Subject Code: BBMASCIX

Subject Title: Management Science

Subject Description: The course puts emphasis on the understanding of different analytical
and quantitative tools and models such as: linear programming models
and other algorithms, inventory and production models, decision
making process under uncertainty and risks, decision tree construction
and analysis and network models and PERT-CPM. The theories of the
models will be used to examine the design and implementation in order
to obtain sound decisions.

No. of Units: 3

Class Schedule: FIN101 Synchronous:

Asynchronous:

DISCLAIMER: The information content provided in this course material is designed to provide
helpful information on the subjects discussed. Some information is compiled from different
materials and summarized from different books. Some information is based from contributors'
perspective and understanding. References are provided for informational purposes only and do not
constitute endorsement of websites or other sources. Readers should be aware that the
websites/electronic references listed in this course material may change. Hence, the contributors do
not claim any information presented in the materials and do not reflect their own work.

Course Learning Outcomes:

At the end of this course, the student will be able to:

1. Comprehend deeply the principles, concepts, and functions and processes of the various
quantitative tools and models for decision making.
2. Create a project plan that optimizes profit, time and cost in contemporary business.
3. Apply quantitative analysis in real life situations.
4. Formulate linear programming models.
5. Solve optimal solutions of linear programming models.
6. Demonstrate the process of solving decision theory problem.
7. Propose solutions to relevant issues for decision making.
8. Solve and graph systems of linear equations and inequalities.
9. Apply the reliability of forecasting model.

SM Baliwag Complex, Dona Remedios Trinidad Highway, Brgy. Pagala, Baliwag, Bulacan
(+63) 927-533-0342 – (+63) 923-949-5265 [email protected]
About the Instructor:
April Annie Joy L. Homoroc, MBA, PhD cand.
College Instructor- Department of Business Administration

Contact Information:
Mobile number: 09675715276
Email: [email protected]
Social Media: Facebook/Messenger-April Homoroc

Topics: (Week 3-4)

WEEK 3

Module 4: SENSITIVITY ANALYSIS

1. Introduction to sensitivity analysis
2. Objective function coefficients
3. Right- Hand sides

WEEK 4

Module 5: TRANSPORTATION MODEL

1. The transportation problem
2. Developing an initial solution: Northwest corner rule
3. Stepping stone method: finding a least cost solution
4. Special situations with the transportation algorithm: Unbalanced
transportation problem; degeneracy

SM Baliwag Complex, Dona Remedios Trinidad Highway, Brgy. Pagala, Baliwag, Bulacan
(+63) 927-533-0342 – (+63) 923-949-5265 [email protected]
 MODULE 4: SENSITIVITY ANALYSIS

I. Pre-test / Activity:
On your One Note, Describe the word “Sensitivity” and “Analysis”

II. Learning Outcomes

1. Comprehend deeply the principles, concepts, and functions and processes of the various
quantitative tools and models for decision making.
2. Create a project plan that optimizes profit, time and cost in contemporary business.
III. Content:

SENSITIVITY ANALYSIS
-is a financial model that determines how target variables are affected based on changes in other
variables known as input variables. This model is also referred to as what-if or simulation analysis. It
is a way to predict the outcome of a decision given a certain range of variables.
Sensitivity analysis is a method for predicting the outcome of a decision if a situation turns out to be
different compared to the key predictions. It helps in assessing the riskiness of a strategy. Helps in
identifying how dependent the output is on a particular input value.

Objective function
There are a number of questions that could be asked concerning the sensitivity of an optimal solution
to changes in the data. ... The objective-function ranges refer to the range over which an individual
coefficient of the objective function can vary, without changing the basis associated with an optimal
solution

Changing a Right-Hand Side Constant

We discussed this topic when we talked about duality. I argued that dual prices
capture the effect of a change in the amounts of available resources. When
you changed the amount of resource in a non-binding constraint, then increases
never changed your solution. Small decreases also did not change anything, but
if you decreased the amount of resource enough to make the constraint binding,
your solution could change. (Note the similarity between this analysis and the
case of changing the coefficient of a non-basic variable in the objective function.
Changes in the right-hand side of binding constraints always change the
solution (the value of x must adjust to the new constraints). We saw earlier
that the dual variable associated with the constraint measures how much the
objective function will be influenced by the change.

IV. Activity
Write scenarios when to use sensitivity analysis and how it will affect the business process.

V. Evaluation / Assessment
Essay/Reflection Paper

SM Baliwag Complex, Dona Remedios Trinidad Highway, Brgy. Pagala, Baliwag, Bulacan
(+63) 927-533-0342 – (+63) 923-949-5265 [email protected]
VI. Other Reading Materials

VII. References

• Nocon, R.C. & Nocon, E.G. (2016). Essential Mathematics for the Modern World.
Philippines: C & E Publishing, Inc.

