Unit -1

Definition, introduction, art of modeling, steps in formulating the model. Type of models
and their characteristics

Introduction: The main origin of “Operations Research” was during the Second World War. At
that time, military management in England called upon a team of scientists to study the strategic
and tactical problems related to air and land Defence of the country. Since they were having very
limited military resources, it was necessary to decide upon the most effective utilization of
resources like ocean transport, effective bombing etc. The OR teams were advisors and
significantly instrumental in winning the war to the extent that the scientific and systematic
approach involved in OR provide a good intellectual support to the strategic initiatives of the
military commands.

Hence OR can be associated with “an art of winning the war without actually fighting it”

Later, The work of OR team was given various names in the United States

 OPERATIONAL ANALYSIS
 OPERATIONS EVALUATION ,
 OPERATIONS RESEARCH
 SYSTEM ANALYSIS
 SYSTEM RESEARCH AND MANAGEMENT SCIENCE

The most widely used term is Operations Research and nowadays its Prescriptive Analytics

Today the impact of OR can be felt in many areas. A large number of management consulting
firms are currently engaged in OR activities. Apart from military and business applications, the
OR activities include transportation systems, library, hospitals, city planning, financial
institutions etc.

Many of the Indian industries making use of Prescriptive Analytics like Indian Railway, Indian
Airlines, all air services, Defence organizations, Hindustan Lever, Tata steel, fertilizer industries
etc
While making use of the techniques of Prescriptive Analytics, a mathematical model of the
problem or system is formulated

This model is the simplified representation of the problem in which only the most important
features are considered

Then an optimal or most favourable solution is found.

Since the model is an idealized representation of the real problem, the optimal solution thus
obtained may not prove to be the best solution to the actual problem.

Although, extremely accurate but highly complex mathematical models can be developed, but
they may not be easily solvable.

So from the point of cost minimization and mathematical simplicity point of view, develop a
appropriate and simpler model.

Thus weaknesses in the initial solution are used to suggest the improvements in the model, its
input-data and the solution procedure.

A new solution thus obtained and the process is repeated until the further improvements in the
succeeding solution become so small that it does not seem economical to make further
improvements.

Definition of Operations Research:

According to Morse and Kimbal (1946) OR is a scientific method of providing executive

departments with a quantitative basis for decisions regarding the operations under their control.

According to Churchman, Acoff , Arnoff (1957) “ OR is the application of scientific methods,

techniques and tools to problems involving the operations of systems so as to provide these in
control of the operations with optimum solutions to the problem”

According to OR society of America, Or is an experimental and applied science devoted to

observing, understanding and predicting the behaviour of purposeful man-machine systems and
OR workers are actively engaged in applying this knowledge to practical problems in business,
government and society.
ART OF MODELING

Levels of abstraction in model development

Here we abstract the real world from real situation by concentrating on the dominant variables
that control the behaviour of the real system. The model expresses in an amenable manner the
mathematical functions that represent the behaviour of the assumed real world.

We illustrate this by the following example

Consider a Tyko manufacturing company, where a variety of plastic containers are produced.
When a product order is issued to the production department, necessary raw materials are
required from the company’s stock or purchase from outside sources. Once the production batch
is completed, the sales department takes charge of distributing the product to customers.

A viable question in the analysis of Tyko’s situation is the determination of the size of the
production batch. How can this situation be represented by a model?

By looking at the overall system, a number of variables can bear directly on the level of
production, including the following list by the departments

1. Production Department: Production capacity expressed in terms of available machine and

labor hours, in-process inventory, and quality control standards.
2. Materials Department: Available stock of raw materials, delivery schedules from outside
sources and storage limitations.
 3. Sales Department: Sales forecast, capacity of distribution facilities, effectiveness of the
advertisement campaign, and effect of competition

Each of these variables affects the level of production at Tyko. Trying to establish explicit
functional relationship between them and the level of production is a difficult task indeed.

