Operation Research
Basic Text:
An Introduction to Management
Science-Quantitative Approaches
to Decision Making-by Anderson,
Sweeney and Williams-10th
Edition.
Course Instructor:
Dr. Mohammad Morshedur
Rahman
Associate Professor
Department of Accounting
University of Chittagong
Cell No. – 0 1 7 1 2 2 7 4 5 6 3 , 0 1 8 1 4 3 5 4 2 3 7
E-mail : rahmanmorshedur@[Link],
mmrais@[Link]
Brief Introduction about me-
BBA and MBA from Department of Accounting, CU
CGPA 3.73 in BBA and GPA 3.84 in MBA
CMA (1100 marks completed out of 2000)
PhD from Huazhong University of Science and Technology under Chinese
Government Scholarship.
Hobby: reading, travelling and doing research
Number of publication = 22
Job Experiences:
Standard Bank, National Bank and NCC bank for 1 year
Southeast University, Dhaka for 4 years and 3 months
University of Chittagong (From 09.04.2011 to till date)
QAM - Introduction 3
Operation Research
Chapter: 1
Introduction
Table of Contents
Origin and historical development
Importance of OR
Objectives of OR
Characteristics of OR
Scope of OR
Models of OR
Methods of OR
Phases of OR
Advantages of OR
Limitations of OR
Usefulness of OR in Bangladesh
Definition of Operation Research
(OR)
Operation research is the applicable method of science to
complex problems arising in the direction and management of
large systems of man, machines, materials and money in
industry, business, government and defense.
The distinctive approach is to develop a scientific model of the
systems; incorporating measures of factors, such as chances
and risk, with which to predict and compare the outcome of
alternative decisions, strategies and control.
The objective is to help management to determine its policy
and actions scientifically.
According to the Operation Research Society,
America
Operation Research is concerned with scientifically deciding
how to best design and operate man-machine systems
usually requiring the allocation of scarce resources.
According to Daellenbach and George, 1978
Operation Research is the systematic application of
quantitative methods, techniques and tools to the analysis
of problems involving the operation of systems.
According to Churchman
OR is the application of scientific methods, techniques, and tools to
operation of a system with optimum solutions to the problems.
According to H.M. Wagner
OR is a scientific approach to problem-solving for executive management.
According to Clarke
OR is the art of winning wars without actually fighting.
Objectives of OR
The main objective of OR is to provide a scientific basis or method to
the decision makers for solving the problems involving the interaction
of various components of the organization by employing a team of
scientists from different disciplines, all working together for finding a
solution which is in the best interest of organization as a whole.
The best solution thus obtained is known as optimum solution.
Characteristics of OR Approach
The broad based definition of OR is as follows: OR utilizes a planned
approach following a scientific method and an interdisciplinary team, in
order to represent complex functional relationship as mathematical models
for the purpose of providing a quantitative basis for decision-making and
uncovering new problems for quantitative analysis.
1. Interdisciplinary Approach
Interdisciplinary teamwork is essential because while attempting to solve a
complex management problem, one person may not have the complete
knowledge of all its aspects (such as economic, social, political, psychological,
engineering, etc.). This means we should not expect a desirable solution to
managerial problems.
2. Scientific Approach
OR is the application of scientific methods, techniques and tools to problems
involving the operations of systems so as to provide those in control of
operations with optimum solutions to the problems. The scientific method
consists of observing and defining the problem; formulating and testing the
hypothesis; and analyzing the results of the test.
3. Holistic Approach
OR takes into account all significant factors and evaluates them as
a whole.
While arriving at a decision, an OR team examines the relative
importance of all conflicting and multiple objectives and the
validity of claims of various departments of the organization from
the perspective of the whole organization.
4. Objective-oriented Approach
An OR approach seeks to obtain an optimal solution to the
problem under analysis. For this, a measure of desirability or
effectiveness is defined, based on the objectives of the
organization.
A measure of desirability so defined is then used to compare
alternative courses of action with respect to their outcomes.
Phases of Scientific Method in OR
Approach
1. Judgment Phase
This phase includes:
i. identification of the real-life problem
Ii. Selection of an appropriate objective and the values of various variables
related to this objective
Iii. Application of the appropriate scale of measurement, i.e. deciding the
measures of effectiveness or desirability
Iv. Formulation of an appropriate model of the problem, abstracting the
essential information, so that a solution to the decision-maker’s goals can
be obtained.
2. Research Phase
This phase is the largest and longest among other two phases.
This phase utilizes:
i. observations and data collection for a better understanding of the problem
Ii. Formulation of hypothesis and model
Iii. Observation and experimentation to test the hypothesis on the basis of
additional data
Iv. Analysis of the available information and verification of the hypothesis
using pre-established measures of desirability
V. prediction of various results from the hypothesis
Vi. Generalization of the result and consideration of alternative methods.