• Nocon, R. (2018). Essential Mathematics for The Modern World. South Triangle, Q.C. : C
& E Publishing, Inc

• Anderson, D. (2016). Quantitative Methods for Business. Boston, MA, USA : Cengage
Learning

• Broverman, S. (2015). Mathematics of Investment and Credit. Winsted, CT : ACTEX

Publications, Inc

• Sullivan, M. (2016). College Algebra. USA: Pearson Education Inc

• Liu, K., Li, L. & Tan, F. (2017). A Scheduling Model and Its Implementation Based on
Intelligent Public Transportation System. Retrieved November 2017 from
https://www.computer.org/csdl/proceedings/icscse/2017/1401/00/index.html
• Zacharenia, G., Dimitrios, K., Georgios, K., Ioannis, E., & Christos, D. (2017). A DSS
model for IoT-based intelligent transportation systems. Retrieved December 2017 from
https://www.computer.org/csdl/proceedings/isspit/2017/4662/00/index.html

SM Baliwag Complex, Dona Remedios Trinidad Highway, Brgy. Pagala, Baliwag, Bulacan
(+63) 927-533-0342 – (+63) 923-949-5265 [email protected]
 MODULE 5: TRANSPORTATION MODEL

I. Pre-test / Activity:
On your One Note, Answer the question “What challenges you are experiencing in Public
transportation? Give solution how to solve it.”

II. Learning Outcomes

1. Comprehend deeply the principles, concepts, and functions and processes of the various
quantitative tools and models for decision making.
2. Create a project plan that optimizes profit, time and cost in contemporary business.
3. Apply quantitative analysis in real life situations.

III. Content:

WHAT IS TRANSPORTATION MODEL?

The transportation model addresses the concept of moving a thing from one place to another
without change. It assumes that any damage en route has negative consequences, and so it's used to
analyze transportation systems and find the most efficient route for resource allocation.
In mathematics and economics, transportation theory or transport theory is a name given to the
study of optimal transportation and allocation of resources. The problem was formalized by the
French mathematician Gaspard Monge in 1781.
It means selecting the best way to distribute a product from a number of factories or warehouses to
a number of destinations so as to minimize transportation costs while meeting customers'
requirements. The transportation model uses LINEAR PROGRAMMING to analyze such physical
DISTRIBUTION management problems.
The Transportation Problem
Imagine yourself owning a small network of chocolate retail stores. To run a successful business,
you will also have to own or rent a warehouse where you will store the goods ready to be delivered
whenever the stores need them. If you have only one warehouse, it will be supplying all your stores.
However, as soon as you expand and open a second warehouse, you will have to make an important
decision: which warehouse will deliver which goods to each of your stores? Depending on the
choice you make, you might save or spend a significant amount of money.

The transportation problem is a distribution-type problem, the main goal of which is to decide how
to transfer goods from various sending locations (also known as origins) to various receiving
locations (also known as destinations) with minimal costs or maximum profit. As long as the
number of origins and destinations is low, this is a relatively easy decision. But as the numbers
grow, this becomes a complicated linear programming problem. Think about Walmart. In 2016, it
had 5,229 stores and 166 distribution centers in the US! It would be impossible to calculate the
optimal shipping routes without a computer algorithm.

SM Baliwag Complex, Dona Remedios Trinidad Highway, Brgy. Pagala, Baliwag, Bulacan
(+63) 927-533-0342 – (+63) 923-949-5265 [email protected]
Types
Transportation problems can be classified into different groups based on their main objective and
origin supply versus destination demand. Transportation problems whose main objective is to
minimize the cost of shipping goods are called minimizing. An alternative objective is to maximize
the profit of shipping goods, in which case the problems are called maximizing.

In a case where the supply of goods available for shipping at the origins is equal to the demand for
goods at the destinations, the transportation problem is called balanced. In a case where the
quantities are different, the problem is unbalanced.

When a transportation problem is unbalanced, a dummy variable is used to even out demand and
supply. A dummy variable is simply a fictional warehouse or store. For example, if total supply at
all warehouses is 35 units, but total demand at all stores is only 30 units, we create a fictional store
with an additional demand of 5 units. The cost of shipping to the fictional store is usually zero.
Now, the transportation problem becomes balanced.

It is worth noting that sometimes problems that are solved using the transportation method have
nothing to do with an actual movement of goods. What is crucial for applying the method is to
recognize the network of connected elements.

SM Baliwag Complex, Dona Remedios Trinidad Highway, Brgy. Pagala, Baliwag, Bulacan
(+63) 927-533-0342 – (+63) 923-949-5265 [email protected]
Developing an initial solution: Northwest corner rule
The North-West Corner Rule is a method adopted to compute the initial feasible solution of the
transportation problem. The name North-west corner is given to this method because the basic
variables are selected from the extreme left corner.

