INTRODUCTION TO CHAPTER ONE

MODELING
 WHAT IS OPERATIONS
RESEARCH?

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INTRODUCTION TO OPERATIONS RESEARCH

Operations research (management Term coined during WW II

science) is a scientific approach to when leaders asked
decision-making that seeks to best design scientists and engineers to
and operate a system, usually under analyze several military
conditions requiring the allocation of problems.
scarce resources.

A system is an organization of interdependent

components that work together to accomplish its
goals.

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CONT’D

The field of management science has

evolved over more than 60 years and is now
a mature discipline within the broader
category of management studies.

Management science is widely applied

today to address complex problems across
various industries, including airlines, banks,
oil companies, and many others.

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 What is Model, Modeling
QUESTION and Mathematical
Modeling?

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MODELING VS MODELS
Model is an abstraction of reality; Linear
programing Model (Transportation, the product
mix, the shortest route assignment etc)

Mathematical Model is a set of mathematical

relationships that represent or approximate a
real situation.

Modeling is the process in which the reality is

abstracted into a model, spreadsheet or
otherwise
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CONT’D

The scientific approach to A mathematical model is a

decision-making requires the use quantitative representation of the
of one or more mathematical actual situation that may be used to
models. make better decisions or clarify the
situation.

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CONT’D

Modeling abstracts real- Models Are Essential Tools In

world problems into Decision-making By Breaking
simplified models for Down Complexity.
analysis and solutions.

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PURPOSE AND BENEFITS
OF MODELING
•Models can predict outcomes,
explore different scenarios, and
minimize risk in decision-making.

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COMPONENTS OF A MODEL
Inputs, outputs, decision
variables, and constraints.
Examples:
Input: cost per unit of raw
material
Decision variables: Number of
products to produce
Output: Total profit or cost
Constraints: Budget, space etc

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DESCRIPTIVE VS OPTIMIZATION MODELS

Descriptive Models simply describe a situation

Examples: statistical summaries (Mean, median,
mode, standard deviation)

Optimization models suggest a desirable course

of action
Example: Liner and nonlinear programing models

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DETERMINISTIC VS. STOCHASTIC MODELS

Deterministic Models, Stochastic Models Include

Assume Known Inputs and Randomness, Simulating
Yield Predictable Outputs. Uncertainty.

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STATIC VS. DYNAMIC
MODELS
• Static models are snapshots of a
single point in time, useful for one-
time decisions (LP).
• However, dynamic models, track
changes over time and are ideal for
processes evolving under different
conditions (Simulations)

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LINEAR AND NONLINEAR MODELS

Linear Models, Relationships Examples: Linear For

Between Variables are Basic Budgeting;
Proportional, and Nonlinear Nonlinear For-Profit
Models with Complex, Curved Maximization In
Relationships. Complex Markets.

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THE SEVEN-STEP MODELING PROCESS
Step 1: Problem definition
• Define the problem.
• Specify objectives.
• Determine parts of the organization to be studied.

Step 2: Data Collection

Data will be collected to estimate the parameters that

affect the problem

The parameters are used to develop a mathematical model

and predict the solution
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CONT’D
Step 3: Model Development
The analyst develops a model, which can be
either deterministic or simulation-based.
Step 4: Model Verification
The analyst verifies whether the model accurately
represents reality. At a minimum, the model
should pass “plausibility checks.”
Step 5: Optimization and Decision-Making
The analyst selects the decision or strategy that
best aligns with the organization’s objective,
whether maximization or minimization.

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 CONT’D

Step 6: Model Communication to Step 7: Model Implementation

Management
Present the results to the decision maker(s) Assist in implementing the recommendations.
• If necessary, prepare several alternative Monitor and dynamically update the system as
solutions and permit the organization to choose the environment and parameters change to
the one that best meets their needs. ensure that recommendations enable the
organization to meet its goals.

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MODELING EXAMPLE
Eli Daisy produces the drug Wozac in batches by
heating a chemical mixture in a pressurized
container. Each time a batch is produced, a
different amount of Wozac is produced. The
amount produced is the process yield (measured in
pounds). Daisy is interested in understanding the
factors that influence the yield of the Wozac
production process. Describe a model-building
process for this situation.

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 EXAMPLE 1: SOLUTION
Daisy is first interested in determining the
factors that influence the process yield.
 This is a descriptive model since it describes the behavior
of the actual yield as a function of various factors.

Daisy might determine that the following

factors influence yield:
 Container volume in liters (V)
 Container pressure in milliliters (P)
 Container temperature in degrees centigrade (T)
 Chemical composition of the processed mixture

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CONT’D

Letting A, B, and C be the percentage of the mixture made up of

chemicals A, B, and C, then Daisy might find, for example, that:
Yield = 300 + 0.8V +0.01P + 0.06T + 0.001T*P - 0.01T2 – 0.001P2 + 11.7A +
9.4B + 16.4C + 19A*B + 11.4A*C – 9.6B*C

To determine the relationship the yield of the process would have

to be measured for many different combinations of the factors.
Knowledge of this equation would enable Daisy to describe the
yield of the production process once volume, pressure,
temperature, and chemical composition were known.
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CONT’D
Prescriptive (optimization) models “prescribe” behavior for an
organization that will enable it to best meet its goals.
Components of this model include:
Objective function(s)

