OPERATIONS RESEARCH

Quantitative approach to decision -making

Operations research as one of the quantitative aid to decision making offers the decision maker a method of evaluating every possible alternative ( act or course of action ) by using various techniques to know the potential outcomes.

Definition
Operations 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 problems.

Characteristic features of OR
OR approaches problem solving and decision-making from the total perspective OR does not experiment with the system itself but constructs the model of the system upon which to conduct experiments Employs scientific methods for the purpose of solving problems. Locates the best or optimal solution to problem under consideration. OR is inter disciplinary and requires a team approach to a solution to the problem. The primary focus is on decision-making. Computers are used extensively.

Model
A model in OR is a simplified representation of an operation or a process in which only the basic aspects or the most important features of a typical problem under investigation are considered. Objective to provide a means for analysing the behaviour of the system for the purpose of improving its performance.

Classification of Model

Classification of model

Function

Structure

Time Reference

Degree of Certainty

Method of Solution Or Quantification

Classification
Based on Function Descriptive models describe some aspects of a situation based on observation, survey, questionnaire results or other available data and do not predict or recommend anything. Predictive models used to predict the outcomes due to given set of alternatives for the problem.

Classification
Based on Structure 1. Physical models: i) Iconic models retain some of the physical properties and characteristics of the system they represent. It represents the system as it is by scaling up or down. ( enlarging or reducing the size) Eg., blueprints of a home maps, globes etc. ii) Analogue models represent the system by a set of properties different from those of the system and does not resemble it physically. 2. Symbolic models: i) Verbal models describe a situation in written or spoken language.

Contd
ii) Mathematical models use of mathematical symbols. Based on Time Reference i) Static models represent a system at some specified time and do not account for changes over time. ii) dynamic models time is considered as one of the variables and allows the impact of changes due to change in time. Based on degree of certainty i) Deterministic models all the parameters, constants and functional relationship are assumed to be known with certainty when the decision is made. ii) Probabilistic (Stochastic) models atleast one parameter or decision variable is a random variable. Eg.,Insurance against risk of fire, accidents, sickness etc.

Classification
Based on Method of Solution or Quantification Heuristic models employs some sets of rules which does not give optimum solution but when applied in a consistent manner facilitates solutions of problems. Analytical models have a specific mathematical structure and thus can be solved by known analytical or mathematical techniques. Simulation models have a mathematical structure but are not solved by applying mathematical techniques to get a solution.

General methods for solving OR models

Analytical Method: The OR model is solved by using all the tools of classical mathematics such as differential calculus and finite differences. Numerical Methods: These are concerned with the iterative or trial and error procedures, through the use of numerical computation at each step. Monte Carlo Methods: These involve the use of probability and sampling concepts.

Scientific Method in OR
The scientific method in OR consists of the following three phases. Judgement Phase: 1. identification of the real-life problem. 2. selection of an appropriate objective and the values of the variables related to this objective. 3. application of the appropriate scale of measurement. 4. formulation of an appropriate model of the problem.

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Research Phase 1. observation and data collection 2. formulation of hypothesis and models. 3. test the hypothesis. 4. analysis of the available information and verification of the hypothesis using preestablished measures of desirability. 4. Predictions of various results from the hypothesis. 5. generalization of the results and consideration of alternative methods.

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Action Phase: This phase consists of making recommendations for implementing the decision by an individual who is in the position to implement results.

Methodology of OR
Define the problem Develop a model Obtain Input data Solve the model

Test the solution (validate)

Analyse the Results Implement the solution

Methodology
Problem formulation involves an analysis of the system under study, the objectives of the decision-maker and alternative courses of action etc. The next step is to collect required data and then formulate a mathematical model. Solve the model and obtain the numerical values of decision variables. Review the solution and see the resulting decision can be implemented.

Different Models in OR
Allocation Models used to allocate resources to activities in such a way that some measure of effectiveness (objective function ) is optimized. Inventory Models deal with the problem of determination of how much to order at a point of time and when to place an order. Queuing Models have been developed to establish a trade-off between costs of providing service and the waiting time of a customer in the queuing system.

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Sequencing Models arises whenever there is a problem in determining the order in which a number of tasks can be performed by a number of service facilities (e.g hospital, plants) in such a way that some measure of performance is optimized.( e.g., total time to process all the jobs on all machines). Replacement Models used when one must decide the optimal time to replace an equipment for one reason or other.

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Markov-Chain Models used for analysing a system which changes over a period of time among various possible outcomes or states.[ e.g to test brand-loyalty and brand-switching tendencies of a customer where each system state is considered to be a particular brand purchase). Simulation Models used to develop a method to evaluate the merit of alternative courses of action by experimenting with a mathematical model of the problems where various variables are random.

Application and Scope of OR

Marketing Selection of product-mix, marketing and export planning. Advertising, media planning, selection and effective packing alternatives. Sales effort allocation and assignment. Best time to launch a new product. Predicting customer loyalty

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Purchasing, Procurement and Exploration Rules of buying Determining the quantity and timing of purchase. Bidding policies and vendor analysis. Equipment replacement policies Personnel Manpower planning, wage/salary administration

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Designing organization structures more effectively. Skills and wages balancing. Scheduling of training programmes to maximize skill development and retention. Production Scheduling and sequencing the production run by proper allocation of machines. Transportation planning.

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Location and size of warehouse or new plant, distribution centres and retail outlets. Finance and Accounting Cash flow analysis, long range capital requirements, dividend policies, investment portfolios. Credit policies, credit risks and delinquent account procedures. Claim and complaint procedure.

Advantages of OR
It compels the decision-maker to be quite explicit about his objective, assumptions and his perspective to constraints. It makes the decision-maker consider very carefully what variables influence decisions. Quickly points out gaps in the data required to support workable solutions to a problem. It allows the decision-maker to determine better solutions to problems with great speed, competence and confidence.

Disadvantages of OR
1. Often solution to a problem is derived either by making it simplified or simplifying assumptions. 2. Sometimes models do not represent the realistic situations in which decisions must be made. 3. Constructing a complex OR model for solving problems is often too expensive when compared with the cost of other less sophisticated approaches available to them. 4. The basic data are subject to changes hence modifying a OR model is a costly affair.

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4. Often the decision-maker is not fully aware of the limitations of the model that he is using. 5. Many real world problems just cannot have an OR solution. 6. Magnitude of computation involved, lack of consideration for non-quantifiable factors and psychological issues involved in implementation are some of the shortcomings.