CHAPTER ONE

OVERVIEW OF OPERATIONS

RESEARCH

2024
Contents of Chapter One

1.1 Operations Research as Quantitative

approach for decision making

1.2 Origin and Development of OR

1.3 Features, Nature and Significance of

Operations Research

1.4 Models and Model Building

1.5 Approaches of OR
What is Operations
Research?
 What is Operations
Research?
 Operations is the activities carried out in
an organization.
 Research is the process of observation
and testing characterized by the scientific
method of situation analysis, problem
statement, model construction, validation,
experimentation, candidate solutions.
 Operations Research is a quantitative
approach to decision making based on the
scientific method of problem solving.
 1.1 Definition of Operations
Research

 Operations Research (OR) is an approach to

managerial decision making, which is based on
scientific method and uses wide quantitative
analysis.
 Operations Research, in general, can be
characterized as an application of scientific
methods, tools and techniques to problems
involving the operations of systems.
 Cont…
 Before discussing about the application of quantitative
analysis (OR) to decision making and problem solving, we
would see the difference between problem solving and
decision making.

 Problem Solving and Decision Making

Problem solving can be defined as the process of identifying

a difference between some actual and some desired stage of
affairs and then taking action to resolve the difference.
 Cont…
 The problem solving process involves the
following seven steps:-
i. Identify and define the problem.
ii. Determine the set of alternative solutions.
iii. Determine the criterion or criteria that will
be used to evaluate the alternatives.
iv. Evaluate the alternatives.
v. Choose an alternative
vi. Implement the selected alternative.
vii. Evaluate the results, and determine if a
satisfactory solution has been obtained.
 Cont…
 Decision making is the term generally
associated with the first five steps of the
problem solving process. Thus, decision
making starts from identification and
definition of the problem and ends with the
choosing of an alternative, which is the act of
making decision.
 Decision making and problem solving is a
core function of management because:
 It is an integral part of all other managerial

functions such as planning, organizing,

directing and controlling, and
 It is also an integral part of life because life
 Cont…
 In general, while decision making results in a
choice from many alternative courses of action,
problem solving results in resolving the disparities
between the desired performance and the
performance that is actually obtained.
 Thus, the decision making process involves only
five steps:
 Identify and define the problem.
 Determine the set of alternative solutions.
 Determine the principle or criteria that will be used to
evaluate the alternatives.
 Evaluate the alternatives.
 Choose an alternative
 Cont..

 Let us consider the following example of a decision

making process. Assume that you will be graduating
after 8 months from now and you are an exceptionally
good student in your discipline and three general
managers of reputable companies in the Country have
offered you attractive positions in their companies. You
are not sure which offer leads to a satisfying career.
 To make a decision of such kind you have to use the
decision making processes.
 Cont…
 Define the problem
You want an offer that leads to a satisfying career.
 Identify the alternative
The alternatives for your decision problem can be
stated as follows:
 Accept the position offered by company A
located in Gedeb.
 Accept the position offered by company B
located in A.A.
 Accept the position offered by company C
located in Hawassa.
 Cont…
 Evaluate each of the alternatives with respect
to each criterion. (Qualitative & Quantitative
Analysis)
Alternative Starting salary Potential Job
in Birr for Location
(annual) Advancem
ent
Company A, 30,000 Average Fair
Gedeb
Company B, A.A 25,000 Good Excellent
Company C, 28,000
Make a choice from
Excellent Good
the available alternatives.
Hawassa
 Accept the offer of company C.
 At this point, the decision making process is complete.
 Features of operations
research
 Inter-disciplinary team approach - The optimum
solution is found by a team of scientists
selected from various disciplines.
 Methodological Approach – It 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.
 Cont...

 Objectivistic Approach - It seeks to obtain an

optimal solution to the problem under analysis.
 For this, a measure of desirability (or
effectiveness) is defined, based on objective(s)
of the organization.
 A measure of desirability so defined is then used

to compare alternative courses of action with

respect to their outcomes.
 Decision Making- OR increases the
effectiveness of management decisions.
🞑 It is the decision science which helps
 Cont...
 Use of computers - OR often requires a computer
to solve the complex mathematical model or to
perform a large number of computations that
are involved.
 Use of scientific research - OR uses scientific
research to reach optimum solution.
 Human factors - In deriving quantitative solution,
we do not consider human factors which
doubtlessly play a great role in the problems. So
study of the OR is incomplete without a study of
human factors.

 1.2 ORIGIN AND DEVELOPMENT OF
OR
The roots of OR can be traced back many decades, it
has been attributed to the military services early in
World War II.
 British and then the U.S. military management

called upon a large number of scientists to apply

a scientific approach to dealing with allocation of
scarce resources and other strategic and tactical
problems. In effect, they were asked to do research
on (military) operations.
 When the war ended, the success of OR in the war

effort spurred interest in applying OR in business,

industry, and government. The rapid spread of OR
soon followed.
 1.3 MODELS AND MODEL BUILDING

 We can define an operations research model as

some sort of mathematical or theoretical
description of various variables of a system
representing some aspects of a problem on
some subject of interest or inquiry.

