Operation Research

By: H/mariam K.
Course
Description
OR is one of the quantitative aid to
decision making
Offers decision-makers a method of
evaluating every possible alternative by
using various techniques to know the
potential outcomes.
 Includes Models and modeling,
 Linear programming,
transportation and assignment models,
 decision models,
 project management techniques, and
 queuing models
Chapter 1:
Introduction
1. General Introduction
OPERATIONS RESEARCH :
Branch of applied mathematics
 Providesa scientific base for management to
take timely and effective decisions to
problems.
Tries to avoid the dangers from taking
decisions merely by guessing or by
using thumb rules.
◦ Management - multidimensional and
dynamic concept
 Problems and their solutions have consequences in
several dimensions (human, economic, social and
political fields. )
Hence, Managers should consider all
aspects in addition to economic aspect
OR … an introduction
The general approach is to
analyze the problem in
economic terms and then
Implement the solution if it
has no impact on other
aspects like human, social
and political constraints.
Intro…
Management: process of integrating
the efforts of a purposeful group, or
organization, whose members have at
least one common goal.
Among the various schools of
management thoughts:
◦ The Decision Theory or Decisional
Management School and
◦ The Mathematical or Quantitative
Measurement School.
Were used scientific bases for decision
making
Intro …these schools
Advocates the use of quantitative
methods for making decisions.
Quantitative approach requires that:
◦ decision problems be defined, analyzed,
and solved in a conscious, rational,
logical and systematic and scientific
manner –
 based on data, facts, information and logic,
and
 not on mere guess work or thumb rules.
◦ Here we use objectively measured
decision criteria.
Intro … Hence, OR is
Body of knowledge, which uses
mathematical techniques to solve
management problems and make timely
optimal decisions.
Concerned with helping managers and
executives to make better decisions.
Today’s manager is working in a highly
competitive and dynamic environment.
◦ He/ She has to deal with systems with
complex interrelationship of various factors
and hence, conventional methods of decision-
making is found very much inadequate.
Intro …
Thatdoes not mean common sense,
experience, and commitment of the
manager is not essential in making decision,
but
◦ the role-played by scientific methods in making
optimal decisions is highly valuable.
OR uses logical analysis and analytical
techniques to study the behaviors of a
system in relation to its overall working:
◦ Functionally interconnected constraints,
◦ Parameters are recognized and quantified
◦ Relationships identified to the extent possible
and alterative decisions are derived.
Intro …
OR is therefore, a discipline devoted
to solving certain managerial
problems using quantitative models.
The quantitative approach is widely
employed in business.
Areas of application include
forecasting, capital budgeting,
capacity planning, scheduling,
inventory management, project
management and production
planning.
2. HISTORY OF OPERATIONS
RESEARCH
 Originated during the Second World War.
◦ Military management in England invited a team of scientists to
study the strategic and tactical problems related to air and
land defense of the country.
 OR is a ‘war baby’.
◦ It is because, the first problem attempted to solve in a
systematic way was concerned with how to set the time fuse
bomb to be dropped from an aircraft onto a submarine.
 The problem attained importance because at that time
the resources available with England was very limited and
the objective was to win the war with available
inadequate resources.
◦ food, medicines, ammunition, manpower etc., were required to
manage war and for the use of the population of the country.
 Itwas necessary to decide upon the most effective
utilization of the available resources to achieve the
objective.
 History ….
Itwas also necessary to utilize the military
resources cautiously.
Hence, the General of military,
◦ invited a team of (scientists, doctors,
mathematicians, business people, professors,
engineers etc.,) and
◦ Presented with the problem of resource
utilization that they may discuss and come up
with a feasible solution.
They brainstorm and arrived at a method
of solving the problem, which they named
as “Linear Programming”.
 This
method worked out well in solving the war
problem.
Intro …. Operations vs Research
 ‘Operations’ refer to the problems of military and
Research is used for inventing new method.
 Was invented during the war, the subject is given
the name ‘OPERATIONS RESEARCH’ and abbreviated
as ‘O.R.’
After the World War:
 Scarcity of industrial material becomes common
and
