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SHRI RAMSWAROOP MEMORIAL COLLEGE OF ENGINEERING & MANAGEMENT

MBA [SEM II]

TUTORIAL SHEET-1
[Session: 2023-24(Even)]

KMBN 206: QUANTITATIVE TECHNIQUES FOR MANAGERS

Unit No. & Name: 1, Operations Research & Course Outcome: CO1: Students will be able to
Decision Making Environments understand the characteristics of
different types of decision-making
environments and the appropriate
decision making approaches and
tools to be used in each type.
Date of Distribution: 06-04-2024 Name of Faculty: Mr. Shujauddin Niyazi

SUBJECTIVE QUESTIONS BL
Uses, Scope and Applications of Operation Research in managerial decision- making
Q1) Discuss in detail the historical background of Operations Research. 2
Q2) Explain the features, applications and scope of Operations Research. 2
“OR is the application of scientific methods, techniques and tools for obtaining optimum
Q3) solution of various categories of problems in operational management of an enterprise.” 2
Comment.
Q4) Discuss about Operations Research models which have wide commercial applications. 2
Q5) Describe the necessity of operations research in industry. 2
Operations Research advocates a system approach and is concerned with optimization.
Q6) 2
Basically it provides a quantitative analysis for decision making”. Elaborate.

Decision-making environments:- Decision-making under certainty, uncertainty

Q7) What are the different environments in which decisions are made? 1
A person wants to invest in one of the three alternative investment plans; Stock, Bonds,
Debentures. It is assumed that the person wishes to invest all of the funds in a plan. The
payoff matrix based on three potential economic conditions is given in the adjoining table:
Economic Conditions
Alternative
High Growth Normal Growth Slow Growth
Investments
Q8) (RS) (RS) (RS) 3
Stock 10000 7000 3000
Bonds 8000 6000 1000
Debentures 6000 6000 6000
Determine the best investment plan using each of the following criteria:
Laplace (ii) Maximin (iii) Maximax
Pay off of three acts X, Y and Z and the states of nature P, Q and R are given below:
Payoffs (Rs.)
States of nature Acts
X Y Z
Q9) P -120 -80 100 3
Q 200 400 -300
R 260 -260 600
The probabilities of states of nature are 0.3, 0.5 and 0.2 respectively. Tabulate the expected monetary value for the
above data and state of nature which can be chosen as the best act.
A retail shop decides on the level of supplies it must stock to meet the needs of its customers during specific days.
The exact number of customers is not known, but it is expected to be one of the four categories; 300, 350, 400 or
Q10) 3
450 customers. Four level of supplies are thus suggested with level j being ideal (from the view point of incurred
costs) if the number of customers falls in category j. Deviations from the ideal levels results in additional costs

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 either because extra supplies are stocked needlessly or because demand cannot be satisfied. The table below
provides these costs in thousands of rupees.
Customer Supplies level
Categories A1 A2 A3 A4
E1 7 12 20 27
E2 10 9 10 25
E3 23 20 14 23
Find the supply
E4 32 24 21 17 level which
provides the best level of inventory.

Decision-making environment:- Decision-making under risk situations

The payoffs (in Rs) of three acts A 1, A2, and A3 and the possible states of nature S1, S2 and S3 are given in the
following table. The probabilities of the states of nature are 0.3, 0.4 and 0.3 respectively:
Acts
States of nature
A1 A2 A3
Q11) 3
S1 -20 -50 200
S2 200 -100 -50
S3 400 600 300
Determine the optimal act using the expectation principle.
A farmer is attempting to decide which of the three crops he should plant on his 100 acre farm. The profit from
each crop is strongly dependent on the rainfall during the growing season; he has categorized the amount of the
rainfall as substantial, moderate or light. He estimates his profit for each crop as shown in the table below:
Estimated profit (Rs)
Rainfall
Crop A Crop B Crop C
Q12) Substantial 7000 2500 4000 3
Moderate 3500 3500 4000
Light 1000 4000 3000
Based on the weather on the previous season and the current projection for the coming season, he estimates the
probability of substantial rainfall as 0.2, that of moderate rainfall as 0.3 and that of light rainfall as 0.5. From the
available data, determine the optimal decision as to which crop to plant.
A factory manufactures three types of boxes. The fixed and variable costs are given below.
Fixed cost (Rs) Variable cost (Rs) per unit
Type 1 20000 10
Type 2 30000 8
Type 3 50000 5
Q13) The likely demands under three situations are given below. 3
Demand Units
Poor Demand 2000
Moderate 5000
Demand 10000
High Demand
If the sale price of each type is Rs 20, prepare the payoff table.
A car manufacturer uses a special control device in each car he produces. Two alternatives method can be used to
detect and avoid a faulty device. Under the first method, each device is tested before it is installed, and all faulty
devices are discovered before installation. The cost is Rs 2 per test. Alternatively, the control device can be
installed without being tested, and a faulty device can be detected and removed after a car has been assembled, at
a cost of Rs 20 per faulty device.
Regardless of which method is used, faulty devices cannot be repaired and must be discarded.
Q14) A manufacturer purchases the control devices in batch of 10000. Based on past experience, the estimates the 1
proportion of defective components and the associated probabilities to be:
Proportion of faulty 0.12
0.80 0.16
devices
Probability 0.20 0.70 0.10
a) Which inspection method should the manufacturer adopt?
b)What is the expected value of perfect information (EVPI)?

