CAS5103 Introduction to Management Science Course Outline

I. Introduction
a. Problem Solving and Decision Making
b. Quantitative Analysis
c. Management Science Techniques

Source:

Anderson, D. S. (2016). An Introduction to Management Science: Quantitative Approaches to

Decision Making. Singapore: Cengage Learning Asia Pte Ltd.

Decision making is crucial for survival of business. Businesses have to make decision considering the
limited amount of information. 

The past decades have brought the availability of vast amounts of data about all aspects of business operations.
Business managers now have access to more information and more sophisticated quantitative techniques for
making better-informed decisions.

Applied Management Science is the science of solving business problems. The major reason
that MS/OR has evolved as quickly as it has is due to the evolution in computing power.
Management Science is the discipline that adapts the scientific approach for problem solving
to help managers make informed decisions.
The goal of management science is to recommend the course of action that is expected to yield
the best outcome with what is available.
The basic steps in the management science problem solving process involves:
 Analyzing business situations and building mathematical models to describe them;
 Solving the mathematical models;
 Communicating/implementing recommendations based on the models and their
solutions.

There are several popular quantitative techniques in business used by owners today to analyze

data and make decisions.

 Regression Analysis in Decision Making. ...

 Using Regression Analysis. ...
 Linear Programming to Find Solutions -  basically helps in maximizing an objective under limited
resources. Many situations in business involve optimizing the use of several resources. Linear
programming is a simple technique that finds the optimal solution for a complex set of constraints by
making a few assumptions. An example will help to illustrate its application.
Applying Linear Programming

Problem Solving and Decision Making

Problem solving can be defined as the process of identifying a difference between the actual
and the desired state of affairs and then taking action to resolve the difference. For problems
important enough to justify the time and effort of careful analysis, the problem-solving process
involved the following seven steps:
 1. Identify and define the problem.
2. Determine the set of alternative solutions.
3. Determine the criterion or criteria that will be used to evaluate the alternatives.
4. Evaluate the alternatives.
5. Choose an alternative.
6. Implement the selected alternative.
7. Evaluate the results to determine whether a satisfactory solution has been obtained.

What is decision making?

 is the act of selecting a preferred course of action among alternatives.

 is the term generally associated with the first five steps of the problem-solving process.
Thus, the first step of decision making is to identify and define the problem. Decision
making ends with the choosing of an alternative, which is the act of making the
decision.

Criteria/ Criterion

Criteria, standard, norms, accepted, benchmark, basis.

Criteria – are the preferences of the decision maker.

- something that is used as a reason for making a judgement or decision.

Example 1:
When you were choosing the course to take in College:

Example 2:
If I would like to purchase a laptop my criteria for buying it would be:
a. Price (Cheaper)
b. Quality
c. Durable
d. Advanced high tech operating system
e. Black
f. Thin
g. With 5 USB hubs, with RGB cable connector, etc
h. It must be user friendly

Example 3:
When you are trying to decide which car to buy. What is important to us that will help us
determine which car will best fit our situation? Is it style, comfort, noise, gas mileage, speed,
manual/transmission, accessibility, price, payment terms available, reliability…?
a. Style
b. Comfort
c. Sound (noise it can create)
d. Gas mileage
e. Speed
f. Manual/transmission
g. Price
h. Payment terms availability
i. Reliability
j. Fashion trend
 k. “I need the car to look cool so that I can impress women.” 
l. “I need the car to be reliable so that I don’t have to worry about breakdowns in traffic.”

These criteria are used to help the decision maker come up with a sound decision. The criteria
are going to help you determine that a successful decision has been made. In this example,
success would be that we purchased the right car for our situation.

There are some typical decision criteria:

1. Ease of implementation
2. Cost
3. Ease of modification/scalability/flexibility
4. Employee morale
5. Risk levels
6. Cost savings
7. Increase in sales or market share
8. Return on investment
9. Similarity to existing organization products
10. Increase in customer satisfaction

 When in a group decision-making situation, it is often helpful to have the group

brainstorm the decision criteria which, as much as possible must be measurable.
 This helps ensure “buy in” of the decision itself because the criteria is measurable and
not just a “well I feel like we should buy this product because I like it.”
 You might also weigh the criteria. For example, cost savings might have a higher weight
than ease of use.

(VIDEO on 7 steps to decision making)

Types of decision problems:

Single-criterion decision problems are problems in which the objective is to find the
best solution with respect to one criterion. (cost only, style only, fashion, …etc)

Multicriteria decision problems are problems that involve more than one criterion.

Steps in decision making process:

1. Structuring the problem.

a. Define the problem - what is the goal you wish to achieve?
b. Identify the alternatives - Find out the set of actions you can take.
c. Determine the criteria/criterion.
2. Analyzing the problem.
a. Evaluate the alternatives.
b. Choose an alternative.
Two basic forms of the problem analysis phase:

1. Qualitative Analysis is based primarily on the manager’s judgment and experience; it

includes the manager’s intuitive “feel” for the problem and more of an art than science.
2. Quantitative Analysis focuses on the quantitative facts or data associated with the
problem. It includes the development of mathematical expressions that describe the
objectives, constraints, and other relationships that exist in the problem. Then, by
using one or more quantitative methods, the analyst will make a recommendation
based on the quantitative aspects of the problem.

Although 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 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 to combine the two sources in order to make the best
possible decision.

Some of the reasons why a quantitative approach might be used in the decision-making
process:

1. The problem is complex, and the manager cannot develop a good solution with the aid
of quantitative analysis.
2. The problem is especially important, like when a large amount of money is involved,
and the manager desires a thorough analysis before attempting to make a decision.
3. The problem is new, and the manager has no previous experience from which to draw.
(no assumption can be drawn yet)
4. The problem is repetitive, and the manager saves time and effort by relying on
quantitative procedures to make routine decision recommendations. (convenient
solution and concrete outcome/result)

Quantitative Analysis

 Quantitative analysis begins once the problem has been structured.

