ManSci Topic 1 Introduction to MS

Management Science/Operations Research/Decision Science - an approach to

decision making based on the scientific method, makes extensive use of
quantitative analysis.

Scientific Management Revolution

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– originated during early 1900s.
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– Initiated by Frederic W. Taylor
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– Provided the foundation for the use of quantitative methods in
management

Modern Management Revolution

– Originated during the WW2 period
– Teams were formed to deal with strategic and tactical problems faced by
the military.
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Problem solving - the process of identifying a difference between the actual and
the desired sate of affairs and then taking in action to resolve the difference.
7 steps in solving process
I. Decision Making
. Identify and define the problem.
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. Determine the set of alternatives
. Determine the criteria
. Evaluate the alternatives
. Choose an alternative
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II. Problem solving
. Implement the selected alternative
. Evaluating the outcome to determine whether a satisfactory
solution has been obtained
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Example:
. Define the problem
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- at the moment you are currently unemployed and your job search resulted
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in offers from the following companies in Rochester, Dallas, Greensboro,
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Pittsburgh.
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. Identify the alternatives.
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– Accept the position in Rochester
– Accept the position in Dallas
– Accept the position in Greensboro
– Accept the position in Pittsburgh
. Determine the criteria
– Highest staring salary
– Potential for advancement
– Location of the job
a. Single-criterion decision problems - the objective is to find the best
solution with respect to one criterion.
b. Multicriteria decision problems - involve more than one criterion
. Evaluate the alternatives.
. Choose an alternative.
. Evaluating the results.
The last two steps are made to emphasize the limited scope of the term
decision making as compared to the term problems solving.

An Alternate Classification of the Decision-Making Process

I. Structuring the problem
 a. Define the problem
b. Identify the alternative
c. Determine the criteria

II. Analyzing the problem

a. Evaluate the alternatives
2 forms of decision-making process
1. Qualitative Analysis
- the intuitive approach
- more of an art than a science
- relies on manager’s judgment, personal experience and
non-numerical factors
- often used when the (a) the manager has faced similar
problems before, (b) the problem is relatively simple
- Pro: fast and flexible
- Limitation: may be biased and/or inconsistent
2. Quantitative Analysis
- the scientific approach
- based on facts that will be developed into mathematical
expressions.
- learned through the study of management science
- focuses on numerical facts and data
b. Choose an alternative

Quantitative Analysis
a. Potential reasons for using quantitative analysis approach to decision
making. The problems are:
– Complex - too complex for intuition alone, helps break it down
and solve it.
– Very important - stakes are high, can make or break the
company.
– New - problem is new and unfamiliar, no past experience to rely
on.
– Repetitive - offers frequently, quantitative methods save time
and effort for routine decisions.

Quantitative Analysis Process

. Model Development - are representations of real objects or
situations and can be presented in 3 various forms:
a. Iconic Model - physical replicas (scalar representations)
ex. Toy airplane, scale model of a condo tower.
b. Analog Model - physical in form, but do not physically resemble the
object being modeled.
ex. Speedometer of an automobile, a thermometer
c. Mathematical Model - representation of a problem by a system of
symbols and mathematical formulas and expressions based on key
assumptions, estimates, or statistical analysis.
ex. Total profit (P) can be found after multiplying profit (Php 10) to
the number of products sold (x) P = 10x
. Data Preparation - most expensive.
. Model Solution
. Report Generation

Experimenting with models (than with real solutions:

- requires less time
- is less expensive
- involves less risk
The more closely the model represents the real situation, the accurate the
conclusions and predictions will be.

COMPONENTS OF MATHEMATICAL MODELS

. Objective Function - mathematical expression that decibels the
problems objective. MAXimize profit, MINimize cost.
Ex. Max. P = 10x
. Constraints - a set of restrictions or limitations.
Ex. Production capacity
- use “≤” (less than or equal to) → upper limit or maximums.
ex. A factory can produce at most 500 units → x ≤ 500
- use “≥” (greater than or equal to) → lower threshold or minimums
ex. A student must study at least 2 hours → hours ≥ 2
. Uncontrollable Inputs - environmental factors, which can affect both
the objective function and the constraints.
Ex. - the profit per unit (10)
- the production time per unit (5hrs)
- the production capacity (40hrs)
a. Deterministic Model - all uncontrollable inputs to a model are known and
cannot vary; distinguishing feature: uncontrollable inputs values are
known in advance.
Ex. Corporate income tax rates
b. Stochastic/Probabilistic Model - if any uncontrollable inputs are
uncertain and subject to variation.; distinguishing feature: the value of the
output cannot be determined even if the value of the controllable input is known;
often more difficult to analyze.
Ex. Demand for a product
. Controllable Inputs/Decision Variables - environmental factors;
decisions alternatives determined by the decision maker.
Ex. - the production quantity (x)

Example:
Let 5x - total time required to produce x units
≤ - production time required must be less than or equal to 40hrs available
40 - number of hours available in a week

Linear Programming Model

Max. P = 10x → objective function
Subject to (s.t.) 5x ≤ 40 → constraints
x ≥ 0 → non-negativity constraint (not possible to produce
negative number of units)

Cost/benefit considerations must be made in selecting an appropriate

mathematical model. Sometimes a less complicated model is more appropriate
than a more complex one due to cost and ease of solution considerations.

A. DATA PREPARATION
Data - the values of the uncontrollable inputs to the model; not a trivial step; time-
consuming and error-sensitive steps in qualitative analysis
Ex: 10 per unit for profit
– When known, analyst will adopt a general notation for the model
development (uses variable).

B. MODEL SOLUTION
Model Solution - identifying the values of the decision variables that provides the
“best” output for the model.
Optimal Solution - the specific decision-variable value or values that provide the
“best” output.
Trial-and-Error Approach - the models is used to test and evaluate various
decision alternatives; identify a good, best, solution to the problem.
a. Feasible - satisfies; all constraints are satisfied; a candidate for the
“best” solution.
b. Infeasible - rejected; does not satisfy all of the model constraints.

C. MODEL TESTING AND VALIDATION

- are frequently conducted with relatively small “test” problems that have
known or at least expect solutions.
Result of the application of alternatives.
Model and output information
a. Incorrect - corrective actions (model modification and/or collection of
more accurate input data)
b. Correct - “go-ahead” may be given to use the model on the full-scale
problem

D. REPORT GENERATION
- the preparation of managerial reports based on the model’s solution.
- should be easily understood
- must include (a) recommended decision and (b) other pertinent information
(I.e. sensitivity of the sol’s to the assumptions used)

FREQUENTLY USED MANAGEMENT SCIENCE TECHNIQUES

. Linear programming
. Integer programming
. Network models (transportation)
. Simulation