Management Science Chapter 2: Introduction to Management

Science Part 2
Chapter 1: Introduction to Management
Science Part 1 Features of Management Science

Management Science – or operations 1. The implementation of scientific

research or decision science is a tool used approach.
by managers and administrators in the 2. The use of a systematic process to
performance of their most vital task: making solve problems.
crucial decisions. 3. The use of an interdisciplinary
approach.
Frederick W. Taylor – initiated the scientific
4. The utilization of mathematical tools.
management revolution that marked the
5. The use of some software
beginning of industrial engineering.
applications.
Inventory management - is the process of
Tools of Management Science
overseeing and controlling the flow of goods
within a business, involving tracking the 1. Allocation models – are used for
movement of goods and materials, problems involving the allocation of
monitoring inventory turnover, and optimizing resources to obtain optimal
replenishment to ensure products are always effectiveness.
available. 2. Inventory models – determine the
best inventory model and the best
Forecasting - is a crucial aspect of inventory
time to place an order.
management that involves predicting future
3. Queuing models – or waiting lines
demand based on historical sales data and
demonstrate how to achieve an ideal
other relevant factors.
balance between providing an
Project management - involves the planning, appropriate level of service and the
organization, and coordination of resources waiting line of a customer in a
to move a specific task, event, or duty queuing system.
towards completion, whether it's a one-time 4. Competitive models – or game
project or an ongoing activity. theory present an analytical
framework on the behavior of
Operational efficiency - refers to the
competing players in the achievement
optimization of resources like time, people,
of their conflicting goals.
equipment, inventory, and money to serve a
5. Network models – are employed for
business effectively, making companies
proper management of interrelated
leaner, agile, and more profitable.
activities or networks, such as large
construction projects.
6. Dynamic Programming models –
deal with the optimization of
multistage decision situations.
 7. Markov analysis – describes and result of each possible alternative-event
forecasts the possible outcome of a combination.
system that undergoes transition over
Decision-making – is defined as the cognitive
time.
process of selecting a course of action, out of
8. Decision Analysis models – are
a set of available alternatives, to achieve the
employed for managerial situations
goals of the organization.
involving the selection of an optimal
course of action given potential return Alternative courses of action - refers to all
and the corresponding probabilities of reasonable and prudent alternatives,
the states of nature. including both no action and alternatives
9. Forecasting – involves the prediction extending beyond original project objectives.
of the future under various scenarios.
Probabilities of occurrence of the states of
Feasible solutions – requires that all nature – are represented by percentages on
conditions and constraints given on the how likely or not likely for an event to occur.
problem are satisfied.
Payoffs – or the consequences of each
Infeasible solutions – defiance of said alternative course of action can be found at
constraints would cause the unacceptability the intersection of a given alternative and the
of the solution. corresponding state of nature.

Optimal solutions – the best among all

feasible solutions is called an optimal
solution.

Non-optimal solutions – are feasible

solutions that are not considered optimal.