A first level of abstraction requires defining the boundaries of the assumed real world. With
some reflection, we can approximate the real system by two dominant parameters

 production rate
 consumption rate

Now determination of the production rate involves such data as production capacity, quality
control standards and availability of raw materials. The consumption rate is determined from
the sales data.

In essence, simplification from the real world to the assumed real world is achieved by “
lumping” several real world parameters into a single assumed-real-world parameter.

Now it is easy to abstract a model from the assumed real world. From the production and
consumption rates, measures of excess or shortage inventory can be established.

The abstracted model may then be constructed to balance the conflicting costs of excess and
shortage inventory, that is to minimize the total cost of inventory.

Management applications of operations research:

 Finance-Budgeting and Investments

Cash-flow analysis, long range capital requirements, dividend policies, investment portfolios

Credit policies, credit risks and delinquent account procedures.

Claim and complaint procedures

  Production Management

i) Physical Distribution

- Location and size of the warehouses, distribution centre’s and retail outlets
- Distribution policy

ii) Facilities Planning

- Number and location of factories, warehouses etc

- Loading and unloading facilities for railroads and trucks determining the transport
schedule.

iii) Manufacturing

- Maintenance policies and preventive maintenance.

- Maintenance crew sizes
- Project scheduling and allocation of resources.

 Marketing
- Product selection, timing , competitive actions
- Number of salesman, frequency of calling on accounts per cent of time spent on
prospects.
- Advertising media with respect to cost and time

 Personnel Management
- Selection of suitable personnel on minimum salary
- Mixes of age and skills.
- Recruitment policies and assignment of jobs.

 Research and Development

- Determination of the areas of concentration of research and development
- project selection
- Determination of time cost trade-off and control of development projects
 - Reliability and alternative design

From all above areas of applications, we may conclude that OR can be widely used in taking
timely management decisions and also used as a corrective measure. The application of this tool
involves certain data and not merely a personality decision maker, and hence we can say: OR has
replaced management by personality.

Steps in formulating the Model ( The main phases of operations research study)

The procedure for an OR study generally involves the following phases

1. Formulating the problem: Before proceeding to find the solution of a problem, first of
all one must be able to formulate the problem in the form of an appropriate model. To do
so, the following information will be required
i) Who has to take the decision?
ii) What are the objectives?
iii) What are the ranges of controlled variables?
iv) What are the uncontrolled variables that may affect the possible solutions?
v) What are the restrictions or constraints on the variables?

Since wrong formulation cannot yield a right decision or solution, one must be considerable
careful while execution of this phase.

2. Constructing a Mathematical model: The second phase of investigations is

concerned with the reformulation of the problem in an appropriate form which is
convenient for analysis. The most suitable form for this purpose is to construct a
mathematical model representing the system under study. It requires the identification of
both static and dynamic structural elements. A mathematical model should include the
following three important basic factors
i) Decision variables and parameters
ii) Constraints or Restrictions
iii) Objective function
 3. Deriving the solution from the model: This phase deals with the computation of those
values of the variables that maximize (or minimize) the objective function. Such solution
is called as an optimal solution which is always in the best interest of the problem under
consideration.
4. Testing the model and its solution : After completing the model, it is once again tested
as a whole for the errors if any. A model may be said to be valid if it can provide a
reliable prediction of the system’s performance. A good practitioner of Operations
Research realises that his model be applicable for longer time and thus he updates the
model time to time by raking into account the past, present and future specifications of
the problem .
5. Controlling the solution: This phase establishes controls over the solution with any
degree of satisfaction. The model requires immediate modification as soon as the control
variables (one or more0 change significantly, otherwise model goes out of control. As
the conditions are constantly changing in the world. the model and the solution may not
remain valid for a long time.
6. Implementing the solution: Finally, the tested results of the model are implemented to
work. This phase is primarily executed with the cooperation of Operations Research
experts and those who are responsible for managing and operating the system.