 Models provide a manager with an alternative to

working directly with reality. This allows greater
freedom in terms of experimenting with different ideas,
 1.3 MODELS AND MODEL
BUILDING

Assumptions of Models
 All models are based on assumptions (i.e.,

conditions that are assumed to exist). Some of

the assumptions will be technical, such as “the
relationship is linear”, and others will be
operational, such as, “the budget is Birr
25,000” and still others may be political, such
as “marketing will support the proposal”.
 It is very important to determine the
assumptions that can be identified before
developing the model. This will increase the
 Types of Models

 Models are categorized

depending on:
 Structure
 Purpose
 Nature of Environment
 Behavior of the problem and
 Method of Solution
 A. Classification by Structure

1. Iconic Models: These models are scaled version

of the actual object.
 For example: a toy of a car is an iconic model of a real
car. In fact it is a descriptive model giving the
description of various aspects of real object.
 As far as operations research is concerned, is of less
use.
2. Analogue Model: one set of properties are used to
represent another set of properties.
 For example: blue color generally represents water.
Many a time we represent various aspects on graph by
different colors or different lines all these are analog
models.
 These are also not much used in operations research.
 Cont…

3. Symbolic Models or Mathematical

Models: In these models the variables
of a problem is represented by
mathematical symbols, letters etc.
 To show the relationships between

variables and constraints we use

mathematical symbols.
 These models are used very much in

operations research.
 B. Classification by Utility

1. Descriptive Model: simply explains certain

aspects of the problem or situation or a system so
that the user can make use for his analysis.
 It will not give full details and clear picture of the
problem for the sake of scientific analysis.
2. Predictive Model: basing on the data collected,
can predict the approximate results of the situation
under question.
 For example: basing on your performance in the
examination and the discussions you have with your
friends after the examination and by verification of
answers of numerical examples, you can predict
your score or results. This is one type of predictive
model.
 Cont…

3. Prescriptive Models: it can be

used conveniently to prescribe the
courses of action to be taken. In
such case we call it as Prescriptive
model.
 Prescriptive models prescribe the
courses of action to be taken by the
manager to achieve the desired
goal.
 C. Classification by Nature of
Environment

1. Deterministic Models: In this model the

operations research analyst assumes complete
certainty about the values of the variables and
the available resources and expects that they
do not change during the planning horizon.
 All these models do not contain the element of
uncertainty or probability.
 Example: in Linear Programming, assumes
certainty regarding the values of variables and
constraints hence the Linear Programming
model is a Deterministic model.
 Cont…
2. Probabilistic or Stochastic Models: In these
models, the values of variables, the pay offs of a certain
course of action cannot be predicted accurately because
of element of probability.
 It takes into consideration element of risk into
consideration.
 The degree of certainty varies from situation to situation.
 A good example: is the sale of insurance policies by
Life Insurance Companies to its customers. Here the
failure of life is highly probabilistic in nature.
 The models in which the pattern of events has been
compiled in the form of probability distributions are
known as Probabilistic or Stochastic Models.
 D. Classification based on Behavior
of the Problem Variables

1. Static Models: assumes that no changes in the

values of variables given in the problem for the given
planning horizon due to any change in the
environment or conditions of the system.
 All the values given are independent of the time.

 Mostly, in static models, one decision is desirable for

the given planning period.

2. Dynamic Models: the values of given variables
goes on changing with time or change in environment
or change in the conditions of the given system.
 Generally, the dynamic models then exists a series of

interdependent decisions during the planning period.

 E. Classification based on the
Method of getting the Solution

1. Analytical Models: The given model will

have a well-defined mathematical
structure and can be solved by the
application of mathematical techniques.
 Example: Resource allocation model,
Transportation model, Assignment
model, sequencing model etc. have well
defined mathematical structure and
 Cont…

2. Simulation Models: The meaning of simulation is

imitation. These models have mathematical structure
but cannot be solved by using mathematical
techniques.
 It needs certain experimental analysis to study the
behavior of the system, we use random numbers.
 More complex systems can be studied by simulation.
 Studying the behavior of laboratory model, we can
evaluate the required values in the system.
 Methodology of Operations Research

 Step 1: Observation and defining a

problem
 Step 2: Formulating a model
 Step 3: Solving the Mathematical Model
 Step 4: Validating (Testing) the solution
 Step 5: Implementing the solution
Step 6: Modifying the Model


Step
 7: Establishing control over the
solution
 Application of Operations
Research
1. National Planning and Budgeting : OR
can be used for:
 Preparation of strategic Plans and

annual budgets
 Forecasting of income and expenditure

 scheduling of major projects of national

importance
 Estimation of GNP, GDP, population,

employment
 Generation of agriculture yields etc
 Application of OR…

2. Defense Services
 Development of new technology

 Optimization of cost and time

 Formulate strategy of battle

 Inventory control

 Transportation and supply depots etc

Application…
3. Industrial Establishment
OR can be used in
 Plant location

 Product and process planning

 Facility planning

 Human resource management etc.

4. OR usage in business areas

Accounting:
 Assigning audit teams effectively
 Cash flow planning
 Developing standard costs
 Establishing costs for byproducts
Finance:
 Allocating capital among various
alternatives
 Investment analysis
 Portfolio analysis
 Dividend policy making

Purchasing:
 Optimal buying
 Optimal reordering
 Materials transfer
Marketing:
 Advertising budget allocation
 Product introduction timing
 Selection of Product mix
 Deciding most effective packaging
alternative
Organizational Behavior / Human
Resources:
 Personnel planning
 Recruitment of employees
 Training program scheduling
End of the Chapter

Thank You!