Unique solutions – if there is only one

optimal solution, then it is unique.
Three types of decision situations based on
Multiple solutions – if there are two or more
the degree of knowledge or information about
optimal solutions, then it is multiple.
the problem:
Chapter 3: Decision Theory Part 1
1. Decision situation under Certainty –
Decision theory – deals with methods in also called deterministic situation, is
determining the optimal course of action a perfect predictor of the future
when a number of alternatives are available, because of the availability of
and their consequences cannot be forecast complete information.
with certainty. 2. Decision situation under Risk –
probabilistic or stochastic decision
State of nature – possible events or outcome situations are other terms for decision
of a random process, the probabilities of such situation under risk. In this situation,
events, and payoff or consequences as a the decision-maker is presented with
 several options with a corresponding best = highest value in a row.
probability of occurrence.
worst = lowest value in a row.
3. Decision situation under
Uncertainty – the decision-maker in Then find the best alternative with the highest
the decision situation under value.
uncertainty cannot estimate or does
Criterion of Regret (Savage’s Criterion)
not have knowledge of the probability
of occurrence of possible states of Step 1: In each column, each payoff is
nature. deducted from the largest payoff in the
column.
Solution to decision under Risk
Step 2: Find the highest value in each row.
E(a1) = (payoff11 x probability1) + (payoff12 x
Then, select the lowest regret in the new
probability2) + (payoff13 x probability3) =5.7
column.
E(a2) = (payoff21 x probability1) + (payoff22 x
Chapter 5: Linear Programming Part 1
probability2) + (payoff23 x probability3) =5.3
Linear Programming – identifies the linear
E(a3) = (payoff31 x probability1) + (payoff32 x
relationships among variables in a
probability2) + (payoff33 x probability3) =5
manufacturing or production process.
Then find the maximum expected value
George Dantzig – an American mathematical
amongst the alternatives.
scientist, developed linear programming for
Criterion of Pessimism (Maximin or the use of an Air Force project in 1940s.
Minimax)
Two most common linear programming
Step 1: choose the payoff in a row with the problems:
lowest value.
1. Product-mix problem – the decision-
Step 2: then choose the best of the worst. maker has to solve for which products
to include and in what quantities
Criterion of Optimism (Maximax or
should be included in the production
Minimin)
plan that will help achieve profit
Step 1: choose the payoff in a row with the maximization.
highest value. 2. Blending problem – deals with
finding the best blend of available raw
Step 2: then choose the best of the bests.
materials or ingredients that will
Coefficient of Optimism (Hurwicz contribute to cost efficiency.
Criterion)
Structure of a Linear Programming Problem
WVa = a x best + (1-a) worst
1. Decision Variables – are variables
Where: whose values are to be determined. Is
denoted by x1, x2, … xn . Must be
a = alpha value usually between 0-1 and is
given.
 controllable, continuous, and non- Chapter 6: Linear Programming Part 2
negative.
Simplex method – first developed in 1947 by
2. Objective Function – is a
G.B. Dantzig together with the US department
mathematical expression of the
of the Airforce members. It is an iterative
relationship between the decision
technique for solving more unknown
variables and a single goal. Goals are
variables that are geometrically difficult to
given as total profit, total cost, market
plot in a graph.
share, etc.
3. Profit or Cost Coefficients – the rate Simplex tableau – is a table that keeps track
at which the value of the objective of the calculations for the simplex method.
function is increased based on the
Right-hand-side (RHS) – is at the rightmost
decision variables that are included in
column of a simplex tableau that indicates
the problem solution.
the capacities or requirements.
4. Constraints – resources has
limitations or has certain Basic variables – are variables considered in
requirements. Constraints are a basic solution.
expressed in the form of linear
Pivot column – in a maximization problem
inequalities or equalities.
should have the lowest negative value in the
5. Input-Output Coefficients – express
last row.
the rate at which a resource is put to
use. It often appear on the left side of Pivot row – is a row in the simplex tableau
the constraints. that contains the basic variable that will go
6. Capacities – highest or lowest limit. out of the solution.
Found on the right side of the
Intersectional elements (IE) – are the
constraints.
elements in the pivot column.
7. Optimization – the goal is to
maximize or minimize profit and cost Test ratio – conducted by dividing the RHS by
respectively. the IE.
8. Non-negativity – decision variables
*The test ratio will always yield a positive
are required to be non-negative.
number. If there is a negative number and
infinity in a row, it will not be considered a
pivot row.

Pivot – is the element in the simplex tableau

located both in the pivot row and pivot
column.

Pivoting – is the process of moving from one

simplex tableau to the next.
 Abraham Charnes and William Wager
Cooper – developed the stepping stone
Replacing row = pivot row/pivot
method in 1953.
Remaining row = previous row –
Characteristics and Assumptions of the
(intersectional elements x replacing row)
Transportation Problem
If the last row does not have negative
1. Supply or Sources – certain sources
elements, then the table is already
have limited available quantity of one
optimal.
commodity.
2. Demand – the demand comes from
several destinations such as
warehouses, distribution centers,
shops, etc.
3. Quantities – the quantities available
at each source and the demands of
each destination are constant.
4. Shipping cost – is based on per unit
cost of the commodity from the
source to each destination. It is
usually based on the distance
Chapter 7: Distribution Models Part 1 between the two points.
Distribution models – a special type of LP
problem in the area of physical distribution of
goods and services coming from several
supply locations that are to be delivered to
demand centers.

Transportation problem – involves

shipments from a number of sources to a
number of destinations.