Decision variables

Constraints

Parameters

An optimization model seeks to find values of the decision

variables that optimize (maximize or minimize) an objective
function among the set of all values for the decision variables
that satisfy the given constraints.
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CONT’D
The Daisy example seeks to maximize the yield for the
production process.
In most models, there will be a function we wish to maximize or
minimize. This function is called the Model’s Objective Function.
To maximize the process yield we need to find the values of V,
P, T, A, B, and C that make the yield equation (below) as large
as possible.
Yield = 300 + 0.8V +0.01P + 0.06T + 0.001T*P - 0.01T2 – 0.001P2
+ 11.7A + 9.4B + 16.4C + 19A*B + 11.4A*C – 9.6B*C

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CONT’D
Variables whose values are under our control and influence
system performance are called Decision Variables.
 In the Daisy example, V, P, T, A, B, and C are decision
variables.
In most situations, only certain values of the decision variables
are possible.
 For example, certain volume, pressure, and temperature
conditions might be unsafe. Also, A, B, and C must be
nonnegative numbers that sum to one.
These restrictions on the decision variable values are called
Constraints.
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CONT’D
Suppose the Daisy example has the
following constraints:
 Volume must be between 1 and 5
liters
 Pressure must be between 200 and
400 milliliters
 Temperature must be between 100
and 200 degrees centigrade
 Mixture must be made up entirely
of A, B, and C
 For the drug to perform properly,
only half the mixture at most can
be product A.
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CONT’D
Mathematically, these constraints can be expressed:

V≤5 A≥0
V≥1 B≥0
P ≤ 400 C≥0
P ≥ 200 A + B + C = 1.0
T ≤ 200 A ≤ 0.5
T ≥ 100

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CONT’D
The Complete Daisy Optimization Model
 Letting z represent the value of the objection function (the
yield), the entire optimization model may be written as:

Maximize Z = 300 + 0.8V +0.01P + 0.06T + 0.001T*P - 0.01T2

– 0.001P2 + 11.7A + 9.4B + 16.4C + 19A*B + 11.4A*C – 9.6B*C

Subject to (s.t.) V≤5 T ≤ 200 A≥0

V≥1 T ≥ 100 B≥0
P ≤ 400 A + B + C = 1.0 C≥0
P ≥ 200 A ≤ 0.5

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CONT’D
Any specification of the decision variables that
satisfies all the model’s constraints is said to be in the
Feasible Region.
 For example, V = 2, P = 300, T = 150, A = 0.4, B = 0.3 and
C = 0.3 is in the feasible region.
An optimal solution to an optimization model is any
point in the feasible region that optimizes (in this case
maximizes) the objective function.
 Using LINGO, it can be determined that the optimal solution
to its model is
V = 5, P = 200, T = 100, A = 0.294, B = 0, C = 0.706, and z
= 209.384.

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DAISY PROBLEM FORMULATION IN LINGO

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EXERCISE ONE
TEAM Ltd. Co., a domestic enterprise based in Ethiopia, is
working to optimize its procurement strategy for two key items:
Item Shebelle and Item Baro. Item Shebelle occupies three cubic
feet of warehouse space, costs nine Birr per unit, and provides
a profit margin of four Birr per unit, while Item Baro requires
one cubic foot of space, costs thirteen Birr per unit, and yields a
profit of six Birr per unit. The company must operate within a
financial ceiling of thirty-nine thousand Birr and a storage
capacity of six thousand cubic feet, with an overall purchase
limit of three thousand six hundred units. Balancing these
operational constraints, TEAM Ltd. Co. aims to determine the
optimal purchasing mix that maximizes profit while remaining
within budgetary and logistical limits.
Formulate a mathematical model for the problem.
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EXERCISE TWO
An Ethiopian electronics manufacturer is planning its production strategy
for two core radio components: Signal Units and Tuning Modules, both
essential for assembling radio sets. Each Signal Unit incurs a production
cost of five Birr in labor and five Birr in materials, while each Tuning
Module requires twenty-five Birr in labor and fifteen Birr in materials. The
company sells Signal Units at thirty Birr and Tuning Modules at seventy Birr,
with revenue collected on one-period credit terms, although all production
costs are paid upfront in cash. The firm begins the period with a cash
reserve of four thousand Birr, alongside operational limits of two thousand
machine hours and one thousand four hundred assembly hours.
Manufacturing a single Signal Unit consumes three hours of machine time
and two hours of assembly time, whereas a Tuning Module requires two
hours of machine time and three hours of assembly time. The company
seeks to determine the optimal production quantities of each component to
maximize profit while respecting its financial and operational constraints.
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REAL-WORLD APPLICATIONS

•Budgeting, forecasting, and

scheduling

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LIMITATIONS OF MODELS
Acknowledge limitations, such as
reliance on assumptions and
potential oversimplifications.

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SENSITIVITY ANALYSIS
Sensitivity analysis identifies how changes
in inputs affect outputs, highlighting critical
variables.

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WHY STUDY MANAGEMENT SCIENCE
Management science help companies to solve complex problems faced
by the business world.

The model building process will help you improve your logical thinking.

In a business world increasingly driven by numbers, quantitative skills

are an important asset.

Helps you apply various quantitative models including spreadsheet in

real practices.

Management science will help sharpen your intuition considerably

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 THE END, THANK YOU!

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