 Hence industrial productivity reached the lowest
level.
These causes industrial recession/downturn
and
 To solve the industrial problem the method
linear programming was used to get optimal
solution.
Intro …
 Lot of work was done after World war II on the field
and today the subject of OR has numerous
methods to solve different types of problems.
 After success of British military, the United States
military management started applying the
techniques to various activities to solve military,
civil and industrial problems.
 They have given various names to this discipline.
◦ Operational Analysis, Operations Evaluation, Operations
Research, System Analysis, System Evaluation, Systems
Research, Quantitative methods, Optimizations
Techniques and Management Science etc.
 Butmost widely used one is OPERATIONS
RESEARCH.
 Most important problem for which these techniques
used is how to optimize the profit or how to
reduce the costs.
Intro …..
The introduction of Linear Programming
and Simplex method of solution
developed by American Mathematician
George Bernard Dantzig in 1947 given an
opening to go for new techniques and
applications through the efforts and co-
operation of interested individuals in
academic field and industrial field.
Today the scenario is totally different.
In one word we can say that OR play a
vital role in every organization,
especially in decision-making process.
3. The Nature and Meaning of
OR
Many definitions by different
scholars in different times:
A scientific method of providing
executive management with a
quantitative base for decisions
regarding operations under their
control (Mores-Kimball 1943).
Scientific approach to problem
solving for executive management
(Wagner 1969).
Nature and Meaning …
 Optimal decision-making in, and modeling of,
deterministic and probabilistic systems that originate
from real life.
◦ These applications, which occur in government, business,
engineering, economics, and the natural and social
sciences, are largely characterized by the need to allocate
limited resources. In these situations, considerable insight
can be obtained from scientific analysis, such as that
provided by OR (Hiller-Lieberman 1974).
A branch of applied mathematics where in the
application is to the decision-making process (Gross
1979).
 Is a discipline devoted to solving certain managerial
type problems using quantitative models
(Stevenson )
Working definitions
Operations Research is a
◦ systematic analysis of a problem
through scientific methods,
◦ carried out by appropriate specialists,
◦ working together as a team,
◦ constituted at the instance of
management for the purpose of
finding an optimum and the most
appropriate solution,
◦ to meet the given objective under a
given set of constraints.
 Key points
 From the concept and definition given above,
OR is:
◦ The application of scientific methods, techniques and
tools to find an optimal solution to a problem.
◦ A management tool in the hands of a manager to
take a decision
◦ A scientific approach to decision making process
◦ An “applied research” aimed at finding a solution
for an immediate problem facing a society, industry
or a business enterprise .
◦ This is not “fundamental research”
◦ A decision-oriented research, using scientific
methods, for providing management a quantitative
basis for taking decision regarding operations under
its control
◦ Applied decision theory uses scientific, mathematical
The Five functions of OR
◦Objective: helps managers to make
objective decision
◦ Scientific approach: helps decision
makers to follow scientific approach
to solve managerial problems
◦ Inter disciplinary team work: it allows for
team work
◦ Digital computers: over reliance on
scientific calculators and other
computing machines
◦ Decision making : helps decision
makers to solve managerial problems
Decision Making
Making appropriate decision is the most
vital aspect in management .
Every one of us takes a number of
decisions every day.
Decisions:
◦ Some are important;
◦ some are trivial.
◦ Some decisions initiate a set of activities;
◦ some put an end to a certain activities.
In business environment, right decisions
at the right times ensure success.
This shows the importance of decision
making.
Problem, Problem Solving and Decision
Making
Problem: any variation between what was
planned and what is actually have/produced.
Problem solving: process of identifying
variations among actual and desired states
of affairs and then taking action to resolve
the difference.
Decision making: process of selecting or
choosing the best alternative among many
based on some criteria.
◦ It is important for all human being as each of us
make decision every day in our life.
◦ Thus, decision making is universal.
◦ Decision making is a rational selection among
alternatives.
 The Decision Making Process:

