INTRODUCTION TO
MANAGEMENT SCIENCE
EMPV 2025
Learning Objectives:
● Understand management science ,its importance and origin
● Identify and briefly explain management science techniques
● Identify and describe the management science approach or
methodology
● Explain the models of Cost, Revenue and Profit and its relevance in
decision making
What is Management Science?
● Is an approach to decision making based on the scientific method that makes
extensive use of quantitative analysis
● Also called operations research, decision science, quantitative methods and
quantitative analysis.
● Originated in UK around the time of Word War II (1939-1945) where in the
government have created a number of multidisciplinary groups to apply
scientific methods to its military planning and activities and now being applied
as well in business and other industries with the support of technologies.
● Helps organizations identify issues and problems that must be solve,
streamline management efforts, use resources more effectively and develop
roadmaps for achieving goals.
Management Science Models and Techniques
● Linear programming- problem solving approach developed for situations that
requires finding the optimal solution when faced with certain limitations and
constraints
● Transportation and Assignment- techniques used to some areas wherein
there is a need for items/objects to be transported between locations / need to
be used/assigned to a particular tasks
Management Science Models and Techniques
● Decision analysis- formal approach to decision making and can be used to
determine optimal strategies in situations where there are several decision alter-
natives and where the outcomes or consequences of these decisions are uncertain.
(Decision tree, pay-off table)
● Forecasting- techniques that can be used to predict future aspects of a business
operation . (Time series models, trend projection and regression analysis)
● Inventory models- approaches to inventory management (Economic order
quantity)
Management Science Models and Techniques
● Project Management - techniques for planning, scheduling and controlling
projects that consist of numerous separate jobs or tasks performed by a variety
of departments, individuals and so forth. (PERT, CPM, Gantt charts)
● Queuing Models- mathematical models use to see how queuing situations can
be analyzed to predict factors such as the time a customer may have to wait in
a queue before service, the likely size of queues that may build up and the
effect on queues of changing the service process.
Management science approach/methodology
STEP 1 Problem Recognition/ Observation A problem exist that needs to be resolve
Ensuring that the problem is properly
STEP 2 Problem Structuring and Definition
understood and agreed and setting of objectives
STEP 3 Model construction and analysis Formulation of mathematical representation of
the problem and analysis
STEP 4 Solutions and recommendations Recommend solution to the problem
STEP 5 Implementation Execution of the solution
Sample Scenario:
Ana is planning to establish a tumbler retail business and would
like to start selling 32 oz size of tumblers. She was able to find a
good wholesale supplier that offered her at a purchase price of P
200 per 32 oz size. Anna targets to have a profit per tumbler of
P100. With this, Anna wants to know at what price should she sell
her tumbler to be able to earn her target profit.
Management science approach/methodology
STEP 1 Problem Recognition/ Observation Anna wants to know what price should she
sell her 32 oz tumbler to earn a target profit
of P100 each.
STEP 2 Problem Structuring and Definition Anna wants to know how to compute for the
price that she should sell each tumbler to earn
her target profit of P100 each.
STEP 3 Model construction and analysis
Purchase price per tumbler - P200
What are the variables in the problem? Target profit per tumbler- P100
What is the equation that will represent the Profit per tumbler= Selling price of tumbler - Purchase
objective of the problem? price of tumbler
STEP 3 Model construction and analysis
Let: X= Selling price per tumbler
Y= Purchase price per tumbler - P200
P= Target profit per tumbler- P100
Equation: P = X-Y
Substitute:
100 = X-200
100+200 = X
300 =X
Selling price per tumbler: P300
STEP 5 Solutions and recommendations
Selling price of each tumbler should be P 300 each to earn P100 profit per tumbler.
Verification/Validation: P= X-Y
100=300-200
100=100
Additional questions:
[Link] if Ana plans to sell 100 pieces of tumbler, how much would be her total
profit?
2. What if Ana has P 100,000 budget to purchase tumblers, how many tumbler
would she be able to sell if she has a target profit of P 50,000 and a selling
price of P300 per tumbler
?
Models
● Representations of real objects or situations and can be in various forms
Forms:
Iconic models - physical replicas of real objects
Analog models- models that are physical in form but do not have the physical
appearance similar to real objects or situation it represents
Mathematical models- representations of a problem by a system of symbols
and quantitative relationships and expressions.
Example 1: P = 100 x
Equation: P=100x
P= profit Dependent Parameter Independent
x= number of units variable
variable Constant values
Example 2:
Assuming the company would like to maximize their profit by earning 100 per unit
of product sold and they only have a maximum capacity of producing the
products for 40 hrs per week. It takes 4 hrs to produce a unit of the product.
Objective: To maximize profit by earning 100 per unit
Maximize P =100x (objective function)
Limitations: maximum capacity to produce products is 40 hrs per day and it
takes 4 hrs to produce a unit of product.
4x ≤ 40 (constraint)
x≥0 (non-negative constraint)
Models of Cost, Revenue and Profit
Cost and Volume models
● Cost of manufacturing or producing a product is a function of the volume produced
● Total cost can come from the sum:
Variable cost- portion of the total cost that is dependent on and varies with
production volume.
Fixed cost -portion of the total cost that does not depend on the production
volume; this cost remains the same no matter how much is produced
Sample Scenario: Cost and Volume models
Ana is planning to establish a tumbler retail business and would like to start selling 32 oz size of
tumblers. She was able to find a good wholesale supplier that offered her at a purchase price of
P 200 per 32 oz size. Aside from the purchase price of tumblers, monthly rental fee for
warehouse storaging would be P 20,000.
The Cost-volume model for each tumbler to sold would be:
C(x)= 200x+20,000
Where: C(x) = Total cost of x number of tumbler to be sold
x= number of tumbler to be sold
Marginal cost
● the rate of change of the total cost with respect to production volume. That is, it is
the cost increase associated with a one-unit increase in the production volume.
Models of Cost, Revenue and Profit
Revenue and Volume models
● Revenue of a product is a function of the volume sold
Assuming Ana plans to sell each tumber for P300 each,
Total Revenue model: R(x)= 300x
Where: R(x)= total revenue per x units of tumbler sold
x= number of tumbler sold
Marginal revenue- rate of change of total revenue with respect to sales volume.
Models of Cost, Revenue and Profit
Profit and Volume models
● Revenue and cost model can be combined to arrive at the profit model to determine
the total profit associated a specified production-sale volume
Total Profit model: P(x)= R(x)- C(x)
P(x)= 300x - (200x + 20,000)
P(x) = 100x -20,000
Using the models for cost, revenue and profit, compute for
the following:
● If Anna wants to sell 250 units of tumbler, how much is the total cost, revenue
and profit?
● If Anna produce 100 units of tumbler and sold 80 units only, how much is the
total cost of good sold, not sold, total revenue and profit?
Breakeven analysis
Break even point- volume that results total revenue equal to total cost resulting
to zero profit
- provides valuable information for a manager who must make a decision
concerning production of the product
Break even point: P(x)= R(x)- C(x)
0= 300x - (200x + 20,000)
0 = 100x -20,000
20,000=100x
x= 200
Exercises:
Problem 1
Problem 2
Problem 3
Problem 4
Problem 5
Problem 6