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Decision tree approach and its applications
What are decision trees? How and in what type of situations are they employed for decision
Q15) 1
making?
Mr. A of MNC Ltd. wants to introduce a new product in the market. He has a choice of two
different R&D plans A and B. A costs Rs. 10 Lakh& has a 40% chance of success where as B
costs. Rs. 5 Lakh with a 30% chance of success. In the event of a success. Mr. Y has to
decide whether or not to advertise, advertisement will cost Rs. 4 Lakh but gives a 0.7
Q16) 3
probability of full acceptance. Full market acceptance of the product developed as per plan A
would be worth Rs. 40 Lakh & per plan B would be worth Rs. 80 lakh. Practical acceptance
in both the cases will be worth Rs. 20 lakh. Which plan should be adopted by Mr. A? Solve
the problem with help of decision tree?
A large steel manufacturing company has three options with regard to production: (a) produce
commercially (b) build pilot plat (c) stop producing steel. The management has estimated that their pilot plant, if
built, has 0.8 chance of high yield and 0.2 chance of low yield. If the pilot plant does show a high yield,
management assigns a probability of 0.75 that the commercial plant will also have a high yield. If the pilot plant
Q17) 3
shows a low yield, there is only a 0.1 chance that the commercial plant will show a high yield. Finally,
management’s best assessment of the yield on a commercial size plant without building a pilot plant first has a 0.6
chance of high yield. A pilot plant will cost Rs 300000. The profits earned under high and low yield conditions are
Rs 12000000 and –Rs 1200000 respectively. Find the optimum decision for the company.
A company has developed a new product in its R&D laboratory. The company has the option of setting up
production facility to market this product straight away. If the product is successful then over the three years
expected product life, the returns will be Rs 120 lakh with a probability of 0.70. If the market does not respond
favourably then the returns will be only Rs 15 lakh with probability of 0.30. The company is considering whether
it should test market building a small pilot plant. The chance that the test market will yield favourable response is
Q18) 0.80. If the test market gives favourable response, then the chance of successful total market improves to 0.85. If 3
the test market gives poor response then the chance of success in the total market is only 0.30. As before, the
returns from a successful market will be Rs 120 lakh and from an unsuccessful market only Rs 15 lakh. The
installation cost to produce for the total market is Rs 40 lakh and the cost of the test marketing pilot plant is Rs 5
lakh. Using decision tree analysis, draw a decision tree diagram, carry out necessary analysis to determine the
optimal decisions.
A glass factory specializing in crystal is developing a substantial backlog and the firm’s management is
considering three courses of action: (S1) arrange for sub-contracting, (S2) overtime and (S3) construct new
facilities. The correct choice largely depends upon future demand which may be low, medium or high. By
consensus, management ranks the respective probabilities as 0.10, 0.50 and 0.40. A cost analysis reveals the
effect upon the profits that is shown in the table below:

Q19) 3
Courses of action
Profit (Rs ‘000)
S1 S2 S3
If demand is
(Subcontracting) (Overtime) (Construct facilities)
Low (p = 0.10) 10 -20 -150
Medium (p = 0.50) 50 60 20
High (p = 0.40) 50 100 200
Show this decision situation in the form of a decision tree and indicates the most preferred decision and the
corresponding expected values.
ABC industry limited has a new product which they expect has great potential. At the moment
they have two courses of action open to them.
S1 = to test market, S2 = to drop product.
If they test it will cost Rs 50000 and the response could be positive or negative with probabilities 0.70 and 0.30
Q20) respectively. If it is positive, they could either market it with full scale or drop the product. If they market it with 3
full scale, then the result might be low, medium or high demand, and the respective net payoff would be –Rs
100000, Rs 100000 or Rs 500000. These outcomes have probabilities 0.25, 0.55 and 0.20 respectively. If the result
of the test marketing is negative they have to decide to drop the product, if at any point, they drop the product
there is net gain of Rs 25000 from the state of scrap. All financial values have been discounted to the present.
Draw a decision tree for the problem and indicate the most preferred decision.

SUPPLEMENTARY QUESTIONS BL
Decision-making under risk situations

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SUPPLEMENTARY QUESTIONS BL
A Company manufactures parts for passenger cars and sells them in lots of 10000 parts each.
The company has the policy of inspecting each lot before it is shipped to the customer. Five
inspection ratings established for quality control represent the percentage of defective items
contained in each lot. The management is considering two possible courses of action:
(i) Shut down the entire plant operations and thoroughly inspect each machine.
This action cost Rs 600.
(ii) Continue production but offer the customer a refund of Rs 1 for each
defective item that is detected and returned.
Q1) Proportion of 3
Rating Frequency
defective items
Excellent (A) 0.02 25
Good (B) 0.05 30
Acceptable (C) 0.10 20
Fair (D) 0.15 20
Poor (E) 0.20 5
What is the optimum decision for the
company? Also find the EVPI.