3. Action Phase
This phase consists of making recommendations for implementing
the decision by an individual who is in the position to implement
results.
This individual must be aware of the environment in which the
problem occurred, objective, assumptions and omissions of the model
of the problem.
Models and Modelling in OR
The approximation or abstraction, considering only the essential
variables or factors and parameters along with relationships among
these in the system that are important to the decision at hand, is
called model.
A model is defined as representation or abstraction of actual object or
situation.
It shows the relationships and inter-relationships of action and
reaction in terms of cause and effects.
Three top qualities of an effective model are:
The validity of the model i.e. how the model will represent the critical
aspect of the system or problem under study
The usability of the model i.e. whether a model can be used for the
specific purposes
The value of the model to the user.
Classification of Model
1. Classification based on structure
A. Physical models
These models provide a physical appearance of the real object under
study either reduced in size or scaled up.
Physical models are useful only in design problems because they are
easy to observe, build and describe.
For example: in the aircraft industry, scale models of the proposed
new aircraft are built and tested in wind tunnels to record the stresses
experienced by the air frame.
Physical models are of two types;
A 1: Iconic Models:
Iconic models retain some of the physical properties and characteristics of the system
they represent. An iconic model is either in an idealized form or is scaled version of the
system.
In other words, such models represent the system as it is by scaling it up or down i.e.
enlarging or reducing the size.
Examples of iconic models are, blueprints of a home, maps, globes, photographs,
drawings, air planes, trains, etc.
A 2: Analogue Models
These models do not look like the real situation but represent and behave like a system
under study.
For example: the oil dipstick in a car represents the amount of oil in the oil tank; the
organizational chart represents the structure, authority and responsibilities relationship
with boxes and arrows; and maps in different colors represent water, desert and other
geographical features.
B. Symbolic Models
These models use symbols and functions to represent variables and their
relationships to describe the properties of the system.
These models are also used to represent relationships which can be
represented in a physical form.
Symbolic models can be classified into two categories-
B1: Verbal Models
These models describe a situation in written or spoken language. Written
sentences, books, etc. are examples of a verbal model.
B2: Mathematical Models
These models involve the use of mathematical symbols, letters, numbers
and mathematical operators to represent relationships among various
variables of the system to describe its properties or behavior.
The solution to such models is then obtained by applying suitable
mathematical technique.
The relationship among velocity, distance and acceleration is an example
of mathematical model.
2. Classification Based on Function or Purpose
A. Descriptive Models:
Descriptive models characterize things as they are.
The major use of these models is to investigate the outcomes or
consequences of various alternative courses of action.
Simulation is an example of a descriptive technique for conducting
experiments with the systems.
B. Predictive Models
These models indicate ‘if this occurs, then that will follow’.
They relate dependent and independent variables and permit trying out,
‘what if’ questions.
In other words, these models are used to predict the outcomes due to a
given set of alternatives for the problem.
For example: is a model that describes how sale of a product changes with
a change in advertising expenditure and disposable personal income .
Here a, b, c are parameters whose values must be estimated.
C. Normative or Optimization Models:
These models provide the ‘best’ or ‘optimal’ solution to problems
subject to certain limitations on the use of resources.
These models provide recommended courses of action.
For example: in mathematical programming, models are formulated
for optimizing the given objective function, subject to restrictions on
resources in the context of the problem under consideration and non-
negativity of variables.
3. Classification Based on Time References
A. Static Models:
Static models represent a system at some specified time and do not
account for changes over time.
For example: an inventory model can be developed and solved to
determine an economic order quantity for the next period assuming
that the demand in planning period would remain the same as that
for today.
B. Dynamic Models:
In a dynamic model, time is considered as one of the variables and
allows the impact of changes due to change in time. Dynamic
programming is an example of a dynamic model.
4. Classification based on degree of certainty
A. Deterministic Models
If all the parameters, constants and functional relationships are
assumed to be known with certainty when the decision is made, the
model is said to be deterministic.
Linear programming models are examples of deterministic models.
B. Probabilistic Models
Models in which at least one parameter or decision variable is a
random variable are called probabilistic or stochastic models.
Insurance against risk of fire, accidents, sickness etc. are examples
where the pattern of events is studied in the form of probability
distribution.
5. Classification based on Method of solution or Quantification
A. Heuristic Models
These models employ some sets of rules which, though perhaps not
optimal, do facilitate solutions of problems when applied in a
consistent manner.
B. Analytical Models
These models have a specific mathematical structure and thus can be
solved by known analytical or mathematical techniques.
Any optimization model which requires maximization or minimization
of an objective function is an analytical mode.
C. Simulation Models
These models also have a mathematical structure but are not solved
by applying mathematical techniques to get a solution.
