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MODULE
MANAGEMENT SCIENCE
This is a course on the use of Management Science in solving management decision problems and is
meant to assist students in acquiring a special competence in the scientific management approach to
problem solving. It aims to provide students with an awareness of standard tools in Management
Science/Operations Research (MS/OR), and an appreciation of relevant techniques in mathematical
model building, mathematical programming and decision analysis. The course also seeks to develop
within the student the ability to recognize potential application areas in their future jobs, as well as
the meaningful utilization of the Management science tools and the techniques in the government,
the local industry, and in business, particularly in the areas of finance, marketing, production, and
human resource management.

LEARNING OUTCOMES
1. Acquaint with Management Science, and its application to business management
2. Relate Management Science to the accounting course
3. Understand the basics of the scientific method approach
4. Apply the scientific method approach to business situations

Introduction to Management Science

Management Science is the application of mathematical models and computing technology
to help decision makers solve problems. The objective of management science is to solve
the decision-making problems that confront and confound managers in both the public and
private sectors by developing mathematical models of those problems. These models have
traditionally been solved with various mathematical techniques, all of which lend
themselves to specific type of problems (Taylor, 2013).
According to Anderson, et. al. (2019), management science is an approach to decision
making based on the scientific method, makes extensive use of quantitative analysis. A
variety of names exists for the body of knowledge involving quantitative approaches to
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decision making; in addition to management science, two other widely known and accepted
names are operations research and decision science.
Management science is a recognized and established discipline in business. The applications
of management science techniques are widespread, and they have been frequently credited
with increasing the efficiency and productivity of business firms. Management science also
referred to as operations research, quantitative methods, quantitative analysis, and decision
science as fundamental part of the curriculum of most programs in business.

The Management Science Approach to Problem Solving

Management science encompasses a logical, systematic approach to problem solving,
which closely parallels what is known as the scientific method for attacking problems. This
approach, as shown in Figure 1.1 follows generally recognize and ordered series of steps: (1 )
observation, (2) definition of the problem, (3) model construction, (4) solutions, and (5)
implementation.

Observation Understanding the situation

Problem Definition Pinpointing the problem and setting

objectives

Abstracting mathematical representation

Feedback

Model Construction
of problem

Solutions Logical resolve to of a problem

Information
Implementation Execution of the solution

Figure 1.1. Scientifi

c Method Approach

1. Observation.
The first step in the management science process is the identification of a problem
that exists in the system (organization). The system must be continuously and closely
observed so that problems can be identified as soon as they occur or are anticipated.
Problems are not always the result of a crisis that must be reacted to but, instead,
frequently involve an anticipatory or planning situation. However, problems can be
identified by a scientist, a person skilled in the techniques of management science and
trained to identifying problems, who has been hired specifically to solve problems using
management science techniques.
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2. Definition of the Problem

Once it has been determined that a problem exists, the problem must be
clearly and concisely defined. Improperly defining a problem can easily result in
no solution or an inappropriate solution. Therefore, the limits of the problem and
the degree to which it pervades other units of the organization must be included
in the problem definition. Because the existence of a problem implies that the
objectives of the firm are not being met in some way, the goals (or objectives) of
the organization must also be clearly defined. A stated objective helps to focus
attention on what the problem actually is.

3. Model Construction
A management science model is an abstract representation of an existing
problem situation. It can be the form of a graph or chart, but most frequently a
management science model consists of a set of mathematical relationships.
These mathematical relationships are made up of numbers and symbols.
As an example, consider a business firm that sells a product. The product
costs $5 to produce and sells for $20. A model that computes the total profit that
will accrue from the items sold is
Z = $20x – 5x
In this equation, x represents the number of units of the product that are
sold, and Z represents the total profit that results the sale of the product. The
symbols x and Z are variables. The term variable is used because no set numeric
value has been specified for these items. The number of units sold, x, and the
profit, Z, can be any amount (within limits); they can vary. These two variables
can be further distinguished. Z is a dependent variable because the number of
units sold is not dependent on anything else.
The number $20 and $5 in the equation are referred to as parameters.
Parameters are constant values that are generally coefficient of the variables
(symbols) in an equation. Parameters usually remain constant during the process
of solving a specific problem. The parameter values are derived from data (i.e.
pieces of information) from the problem environment. Sometimes the data are
readily available and quite accurate.
The equation as a whole is known as a functional relationship (also called
function and relationship). The term is derived from the fact that profit, Z, is a
function of the number of units sold, x, and the equation relates profit to units
sold. Because only one functional relationship exists in this example, it is the
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model. In this case the relationship is a model of the determination of profit for
the firm. However, this model does not really replicate a problem.