Steps in the process of rational decision making:

 Identify and define the problem: Problem is a necessary
condition for a decision. i.e.: There would be no need for
decisions if problems did not exist.
 Determine the set of alternative solutions.
 Determine the criteria to evaluate alternatives:
(Identifying those characteristics that are important for
making the decision)
 Analyze the alternatives: (The advantages and
disadvantages of each alternative)
 Select the best alternative: (Select the best alternative
that suits to solve our decision problem. In selecting the best
alternative, factors such as risk, timing and limiting factors
should be considered adequately)
 Implement the solution: (Putting the decision into action)
 Establishing a control and evaluation system :( Ongoing
actions need to be monitored, following the decision, evaluate
the results and determine if a satisfactory solution has been
obtained.
 The Decision-Making
Environment
Decisions are made under the
following three basic conditions:
Decision under certainty
Decision under risk
Decision under uncertainty
Decision making under
conditions of certainty
The decision maker has perfect knowledge
about the outcome.
One is reasonably sure what will happen
when he/she makes a decision.
The information is available and is
considered to be reliable and we know the
cause & effect relationships.
Example: If you decide to invest your
money in saving account in the commercial
Bank of Ethiopia, You are certain that you
will earn five percent (7%) interest.
Decision making under
condition of risk
Decision makers cannot have a precise
knowledge about the outcome of a
decision.
Decision makers may only be able to
attach a probability to the expected
outcomes of each alternative.
Under this situation, one may have
factual information, but it may be
incomplete.
Example: If we gamble by tossing a fair
coin, the probability that a tail will turn up
is 50%.
 Decision making under conditions of
uncertainty
 Neither there is complete data nor probabilities
can be assigned to the surrounding condition.
The most difficult for a manager.
 Some conditions that are uncontrollable by
management include competition,
government regulations, technological
advances, the overall economy, & the
social & cultural tendencies of society.
Example: A corporation that decides to
expand its operation, launching a new product,
or developing of a new technology in a foreign
country may know little about its culture, laws,
economic environment, or politics. The
political situation may be so volatile that even
experts cannot predict a possible change in
Decision Making
Approach
 Decision making can be either quantitative or
qualitative.
 Qualitative decision making based on intuitions
and subjective judgments Past experience with
similar problems is often an important factor in
choosing a qualitative approach, as in the
complexity and importance of a problem.
 Managers tend to use a qualitative approach to
problem solving when:
◦ The problem is fairly simple
◦ The problem is familiar
◦ The cost involved are not great
◦ Immediate decisions are not needed
Decision Making
Approach
Quantitative decision making -
managers use mathematical methods
to solve the problem.
Managers generally prefer to use a
quantitative approach when one or
more of the following conditions exist:
◦ The problem is complex
◦ The problem is not familiar
◦ The costs involved are substantial
◦ Enough time is available to analyze the
problem
4. MODEL: abstractions of
a reality
Model is an abstraction of a reality.
Simplified and often an idealized
representation of real objects/situations.
By its very nature a model is
incomplete.
A good model will capture the important
details of reality without including
innumerable minor details that would
obscure rather than illuminate
Models can be classified in the following
ways:
Physical (iconic) Model
Are the least abstract; they are physical
models that look like the reality.
It is also called Static Model.
It is given in two or three dimensions.
It is a representation of the real object
as it is.
Example:
◦ Model of an airplane
◦ Photograph of a machine
◦ Layout drawing of a factory
◦ Glob
Analogue Models:
Are also physical models but they are
more abstract than iconic models.
Instead of replicating physical appearance
as iconic models do, these models
substitute some physical analogy for
important aspects of the reality.
Showing inter and intra relationships
between two or more parameters.
It may show the relationship between an
independent variable (input) with that of
a dependent variable (output).
It is two dimensional
Analogue …. Example:
Histogram
Frequency table
Cause-effect diagram
Flow charts
Gantt charts
Price-demand graph
World map with different colors
Organizational chart
Mathematical Models
(Symbolic Models)
Most abstract models.
Incorporate numbers and
algebraic symbols to represent
important aspects of a problem
often in equation form.
A set of relations is represented
in the form of mathematical
equations, using symbols to
represent various parameters.
 Example:
 Max Z=3000x1 +2500x2
Subject to:
2x1+x2 < 40
x1+3x2 < 45
x1 < 12
x1 , x 2 > 0
Where:

The first line represents the objective

function - A mathematical statement of
the goal of an organization, stated as
intent to maximize or to minimize some
important quantity such as profits or
costs.
Max Z=3000x1 +2500x2 is the objective
function
Lines three to six represent constraints - A
restriction on the resources available to a
firm (stated in the form of an inequality or
an equation.)
Where
2x1+x2 < 40
x1+3x2 < 45 Are constraints
x1 < 12
x1, x2 > 0 is non-negativity
constraint

x1 and x2 are decision variables

OPERATION RESEARCH IN
PRACTICE
There are various techniques used
in OR, some of these are:
◦Probability theory
◦Linear Programming
◦Transportation algorithm
◦Assignment problems
◦Queuing Theory
◦ PERT/CPM Method etc
…Techiques …
OR techniques are ’application
specific’.
Maximum benefit can be derived from
selecting most appropriate techniques
for each specific area or problem.
Appropriate selection of OR technique
is an equally important task.
Each technique has its own advantages
and limitations .
The ability of the Manager is tested in
appropriate selection of OR technique.
OPERATIONS RESEARCH
APPROACH
 The approach in operations research
consists: problem definition, model
construction, analysis and
implementation of the solution.
The approach in OR is quite similar to
the scientific approach commonly used
in the physical sciences.
Both involve a logical sequence that
includes careful definition of the
problem use of models and analysis
leading to solution of the problem.
Approach … Diagrammatically
AS Summary … Operations
Research
Discipline devoted to the solution of
management problems using a scientific
approach.
Focus is on problem solving using
quantitative models.
The approach is to define the problem,
construct a model that reflects the
important aspects of the problem, analyze
the model to identify an appropriate
solution to the problem, implement the
solution and check to see that the
problem has been solved.
The core of OR is the scientific
approach to problem solving.
◦ An important part of this is the use of
quantitative models.
◦ Models are abstractions of reality:
ideally a model will capture the
important aspects of a situation with
including all of the minor details that
would increase complexity and
thereby reduce the chance of finding
a solution to the problem.
 Variety of model types employed in decision
making environment;
 OR models fall under the heading of symbolic
models (that is numbers and symbols are
used to form mathematical models) using
these models tends to be a more objective
approach than using qualitative models,
although in symbolic models the more
important qualitative aspects of a problem
may be ignored.
 Furthermore quantitative models enable
users to take advantage of the tremendous
computational abilities and calculators.
OR has applications in
forecasting, inventory
management, production
planning, capital budgeting,
capacity planning and other
important areas of management
decision making.
CHAPTER 2: Linear
Programming