Types of models in operations research and their characteristics:

A model is a representation of the real system. That is a model in OR is a simplified

representation of an operation, or is a process in which only the basic aspects or the most
important features of a typical problem under investigation is considered. A model is helpful in
decision making as it provides a simplified description of complexities and uncertainties of a
problem in logical structure. The objective of a model is to identity the significant factors and
interrelationships.
A good model must process the following characteristics:

i) It should be capable of taking into account new formulation without having any
changes in its frame.
ii) Assumptions made in the model should be as few as possible.
iii) Variables used in the model must be less in number ensuring that it is simple and
coherent.
iv) it should be open to parametric type of treatment.
v) It should not take much time in its construction for any problem.

Advantages of a Model:

There are certain significant advantages of using a model. These are

i) Problems under consideration become controllable through a model.

ii) A model provides a logical and systematic approach to the problem.
iii) A model clearly shows the limitations and scope of an activity.
iv) It helps in finding useful tools that eliminate duplication of methods applied to solve
the problem.
v) It helps in finding solutions for research and improvement in a system.
vi) It provides an economic description and explanation of either the operation, or the
system it represent.

Classification of Models:

Classification of models is a subjective problem. Models may be distinguished by

1. Degree of abstraction
2. Function
3. Structure
4. Nature of an environment
5. The extent of generality.
Models by function:

These models can further classified into i) Descriptive models ii) Predictive models and iii)
Normative or Optimization models:

i) Descriptive Models: They describe and predict the facts and relationships among the
various activities of the problem. They do not have any objective function as a part of
the model to evaluate the decision alternatives. Through them, it is possible to get the
information on how one or more factors change as a result of changes in other factors.
ii) Predictive Models: These models are used in predictive analysis involving a variety of
statistical techniques used to analyze the current and historical facts to make prediction
about future events. Predictive models use patterns found in historical and transactional
data to find various risks and opportunities. Statistical techniques include data mining,
game theory, machine learning. Predictive models can be used in various areas like
marketing, financial services, telecommunications etc.
iii) Normative or Optimization models: They are prescriptive in nature and develop
objective decision rule for optimum solutions

Models by Structure:

These models are represented by i ) Iconic models ii) Analogue models iii) symbolic models

Iconic or Physical model: These are the pictorial representations of the real system and have the
appearance of the real things. An iconic model is said to be scaled up or scaled down according
to the dimensions of the model, which may be smaller or greater than that of the real item, eg,
city maps, blue print of houses, globe and so on. These models are easy to observe and describe,
but are difficult to manipulate and are not very useful for the purpose of predictions. They are
designed to deal with specific problems. They bring out significant factors and inter-relationship
in pictorial form so as to facilitate analysis.

Analogue models: They are more abstract than the iconic models as there is no similarity
between these models and real life systems. The models in which one set of properties is used to
represent the another set of properties called analogue models. After the problem is solved, the
solution is reinterpreted in terms of the original system.
Mathematical or Symbolic models: it employs a set of mathematical symbols to represent
the components of the real system. These variables are related together by means of
mathematical equations to describe the behaviour of the system. The solution of the problem
is then obtained by applying most appropriate mathematical techniques to the model.

Models by nature of an environment:

These models can be classified into i) Deterministic models ii) Probabilistic models

Deterministic model: In these models all parameters and functional relationships are assumed
to be known with certainty when the decision is to be made. Linear programming models,
break even models and EOQ models are good examples of deterministic models.

Probabilistic models: in which the input and output variables follow a probability
distribution. For eg. Game theory

Models by the extent of Generality:

These models can be categorized as i) specific models and ii) General models.

When a model represent a system at some specific time,, it is known as specific model. In
these models if the time factor is not considered, they are termed as static models. An
inventory problem of determining order quantity for the next period assuming that the
demand in planning period would remain the same as that of today is an example of static
model.

Simulation and Heuristic models fall under general models. These models are used to
explore alternative strategies which have been overlooked previously.