4. Solution
Once models have been constructed in management science, they are
solved using the management science techniques presented. A management
science solution technique usually applies to a specific type of model. Thus, the
model type and solution method are both part of the management science
technique. A model is solved because the model represents a problem. When we
refer to model solution, we also mean problem solution.
For example, suppose the business firm in our example desires to know
the average number of units sold each month during a year. The monthly data
(i.e., sales) for the past year are as follows:
Month Sales Month Sales
January 30 July 35
February 40 August 50
March 25 September 60
April 60 October 40
May 30 November 35
June 25 December 50
Total 480 units

Monthly sales average 40 units (480 / 12). This result is not a decision; it is
information that describes what is happening in the system. The results of the
management science techniques in this text are examples of solutions/decisions
and descriptive results.

5. Implementation
The final step in the management science process for problem solving is
implementation. Implementation is the actual use of the model once it has been
developed or the solution to the problem the model was developed to solve. This
is a critical but often over-looked step in the process. It is not always a given that
once a model is developed or solution found, it is automatically used. Frequently
the person responsible for putting the model or solution to use is not the same
person who developed the model, and thus the user may not fully understand
how the model works or exactly what is supposed to do. Individuals are also
sometimes hesitant to change the normal way they do things or try new things.
In this situation the model and solution may get pushed to the side or ignored
altogether if they are not carefully explained and their benefit fully
demonstrated. If the management science model and solutions are not
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implemented, then the effort and resources used in their development have
been wasted.

Model Building: Break-Even Analysis

Break-even analysis is a good topic to expand discussion of model building and solution
because it is straightforward, relatively familiar to most people; and not overly complex.
Break-even analysis is known as the profit analysis. It provides a convenient means to
demonstrate the different ways management science models can be solved –
mathematically, graphically, and with a computer.

Components of Break-even Analysis

1. Volume – is the level of sales or production by a company. It can be expressed as
the number of units (i.e., quantity) produced and sold, as the dollar volume of
sales, or as a percentage of total capacity available.
2. Cost – there are two types of costs typically incurred in the production of a
product: fixed costs and variable costs. Fixed costs are generally independent of
the volume units produced and sold. That is fixed, cost remain constant,
regardless of the volume of units produced within a given range. Fixed costs can
include such items as rent on plant and equipment, taxes, staff and management
salaries, insurance, advertising, depreciation, heat and light, and plant
maintenance. Taken together, these items result in total fixed costs.
Variable costs are determined on a per-unit basis. Thus, total variable costs
depend on the number of units produced. Variable costs include such items as
raw materials and resources, direct labor, packaging, material handling, and
freight. The total cost of an operation is computed by summing total fixed cost
and total variable cost.

3. Profit – the third component in break-even analysis is profit. Profit is the

difference between total revenue and total cost.

Reference:

1. Taylor, B. (2013). Introduction to Management Science. 11 th edition. ISBN-13:978-013-

2751919-9
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Activity 1. Let’s try this

David decided to put up a business, to be called “David’s Rice” – a rice retailing business in
his hometown. He canvassed from local farmers and suppliers, and got a very affordable
bargain of Php1,800.00 per sack of 50-kilogram rice. Apart from the cost of purchase, David
has to shoulder the freight of Php5.00 per sack to deliver the purchase into his store. David
is, however, frustrated in calculating how much should be the price per sack and per kilo
given that he wants to earn a net of Php1,100 per sack. He also wants to make a simulation
of any possible scenario. Can we help David resolve his problem? How? To help David
resolve his problem, apply the different scientific method approach with the following
guided questions:

1. What is the situation all about?

2. What is David’s problem?
3. What do you want to achieve?
4. What equation can be designed?
5. What are the variables?
6. What are the given data?
7. Is the equation designed credible?
8. Can it be used in other scenarios?
9. How do we know if it is correct?

bakit ba kasi naisipan ni David magtayo ng bigasan business lordt -________-

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