QT for MBA (UNIT –I)

INTRODUCTION TO OPERATIONS RESEARCH

Introduction
The British/Europeans refer to "operational research", the Americans to "operations
research" - but both are often shortened to just "OR" - which is the term we will use.

Another term which is used for this field is "management science" ("MS"). The
Americans sometimes combine the terms OR and MS together and say "OR/MS" or
"ORMS". Yet other terms sometimes used are "industrial engineering" ("IE") and
"decision science" ("DS"). In recent years there has been a move towards a
standardization upon a single term for the field, namely the term"OR".
Operations Research tools are not from anyone discipline. Operations Research takes
tools from different discipline such as mathematics, statistics, economics, psychology,
engineering etc. and combines these tools to make a new set of knowledge for decision
making. Today, O.R. became a professional discipline which deals with the application
of scientific methods for making decision, and especially to the allocation of scarce
resources. The main purpose of O.R. is to provide a rational basis for decisions making
in the absence of complete information, because the systems composed of human,
machine, and procedures may do not have complete information.
Operations Research can also be treated as science in the sense it describing,
understanding and predicting the systems behaviour, especially man-machine system.
Thus O.R. specialists are involved in three classical aspect of science, they are as
follows:
i) Determining the systems behaviour
ii) Analyzing the systems behavior by developing appropriate models
iii) Predict the future behavior using these models
The emphasis on analysis of operations as a whole distinguishes the O.R. from other
research and engineering. O.R. is an interdisciplinary discipline which provided
solutions to problems of military operations during World War II, and also successful in
other operations.Today business applications are
primarily concerned with O.R. analysis for the possible alternative actions. The business
and industry befitted from O.R. in the areas of inventory, reorder policies, optimum
location and size of warehouses, advertising policies, etc.
History of Operations Research
Operation Research is a relatively new discipline. Whereas 70 years ago it would have
been possible to study mathematics, physics or engineering(for example) at university it
would not have been possible to study Operation Research, indeed the term O.R. did not
exist then. It was really only in the late 1930's that operational research began in a
systematic fashion, and it started in the UK. As such it would be interesting to give a
short history of O.R.
Early in 1936 the British Air Ministry established Bawdsey Research Station, on the east
coast, near Felixstowe, Suffolk, as the centre where all pre-war radar experiments for
both the Air Force and the Army would be carried out. Experimental radar equipment
was brought up to a high state of reliability and ranges of over 100 miles on aircraft were
obtained.

It was also in1936 that Royal Air Force (RAF) Fighter Command, charged
specifically with the air defense of Britain, was first created. It lacked however any
effective fighter aircraft - no Hurricanes or Spitfires had come into service - and no radar
data was yet fed into its very elementary warning and control system.

It had become clear that radar would create a whole new series of problems in
fighter direction and control so in late1936 some experiments started at Biggin Hill in
Kent into the effective use of such data. This early work, attempting to integrate radar
data with ground based observer data for fighter interception, was the start of OR.

Thus the Operation Research started just before World War II in Britain with the
establishment of teams of scientists to study the strategic and tactical problems involved
in military operations. The objective was to find the most effective utilization of limited
military resources by the use of quantitative techniques. Following the end of the war OR
spread, althoughit spread indifferent ways inthe UKand USA.
 Stages of Development of Operations Research
The stages of development of O.R. are also known as phases and process of O.R, which
has six important steps. These six steps are arranged in the following order:

Step I: Observe the problem

environment Step II: Analyze and
define the problem Step III:
Develop a model
Step IV: Select appropriate data input
Step V : Provide a solution and test its
reasonableness Step VI: Implement the
solution

Relationship between the Manager and O.R. Specialist

The key responsibility of manager is decision making. The role of the O.R. specialist is to
help the manager make better decisions. Figure 1-1 explains the relationship between the
O.R. specialist and the manager/decision maker.

STEPS IN PROBLEM RECOGNITION, INVOLVEMENT: O.R. SPECIALIST or

FORMULATION AND SOLUTION MANAGER

Manager
Recognize from organizational
symptomsthataproblemexists.

Decide what variables are involved; state the problem in quantitative relationships among the variables.
Managerand O.R.Specialist

Investigate methods for solving the problems as stated above; determine appropriate quantitative tools to b
O.R.Specialist
Attempt solutions to the problems; find
various solutions; state assumptions
underlying these solutions; testalternative O.R.Specialist
solutions.

Determine which solution is most

effective because of practical constraints ManagerandO.R.Specialist
within the organization; decide what the
solution means for the organization.
 Manager

ManagerandO.R.Specialist
Figure1-1Relationship between Manager/Decision Maker and O.R.
Specialists

O.R. Tools and Techniques

Operations Research uses any suitable tools or techniques available. The
common frequently used tools/techniques are mathematical procedures, cost
analysis, electronic computation. However, operations researchers given special
importance to the development and the use of techniques like linear
programming, game theory, decision theory, queuing theory, inventory models
and simulation. In addition to the above techniques, some other common tools
are non-linear programming, integer programming, dynamic programming,
sequencing theory, Markov process, network scheduling (PERT/CPM),
symbolic Model, information theory, and value theory. There is many other
Operations Research tools/techniques also exists. The brief explanations of some
of the above techniques/tools are as follows:

Linear Programming:
This is a constrained optimization technique, which optimize some criterion
within some constraints. In Linear programming the objective function (profit,
loss or return on investment) and constraints are linear. There are different
methods available to solve linear programming.

