Introduction to OR (contd…)

Lecture 2
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 Features of OR approach
• The broad features of OR approach in solving any
decision problem are summarized below.
❑Interdisciplinary Approach : One person may not
have complete knowledge of all its aspects such as
economic, social, political, psychological, engineering
etc. Hence a team of individuals specializing in
various functional areas of management should be
organized.
❑Scientific Approach : The scientific method consists
of observing and defining the problem, formulating
and testing the hypothesis; and analyzing the results
of the test.
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 Features of OR approach
❑Holistic Approach : While arriving at a decision, an
OR team examines the relative importance of all
conflicting and multiple objectives.
❑Objective-oriented Approach :The OR approach
seeks to obtain an optimal solution to the problem
under analysis. For this, a measure of desirability (or
effectiveness or the quality of being desirable) 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 possible outcomes.
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 OR approach to problem solving

• The OR approach to problem solving is based on three

phases namely Judgement phase, Research phase and
Action phase.
o Judgement Phase : This phase includes
i. identification of 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
iv. Formulation of an appropriate model of the problem
and an abstraction of the essential information so that
a solution to the decision maker’s goals can be
obtained.
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 OR approach to problem solving
o Research phase : This phase is the largest and longest
among all 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
hypotheses on the basis of additional data
iv. Analysis of the available information and verification of
the hypotheses using pre-established measures of
desirability
v. Prediction of various results from the analysis
vi. Generalization of result and consideration of
alternative methods.
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 OR approach to problem solving
o Action phase : This phase consist of making
recommendations for implementing the decision.
This decision is implemented by an individual who is
in a position to implement the result. He/ she should
be aware of the environment in which the problem
occurred, assumptions behind the problem and the
required omissions of the model.

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 Models and Modelling in OR
• Models do not, and cannot represent every aspect of a
real life problem.
• A model is an approximation or abstraction of reality
which considers only the essential variables (or factors)
and parameters in the system along with their
relationships.
• General Classification of models
➢ Classification based on structure
➢ Classification based on Function (Purpose)
➢ Classification based on Time reference
➢ Classification based on degree of certainty
➢ Classification based on method of solution or
Quantification
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 General Classification of models

➢ Classification based on structure : Physical models and

Symbolic models
▪ Physical models : Physical appearance of real object
under study either reduced in size or scaled up. Physical
models are classified into two categories
I. Iconic models : a scaled small or big in size version of
the system. Example : Map, photographs, airplanes,
trains etc.
II. Analogue Models: Does not resemble physically the
system that they represent, but retain a set of
characteristics of the system. For example, oil dipstick
in a car represents the amount of oil in the oil tank.
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 General Classification of models
Classification based on structure (contd…)
▪ Symbolic models : These models use algebraic symbols
(letters/numbers) and functions to represent varibles and
their relationship for describing the properties of the
system. Symbolic models are classified into two
categories
I. Verbal models :describe the properties of a system in a
written or spoken language. Eg: written sentences,
books etc.
II. Mathematical models : Uses mathematical symbols/
letters/numbers/operators to describe its properties or
behaviour. Eg: relationship among velocity, distance
and acceleration/ cost, volume and profit etc.
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 General Classification of models
Classification based on Function (or Purpose)
▪ Descriptive models : These models are used to investigate the
outcomes or consequences of various alternative courses of
action. Since these models evaluate the consequence based
on a given condition, there is no guarantee that the
alternative selected is optimal.
▪ Predictive models :These models represent a relationship
between dependent and independent variables and hence
measure ‘cause and effect’ due to changes in independent
variables. For example, S= a+bA , where A is advertising
expenditure and S the sales.
▪ Prescriptive Models : provides the ‘best’ or ‘optimal’ solution
to the problem using an appropriate course of action subject
to certain limitations on the use of resources.
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 General Classification of models
Classification based on Time Reference
▪ Static Models : Represent a system at a particular
point of time and do not take into account the
changes over time. For example, Inventory models
can be developed and solved to determine EOQ
assuming that demand and lead time would remain
same throughout the planning period.
▪ Dynamic Models: These models take into account
the changes over time. Time is considered as one of
the variables while deriving the optimal solution.
Thus a sequence of interrelated decisions over a
period of time are made to select the optimal course
of action in order to achieve the given objective.
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 General Classification of models
Classification based on Degree of certainty
▪ Deterministic models : Here all values (parameters,
constants, functional relationships) used are known
with certainty. That is outcome associated with a
particular course of action is known. Linear
programming models are example of deterministic
model.
▪ Probabilistic(Stochastic) models : Here all values used
are not known with certainty and they are measured
as probability values . That is if atleast one parameter
or decision variable is random variable . Example :
insurance against risk of fire, accidents, sickness etc.

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 General Classification of models
Classification based on method of solution or
quantification
▪ Heuristic models : If certain sets of rules (may not be
optimal) are applied in a consistent manner to facilitate
solution to the problem, then the model is said to be
Heuristic
▪ Analytical models : These models have a specific
mathematical structure and thus can be solved by the
known analytical or mathematical techniques.
▪ Simulation models : These models have a mathematical
structure but cannot be solved by the known
mathematical techniques. Usually a computer assisted
experimentation on a mathematical structure of a
problem in order to evaluate its behaviour under certain
assumptions over a period of time.
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