 To successfully apply this to decision making, the management scientist must
work closely with the manager or the user of the results. (ie, financial analyst of
the company, economist, statistics expert,…)
 Work can begin on developing a model to represent the problem mathematically.

Models

A Model is a selected simplified representation of the essential or relevant entities of some

specific reality and their characteristics.

Basic types of models:

 Iconic
 Analogue
 symbolic

Model development
 Models are representations of real objects or situations and can be presented in various forms.

1. An iconic model is a physical replica of a real object.

An Iconic Model is a look-alike representation of some specific entity (e.g. a house)

Classification
Iconic Models can be represented in:
 Two Dimensions : e.g. photos or drawings of house, buildings, products produced in the
factory, etc
 Three Dimensions : e.g. scale model (miniature/prototype/working model) such as
model of builsdings, house, products produced, atom, etc…

Remark
A scale model can be a:
 reduction (scaled down, e.g. the model of a building)
 reproduction (same scale, e.g. copy model, prototype or working model)
 enlargement (scaled up, e.g. the model of an atom)
of some specific entity

2. An analog model is physical in form but do not have the same physical appearance as
the object being modeled.

An Analogue Model is the representation of entities of a system by analogue entities pertaining

to the model (e.g. through diagrams).

Classification
An Analogue Model can be built through:
 Two Dimensional Visualization : Charts, Graphs, Diagrams
(e.g. the colour coding of a geographical chart for representing different altitudes)
 Three Dimensional Visualization : Analogue Devices
(e.g. the flow of water in pipes to represent the flow of electricity in wires or the flow of
resources in an economic system)

3. A mathematical model includes the representation of a problem by a system of

symbols and mathematical relationships or expressions.

A Symbolic Model is the representation of entities of a system through symbols.

Symbols can be:

 mathematical
 logical
 ad-hoc

Remark
A Symbolic Model is used whenever the reality is:
 too complex or too abstract to be portrayed through an iconic or analogue model
 the factors of the system (variables) can be represented by symbols that can be
manipulated in a meaningful and fruitful way

1. It is a critical part of any quantitative approach to decision making.

Example:
The total profit from the sale of a product can be determined by multiplying the
profit per unit by the number of units sold. If the profit per unit of selling smart
phones is P500, then the total profit P for selling x number of units is
P = 500x.

In general, experimenting with models requires less time and is less expensive than
experimenting with the real object or situation. The value of model-based conclusions and
decisions is dependent on how well the model represents the real situation.

Flowchart of the Process of Transforming Model Inputs into Output

Objective Function is a mathematical expression that describes the problem’s objective. It is

the system state or performance level one aims to attain.

Constraints are restrictions such as available resources, materials and labor that should be
considered in decision making. It is the requirements that must be met by the proposed
solution.

A decision variable is a system setting whose value is assigned by the decision maker. A
decision is made when a value is specified for a decision variable. Decision variables are
sometimes called controllable variables because they are under the control of the decision
maker.

Uncontrollable inputs are the factors which the decision-maker has no control such as
environmental factors which can affect both the objective function and the constraints. If all
uncontrollable inputs are known and cannot vary, the model is referred to as a deterministic
model. On the other hand, it these are uncertain to the decision maker, the model is referred
to as stochastic or probabilistic model.
  competitor’s decision or reactions.
 Economy

Notes:

In the study of entrepreneurship, there are other uncontrollable variables. The first of
these are: inherent intelligence, strengths, learning style, traits, talents and skills of the
individuals. The second groups of variables are: the individual’s health and the impact of large-
scale diseases that devastate regions. The personal history of the individual and the collective
history play a role in influencing business decisions, the market, and many other factors. The
influence of culture- the values, interests, and their interplay can be observed, but not
controlled for study. The final groups of variables are the trauma variables of crises, chaos and
knowledge/practice based paradigm shifts. This last group has been studied to determine
physical and emotional impact and survival of people and the economy. Crises such as
disasters are unable to be predicted let alone the impact of these events controlled. The chaos
created by events such as wars, the clasp of a country’s or regions economic base are also
unable to be controlled or put into true mathematical equations. When these areas are
attempted to be reduced to formulas they are attributed weights, but these are unable to
account for reality. Paradigm shifts are those worldwide occurrences that are so dramatic in
knowledge that commonplace beliefs and practices of today become obsolete overnight.

Controllable inputs are inputs that are completely controlled or determined by the decision
maker. These are the decision alternative specified by the manager and are also referred to as
the decision variables of the model. Controllable inputs can be selected at the discretion of the
decision maker to attain the objective or goal of the decision maker.

 The number of units that must be produced to maximize profit or to minimize cost.

Management Science Techniques

Listed below are the management science techniques that the course will cover:

1. Linear Programming is a problem solving approach developed for situations involving

maximizing or minimizing a linear function subjects to linear constraints that limit the
degree to which the objective can be pursued.
2. Integer Linear Programming is an approach used for problems that can be set up as
linear programs, with the additional requirement that some or all of the decision
variables be integer values.
3. Distribution models are specialized solutions procedures for problems which can be
graphically represented by nodes and arcs.
4. Project Scheduling or PERT/CPM are techniques which help managers carry out their
project scheduling responsibilities.
5. Waiting Line or Queueing Models are developed to help managers understand and make
better decisions concerning the operation of systems involving lines.
6. Goal Programming is a technique for solving multicriteria decision problems, usually
within the framework of linear programming.
7. Forecasting methods are techniques that can be used to predict future aspects of a
business operation.