Instead a simulation model is essentially a computer-assisted
experimentation on a mathematical structure of a real life problem in
order to describe and evaluate its behavior under certain
assumptions over a period of time.
General Methods for Solving OR
Models
1. Analytical or Deductive Method
In this method, classical optimization techniques such as calculus,
finite differences and graphs are used for solving an OR model.
In this case, we have a general solution specified by a symbol and we
can obtain the optimal solution in a non-iterative manner.
For example: in the inventory model, in order to calculate economic
order quantity (optimal order size), the analytical method requires
that the first derivative of the mathematical expression:
Where,
,
Finally,
2. Numerical or Iterative Method
When analytical methods fail to obtain the solution of a
particular problem due to its complexity in terms of
constraints or number of variables, a numerical or
iterative method is used to get the solution.
In this method, instead of solving the problem directly, a
general algorithm is applied to obtain a specific
numerical solution.
The numerical method starts with a solution obtained by
trial and error, and a set of rules for improving it towards
optimality.
The solution so obtained is then replaced by the
improved solution and the process of getting an
improved solution is repeated until such improvement is
not possible or the cost of further calculation cannot be
justified.
3. Monte Carlo Method
This method is based upon the idea of experimenting on a
mathematical model by inserting into the model specific
values of decision variables at different points of time and
under different conditions and then observing their effect on
the criterion chosen for variables.
Random samples of specified random variables are drawn to
know what is happening to the system for a selected period of
time under different conditions.
The random samples from a probability distribution that
represents the real-life system and from this probability
distribution, the value of the desired random variable can be
estimated.
Methodology of OR
Step 1: Defining the problem
Major steps for formulating the problems are-
Problem components
Decision environment
Alternative courses of action
Measures effectiveness
Step 2: Collecting data and constructing a mathematical model
Certain basic components required in every decision problem model are:
Controllable (Decision) variables
Uncontrollable (Exogenous) Variables
Objective function (or performance measures)
Policies and constraints (or Limitations)
Functional relationships
Parameters
Step 3: Solving the Mathematical Model
The following two categories of methods are used for solving an OR
model-
Optimization Methods
Heuristic Methods
Step 4: Validating the Solution
Review the solution carefully to see that the values make sense and that
the resulting decisions can be implemented.
Step 5: Implementing the Solution
Step 6: Modifying the Model
Step 7: Establishing Controls over the solution
OR Models in Practice
Allocation Models: optimization of objective function using
available resources i.e. efficient allocation of resources, LLP or non-
linear programming
Inventory Models: how much to order, when to place an order?
Waiting line (or Queuing) Models: to establish a trade-off
between costs of providing service and the waiting time of a
customer in the queuing system.
Competitive (Game Theory) Models: describe the behavior of two
or more opponents.
Network Models: used to plan, control and schedule large scale
project by using PERT/CPM.
Sequencing Models: to determine the sequence for a number of
jobs.
Replacement Models: to decide optimal time to replace an asset.
Dynamic Programming Models: used to
optimize a multistage decision process.
Simulation Models: used to evaluate the
merit of alternative courses of actions.
Decision Analysis Models: used to
problems involving decision-making under
risk and uncertainty.
Advantages of OR
It compels the decision-maker to be quite explicit about his
objective, assumptions and his perspective to constraint.
It makes the decision-maker consider very carefully just what
variables influence the decisions.
Quickly points out gaps in the data required to support
workable solutions to a problem.
Its models can be solved by a computer, thus the
management can get enough time for decisions that require
quantitative approach.
Disadvantages of OR
Often solutions to a problem is derived either by making it simplified
or simplifying assumptions and thus, such solutions have limitations.
Sometimes models do not represent the realistic situation in which
decision must be made.
Often decision-maker is not fully aware of the limitations of the
models that he/she is using.
Many real world problems just cannot have an OR solution.
Applications of OR in Bangladesh
Finance and Accounting:
Dividends policies, investment and portfolio management, auditing,
balance sheet and cash flow analysis.
Break-even analysis, capital budgeting, cost allocation and control,
financial planning.
Marketing
Advertising, media planning, selection and effective packing alternatives.
Purchasing, Procurement and Exploration
Replacement policies
Bidding policies
Vender analysis
Production Management
Facilities Planning
Location and size of warehouse or new plant distribution centers and retail outlets.
Manufacturing
Aggregate production planning, assembly line, blending purchasing and inventory control.
Maintenance and Project Scheduling
Maintenance policies and preventive maintenance
Project scheduling and allocation of resources.
Personnel Management
Manpower planning, wage/salary administration,
Skills and wages balancing.
Techniques and General Management
Decision support system and MIS forecasting
Making quality control more effective
Government
Economic planning, natural resources, social planning and energy
Urban and housing problems.
The
End