The concept of North-West Corner can be well understood through a transportation problem given
below:

In the table, three sources A, B and C with the production capacity of 50 units, 40 units, 60 units of
product respectively is given. Every day the demand of three retailers D, E, F is to be furnished with
at least 20 units, 95 units and 35 units of product respectively. The transportation costs are also
given in the matrix.

The prerequisite condition for solving the transportation problem is that demand should be equal to
the supply. In case the demand is more than supply, then dummy origin is added to the table. The
supply of dummy origin will be equal to the difference between the total supply and total demand.
The cost associated with the dummy origin will be zero.

Similarly, in case the supply is more than the demand, then dummy source is created whose demand
will be equivalent to the difference between supply and demand. Again the cost associated with the
dummy source will be zero.

SM Baliwag Complex, Dona Remedios Trinidad Highway, Brgy. Pagala, Baliwag, Bulacan
(+63) 927-533-0342 – (+63) 923-949-5265 [email protected]
Once the demand and supply are equal, the following procedure is followed:

• Select the north-west or extreme left corner of the matrix, assign as many units as possible
to cell AD, within the supply and demand constraints. Such as 20 units are assigned to the
first cell, that satisfies the demand of destination D while the supply is in surplus.
• Now move horizontally and assign 30 units to the cell AE. Since 30 units are available with
the source A, the supply gets fully saturated.
• Now move vertically in the matrix and assign 40 units to Cell BE. The supply of source B
also gets fully saturated.
• Again move vertically, and assign 25 units to cell CE, the demand of destination E is
fulfilled.
• Move horizontally in the matrix and assign 35 units to cell CF, both the demand and supply
of origin and destination gets saturated. Now the total cost can be computed.

The Total cost can be computed by multiplying the units assigned to each cell with the concerned
transportation cost. Therefore,

Total Cost = 20*5+ 30*8+ 40*6+ 25*9+ 35*6 = Rs 1015

Stepping stone method: finding a least cost solution

The Stepping Stone Method is used to check the optimality of the initial feasible solution
determined by using any of the method Viz. North-West Corner, Least Cost Method or Vogel’s
Approximation Method. Thus, the stepping stone method is a procedure for finding the potential of
any non-basic variables (empty cells) in terms of the objective function.
Through Stepping stone method, we determine that what effect on the transportation cost would be
in case one unit is assigned to the empty cell. With the help of this method, we come to know
whether the solution is optimal or not.

SM Baliwag Complex, Dona Remedios Trinidad Highway, Brgy. Pagala, Baliwag, Bulacan
(+63) 927-533-0342 – (+63) 923-949-5265 [email protected]
How can we solve the problem of degeneracy in transportation problem?
To Remove Degeneracy, we allocate very small positive number epsilon (£) to the unoccupied cell
which have minimum cost and should be on Independent position. number of positive independent
allocations is equal to m+n-1 and our Solution is Non-Degenerate and we can apply MODI method.

Modified Distribution Method (MODI)

The modified distribution method, also known as MODI method or (u - v) method provides a
minimum cost solution to the transportation problem. In the stepping stone method, we have to
draw as many closed paths as equal to the unoccupied cells for their evaluation.

IV. Activity
Submit a 1 pager explaining the how important Transportation Model or Distribution Management
to a Business.

V. Evaluation / Assessment
Essay/Reflection Paper

VI. Other Reading Materials

VII. References

• Nocon, R.C. & Nocon, E.G. (2016). Essential Mathematics for the Modern World.
Philippines: C & E Publishing, Inc.

• Nocon, R. (2018). Essential Mathematics for The Modern World. South Triangle, Q.C. : C
& E Publishing, Inc

• Anderson, D. (2016). Quantitative Methods for Business. Boston, MA, USA : Cengage
Learning

• Broverman, S. (2015). Mathematics of Investment and Credit. Winsted, CT : ACTEX

Publications, Inc

• Sullivan, M. (2016). College Algebra. USA: Pearson Education Inc

• Liu, K., Li, L. & Tan, F. (2017). A Scheduling Model and Its Implementation Based on
Intelligent Public Transportation System. Retrieved November 2017 from
https://www.computer.org/csdl/proceedings/icscse/2017/1401/00/index.html
• Zacharenia, G., Dimitrios, K., Georgios, K., Ioannis, E., & Christos, D. (2017). A DSS
model for IoT-based intelligent transportation systems. Retrieved December 2017 from
https://www.computer.org/csdl/proceedings/isspit/2017/4662/00/index.html

SM Baliwag Complex, Dona Remedios Trinidad Highway, Brgy. Pagala, Baliwag, Bulacan
(+63) 927-533-0342 – (+63) 923-949-5265 [email protected]