Game Theory:
This is used for making decisions under conflicting situations where there are
one or more players/opponents. In this the motive of the players are
dichotomized. The success of one player tends to be at the cost of other players
 and hence they are in conflict.

Decision Theory:
Decision theory is concerned with making decisions under conditions of
complete certainty about the future outcomes and under conditions such that we
can make some probability about what will happen in future.

Queuing Theory:
This is used in situations where the queue is formed (for example customers waiting for
service ,aircrafts waiting for landing, jobs waiting for processing in the computer system,
etc). The objective here is minimizing the cost of waiting without increasing the cost of
servicing.

Inventory Models:
Inventory model make a decisions that minimize total inventory cost. This model
successfully reduces the total cost of purchasing, carrying, and out of stock inventory.

Simulation:
Simulation is a procedure that studies a problem by creating a model of the process involved
in the problem and then through a series of organized trials and error solutions attempt to
determine the best solution. Some times this is a difficult/time consuming procedure.
Simulation is used when actual experimentation is not feasible or solution of model is not
possible.
Non-linear Programming:
This is used when the objective function and the constraints are not linear in nature.
Linear relationships may be applied to approximate non-linear constraints but limited to
some range, because approximation becomes poorer as the range is extended. Thus, the
non-linear programming is used to determine the approximation in which a solution lies
and then the solution is obtained using linear methods.

Dynamic Programming:
Dynamic programming is a method of analyzing multistage decision processes. In this
each elementary decision depends on those preceding decisions and as well as external
factors.

Integer Programming:
If one or more variables of the problem take integral values only then dynamic
programming method is used. For example number or motor in an organization, number
of passenger in an aircraft, number of generators in a power generating plant, etc.

Markov Process:

Markov process permits to predict changes over time information about the behavior of a system is
known. This is used in decision making in situations where the various states are defined. The
probability from one state to another state is known and depends on the current state and is independent
of how we have arrived at that particular state.
 Network Scheduling:
This technique is used extensively to plan, schedule, and monitor large projects
(for example computer system installation, R & D design, construction,
maintenance, etc.). The aim of this technique is minimize trouble spots (such as
delays, interruption, production bottlenecks, etc.) by identifying the critical
factors. The different activities and their relationships of the entire project are
represented diagrammatically with the help of networks and arrows, which is
used for identifying critical activities and path. There are two main types of
technique in network scheduling, they are:

Program Evaluation and Review Technique (PERT) – is used when activities

time is not known accurately/ only probabilistic estimate of time is available.
Critical Path Method (CPM)–isused when activities time is know accurately.
Information Theory:
This analytical process is transferred from the electrical communication field to
O.R. field. The objective of this theory is to evaluate the effectiveness of flow of
information with a given system. This is used mainly in communication
networks but also has indirect influence in simulating the examination of
business organizational structure with a view of enhancing flow of information.

Applications of Operations Research

Today, almost all fields of business and government utilizing the benefits of
Operations Research. There are voluminous of applications of Operations
Research. Although it is not feasible to cover all applications of O.R. in brief.
The following are the abbreviated set of typical operations research applications
to show how widely these techniques are used today:

Accounting:
Assigning audit teams effectively Credit policy analysis
Cash flow planning Developing
standard costs
Establishing costs for by products Planning of
delinquent account strategy
Construction:
Project scheduling, monitoring and control
Determination of proper work force Deployment of
work force Allocation of resources to projects
Facilities Planning:
Factory location and size decision Estimation of
number of facilities required Hospital planning

International logistic system design Transportation loading and unloading Warehouse location decision
Finance:
Building cash management models Allocating capital
among various alternatives Building financial planning
models Investment analysis
Portfolio analysis Dividend
policymaking
Manufacturing:
Inventory control Marketing balance projection Production scheduling Production smoothing
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 Skill balancing
Training program scheduling

International logistic system design Transportation loading and unloading Warehouse location decision
Finance:
Building cash management models Allocating capital
among various alternatives Building financial planning
models Investment analysis
Portfolio analysis Dividend
policymaking
Manufacturing:
Inventory control Marketing balance projection Production scheduling Production smoothing
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 Skill balancing
Training program scheduling
Purchasing:
Optimal buying Optimal
reordering Materials transfer
Research and Development:
R & D Projects control R & D Budget
allocation Planning of Product
introduction
Limitations of Operations Research

Operations Research has number of applications; similarly it also has certain limitations.
These limitations are mostly related to the model building and money and time factors
problems involved in its application. Some of them are as given below:

i) Distance between O.R. specialist and Manager

Operations Researchers job needs a mathematician or statistician,
who might not be aware of the business problems. Similarly, a
manager is unable to understand the complex nature of Operations
Research. Thus there is a big gap between the two personnel.
ii) Magnitude of Calculations