Assignment problem – deals with situations Three Methods to Obtain Initial Solution to a
wherein a given number of candidates are Transportation Problem
assigned to a number of positions.
A. Northwest Corner Method (NWC) –
Frank Lauren Hitchcock – presented the is the most simple and logical method
simplest form of transportation model in of finding the initial solution.
1941. B. Minimum Cost Method (MCM) – is a
Tjalling Charles Koopmans – futher systemized procedure that is easy to
developed the transportation model in 1947. use and yields an initial solution that
is close to the optimal solution in
small problems.
 C. Vogel’s Approximation Method solution procedure for solving large, balanced
(VAM) – is an algorithm that obtains assignment problems.
the initial feasible solution by
Denes Konig – a Hungarian mathematician
determining the penalty cost of not
that developed the Hungarian method based
using the lowest cost route.
on the concept of opportunity loss.
Optimal Feasible Solution
Chapter 9: Network Models Part 1
After obtaining the initial solutions, we would
Critical Path Method (CPM) – developed by
apply these two methods to find out the best
Morgan R. Walker of Du Pont and James E.
alternative:
Kelly of Remington Rand. A deterministic
A. Stepping Stone Method (SSM) – is tool with a goal to determine the optimal
generally the easiest to visualize and tradeoff of cost and time.
understand. Its purpose is to
Program Evaluation and Review Technique
determine the effect on the total
(PERT) – developed in 1958. It is a
shipping cost should one unit of
probabilistic tool used to plan and control
goods are to be delivered through the
the duration of a certain project.
unused routes.
B. Modified Distribution Method Activity – refers to an effort that needs
(MODI) – is a more efficient procedure resources and time to accomplish a goal or a
in determining the net contributions project.
of routes that were not used. In this
Event – A goal that has been completed at a
method, the focus is on the extensive
certain period is considered an event. Can
use of the cost factors associated
also be called milestone as it happens after
with each cell.
all activities that precede it must be
Chapter 8: Distribution Models Part 2 accomplished.

Assignment model – another type of Project – involves a series of events and

transportation problem, and its objectives is activities with definable beginning and a
to assign a number of origins to the equal definable end, which is the goal.
number of destinations at either minimum
Network – this refers to activities and events
cost or maximum profit.
that are arranged in a logical and
Harold Kuhn – developed the assignment chronological order and presented
model in 1955. graphically that demonstrate the
relationships among the different activities
Methods for solving the Assignment Problem
and events that will lead to the completion of
Hungarian Method – is the most efficient way a project.
of solving large or more complex assignment
Critical Activity – an activity that has a strong
problems.
impact on project completion.
Hungarian method – or Flood’s technique is
an algorithm that provides an efficient
Path – represents a collection of activities anticipated problem areas, especially in the
that connects one event to another. critical areas.

Critical Path – a path that is composed of a E. Proper Use of Resources – enables

sequence of critical activities that occur from management to have a preview of the overall
the start of a project until full completion. plan. Thus, resources are properly allocated,
especially on the bottlenecks or problematic
Immediate Predecessors – these are
areas.
activities that must be accomplished before
the start of an activity in question. F. Rescheduling – an efficient monitoring
system can easily pinpoint deviations from
Activity Slacks – also termed as float
the schedule. Hence, such deviations can
activity. It is the length of time that a task is
easily be corrected to minimize delays.
allowed to be delayed as it will not cause a
delay for the entire project. PERT/CPM Procedure:

Minimum information that PERT/CPM can a. Formulation – preparation of the basic

provide: inputs of PERT/CPM.

1. Activities that are critical. b. Solution – involves the creation of the

network, event analysis, and activity analysis.
2. Activities that are noncritical.
c. Analysis and Application – focused on
3. The slack time per noncritical activity.
monitoring and control, as well as resource
4. Other information as needed by utilization.
management.
Solving CPM:
Advantages of PERT/CPM:
Forward pass – aims to determine the
A. Detailed Planning – enables management earliest start and earliest finish time of each
to prepare a detailed plan that specifies what activity by going forward on the network. The
must be done to accomplish all tasks on higher period time is chosen because all
time. activities prior must be finished before the
start of the next activity.
B. Commitments and Communication –
commitment of following completion dates Backward pass – identifies the latest start
and allows more fluid communication with and latest finish time of each activity by going
members of the organization and between backward on the network. The lower period
suppliers and vendors. time is chosen because all activities prior
must be finished before the start of the next
C. Efficient Monitoring and Control – all
activity.
critical activities must be identified in order to
enable management to efficiently monitor all
activities through records and reports.

D. Identifying Potential Problem Areas –

contingency plans must be prepared on the
Chapter 10: Network Models Part 2

Two categories of PERT:

a. Stochastic – PERT used for activity times

that are probabilistic in nature.

b. Deterministic – PERT used when activity

time is assumed to be known with certainty.

Three estimates in PERT:

1. Optimistic estimate (to) – an estimate of

the shortest possible duration of an activity
reaching its completion.

2. Most likely estimate (tm) – the estimate of

the duration would occur most often if the
activity is repeated under exactly the same
conditions several times.

3. Pessimistic estimate (tp) – the longest

time that an activity will be completed “when
everything went wrong.”

Mean time of an activity – add the three

estimates and divide it with a divisor.

Cost-Time Relationship – to lower the overall

project time at an acceptable cost is another
goal in project management. For a certain
cost, there is a possibility to reduce the time
necessary to complete a project.

Crashing – or “crashing the project” is the

process of adding additional resources to
complete a project below its normal time.

Crash duration – is the term for the minimum

possible duration for an activity.