size airplane.
Similarly, a mathematical model may be used to draw conclusions about how much profit will be earned if
a specified quantity of particular product is sold.

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Benefits of Models
o Experimenting with models saves a lot of time than the real system.
o Manipulating the model is much easier than manipulating the real system.
o The cost of making errors during the trial and error expert is much smaller when done on the model.
o Model enhances and re-enforces learning
o Model enables quick identification and analysis of solution.
c. Data Preparation
The third step in the process of quantitative analysis is the preparation of the data required by the model.
Data in this sense refer to the values of the uncontrollable inputs to the model. All uncontrollable inputs or
data must be specified before we can analyze the model and select a recommended decisions or solution
for the problem.
d. Model Solution (Solving the Model)
Once the model development and data preparation steps have been completed, we can proceed to the
model solution step. In this step, the analyst will attempt to identify the values of the decision variables
that provide the "best" output for the model. The specific decision variable value or values providing the
best output will be referred to as optimal solution for the model.
e. Report Generation and Implementation
The final step in the quantitative analysis process is the preparation of managerial reports based upon the
model's solution. Thus it is essential that the results of the model appear in a managerial report that can be
easily understood by the decision maker. The report will include the recommended decision and other
pertinent information about the model results that may be helpful to the decision maker. Although the
generation of a managerial report is the final step in the quantitative analysis process, the implementation
of the information contained in the report is a final action that remains to be taken by the manager or
decision maker.

Successful implementation of results is of critical importance to the management scientists as well as the
manager. If the results of the quantitative analysis process are not implemented, the entire effort may be of
no value.

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