Decision tree approach and its applications

A company has developed a new product in its R&D laboratory. The company has the option of setting up
production facility to market this product straight away. If the product is successful then over the three years
expected product life, the returns will be Rs 120 lakh with a probability of 0.70. If the market does not respond
favourably then the returns will be only Rs 15 lakh with probability of 0.30. The company is considering whether
it should test market building a small pilot plant. The chance that the test market will yield favourable response is
Q2) 0.80. If the test market gives favourable response, then the chance of successful total market improves to 0.85. If 3
the test market gives poor response then the chance of success in the total market is only 0.30. As before, the
returns from a successful market will be Rs 120 lakh and from an unsuccessful market only Rs 15 lakh. The
installation cost to produce for the total market is Rs 40 lakh and the cost of the test marketing pilot plant is Rs 5
lakh. Using decision tree analysis, draw a decision tree diagram, carry out necessary analysis to determine the
optimal decisions.

SHORT-ANSWER TYPE QUESTIONS BL

Uses, Scope and Applications of Operation Research in managerial decision- making
Q1) State the advantages of mathematical models in Operations Research. 1
Q2) Discuss the limitations of Operations Research. 2
Q3) What arethe different areas where techniques of operations research can be applied? 1
Q4) What are the different phases of operations research? 1
Q5) State the advantages of Operations Research. 1
Q6) Define the general solution methods for Operations research models. 1

Decision-making environments:- Decision-making under certainty, uncertainty

Q7) Define the concept of Hurwicz criterion. 1
Q8) What do you understand by the decision making under conditions of uncertainty? 1
Q9) State the concept of the criterion of pessimism. 1
Q10) Explain in brief the steps required in Laplace criterion for decision making. 2
Q11) What do you understand by Maximin criterion of decision making. 1

Decision-making environment:- Decision-making under risk situations

Q12) Discuss the concept of Savage criterion? 2
Q13) How EMV is computed to be used as a criterion of decision making? 1
Q14) Define the concept of expected profit with perfect information (EPPI). 1
Q15) Explain in brief the expected value of perfect information. 2

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SHORT-ANSWER TYPE QUESTIONS BL
Decision tree approach and its applications
Q16) Define the concept of decision node of a decision tree. 1
Q17) State the concept of states of nature. 1
Q18) What do you understand by course of action? 1
Q19) Discuss in brief the limitations of decision tree approach. 2
Q20) State the concept of chance node used in decision tree. 1

CROSSWORD-PUZZLE BL
1

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Across Down
2. This method starts with a solution obtained by trial and 1. It is a graphic display of various decision alternatives
error and a set of rules for improving it towards optimality. and the sequence of events.
3. It is a Finite number of decision alternatives available with 4. This phase of Operations Research is the largest and
the decision maker at each decision point. longest among all phases.
5. It represents the numeric value to the decision maker 7. These models of operations research employ a set of
resulting from a given combination of decision alternatives mathematical symbols to represent the decision variables
and States of nature. of the system under study.
6. It is decision alternative available to the decision maker. 8. This criterion assigns equal probabilities to all the
10. It indicates a point at which the decision maker will events of each alternative decision and selects the
discover the response to his decision. alternative with the maximum expected payoffs.
13. In this method only the mathematical equations with 9. It is the criterion of achieving maximum or minimum
symbols are used to arrive at the final solution. value of some effectiveness criterion.
14. It is a tabular arrangement of the conditional outcome 11. It is the combination of descriptive and perspective
values. business modeling approach to classify degree of
15. This criterion suggests that a decision maker should be knowledge.
neither completely optimistic nor pessimistic and therefore 12. This criterion of decision making is based upon the
must display a mixture of both. pessimistic approach.

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 REFERENCES

TEXT BOOKS:
No. of Books
Ref. Edition &Year of
Authors Book Title Publisher/Press Available in
[ID] Publication
Library
[T1] J K Sharma Operations Research Trinity Press 5th Edition, 2013 88
[T3] KantiSwaroop Operations Research S. Chand 16th Edition,2012 48
Operations Research - An
[T4] TahaHamdy Prentice-Hall 8th Edition, 2009 47
Introduction
A. M. Natarajan, P.
[T2] Balasubramani, A. Operations Research Pearson 11th Edition, 2012 58
Tamilarasi
REFERENCE BOOKS:
Ref. Edition &Year of
Authors Book Title Publisher/Press
[ID] Publication
[R1] R. Panneerselvam Operations Research PHI Learning 2nd Edition, 2013 06
Quantitatives Techniques in
[R2] N. D. Vohra Tata McGraw Hill 4th edition, 2010 43
Management
ONLINE/DIGITALREFERENCES:
Ref.
Source Name Source Hyperlink
[ID]
Introduction to
[D1] https://coral.ise.lehigh.edu/magh/present/stetson01.pdf
Operations Research

…………………. X………………….

Signature of Faculty:______________ Signature of HOD:_______________

(With Date) (With Date)

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