DM Tools for Management

• Engineering managers, middle and senior tiers, use a number a qualitative and
quantitative tools in their planning and decision making process.
• Some important tools for strategic planning are:
– Market research
– SWOT analysis, PEST/PESTLE, Porters 5-forces analysis
– Decision tree
– Risk assessment (Monte Carlo simulation, what-if analysis )
– Failure Mode & Effect Analysis (FMEA), Root Cause Analysis (RCA), ----
– Product life cycle analysis
– Performance benchmarks
• Customer related measures
• Process related measures
• Financial measures
• Employee related measures
• Competition related measures
• Tactical Planning tools include project management tools (CPM, PERT, etc), OR (LP,
simplex method, Integer programing, etc), forecasting, etc
• Operational planning include work study, time study, time-motion study, OR (LP), etc
 DM Tools for Management
• Qualitative and Quantitative tools, as required, are used
for DM to find feasible and optimum solution to the problem
• In situations where variables / factors cannot be defined
properly quantitatively, qualitative DM tools are preferred
• Quantitative analysis uses a scientific approach to DM
process.
• Both types of DM tools can be used simultaneously for
addressing different aspects of the same problem.
• Quantitative tools include two types of models:
– A model is deterministic if we know all values with certainty.
– Models that involve chance of risk, often measured as probability
value, are called probabilistic models.
Quantitative Tools for
Management
Quantitative DM Approach
Defining the Problem Develop a clear & concise statement of the problem

Model is a representation of a situation. The type of model

Developing the Model may be physical, scale, schematic and/or mathematical.

Be careful of GIGO. Meticulous effort is required in

Acquiring input data collecting relevant input data to solve the problem.

Using engineering-mgt knowledge and mathematics tools

Developing a solution
Check consistency & relevance of solution with the problem
description. Review and update input data, mathematical
Testing the solution technique used and appropriateness of developed model to
get logical & rational solution

Analyzing the results Workout implications of the obtained solution and check
sensitivity of the model with different input data and
mathematical model (sensitivity analysis)
Implementing results
Advantages of Mathematical Modeling
• Models can accurately represent reality.
• Models help decision maker in formulating problems and
visualizing its effects by changing the input values, by
interpolating and extrapolating.
• Models can give us insight and other useful information.
• Models help in saving time, money and other resources in
making accurate decisions and resolving problems.
• Model may be the only way to study, predict and solve large
and complex problems in a timely way without much expense.
• Model used help in communicating problems, related variables
and its solutions to other in a very clear way.
 Operational Research
(Linear Programming)
• Operations Research (OR) deals with quantitative
modeling of complex operations and uses these models to
support DM in any industry or public services. It is another
name for optimization.
• Its primary aim is optimum utilization of resources in any
undertaking under a given situation so that objective
function may be maximized or minimized.
– profits/services/manufacturing resource utilization strategy, etc
may be maximized

– cost, time, effort, etc may be minimized

• Linear Programming (LP) is an OR tool which helps the

management to find best solution for a given problem
 Optimization by Linear Programming

Have u solved inequality problems

during ur 04 years studies??

• Linear Programming is helpful in developing and solving a problem by

mathematical techniques.
• LP Problems is a process of finding a maximum or minimum value of any
variable in a function, also called optimization problem.
• The problem is generally given in a linear function which needs to be
optimized subject to a set of different inequality constraints.
• Main usage of LP is in advising the management to make the most
efficient & effective use of the scarce resources.
• Of course, very few complex real-world problems can be expressed
perfectly in terms of a set of linear functions. Linear programming can
provide reasonably realistic representations of many real-world problems
Optimization by Linear Programming
Decision Variable: Variables which are changeable & going
to impact the decision function. Like the profit function is
effected by both sales and price.
Objective Function: Linear function of the objective, either
to maximize or minimize; like maximize -- Profit, sales,
production etc, and minimize -- cost, loss, energy,
consumption, wastage etc.
Constraints: Any kind of limitation or scarcity explained
through a function like limitations of raw materials, time,
funds, equipment, HR, etc. Non-negative Constraints will
also be there which will remain non-negative all the time.
 Operational Research
(Linear Programming)
What is Linear Programming?
Linear programming is a process of optimizing the problems which are subjected
to certain constraints. It is the process of maximizing or minimizing the linear
functions under linear inequality constraints.

What are the requirements of linear programming?

• Objective function
• Constraints
• Linearity
• Non-negativity
• Finiteness

Mention the advantages of Linear programming

• Linear programming provides insights to the industrial / business problems
• It helps to solve multi-dimensional problems
• According to the condition change, LP helps in making the adjustments
• By calculating value of the objective function (cost, profit, man-hours, machine
hours, production scheduling, etc), LP helps to identify the optimal solution
 LPP – Machine utilization case study
A manufacturing firm identifies that it has surplus machine time
available per week to undertake additional manufacturing workload. It
receives an order to manufacture part1 and 2 which requires lathe
machine, milling machine and grinder for manufacturing. Part 1 requires
12 minutes on lathe, 4 mts on Milling machine and 2 minutes grinding
work to complete the manufacturing process. Part 2 requires 6 minutes
on lathe, 10 mts on Milling machine and 3 minutes grinding work to
complete the manufacturing process. In the workshop, a max of 3000
mts are available on lathe machine, 2000 mts are available on Milling
Machine and 900 mts are available on Grinding machine. Profit of Rs/40
and Rs/100 per part 1 and 2 respectively is calculated. Find the number
of part 1 and 2 to be manufactured per week to maximize the profit.
 LPP – Machine utilization case study
• A manufacturing firm identifies that it has surplus machine time available
per week to undertake additional manufacturing workload.
• It receives an order to manufacture part1 and 2 which requires lathe
machine, milling machine and grinder for manufacturing.
– Part 1 requires 12 minutes on lathe, 4 mts on Milling machine and 2 minutes
grinding work to complete the manufacturing process.
– Part 2 requires 6 minutes on lathe, 10 mts on Milling machine and 3 minutes
grinding work to complete the manufacturing process.
• In the workshop, a max of 3000 mts are available on Lathe machine,
2000 mts are available on Milling Machine and 900 mts are available on
Grinding machine.
• Profit of Rs/40 and Rs/100 per part 1 and 2 respectively is calculated.
• Find the number of part 1 and 2 to be manufactured per week to
maximize the profit.
 LPP – Machine utilization case study
• A manufacturing firm identifies that it has surplus machine time available per week to
undertake additional manufacturing workload.
• It receives an order to manufacture part1 and 2 which requires lathe machine, milling
machine and grinder for manufacturing.
– Part 1 requires 12 minutes on lathe, 4 mts on Milling machine and 2 minutes grinding
work to complete the manufacturing process.
– Part 2 requires 6 minutes on lathe, 10 mts on Milling machine and 3 minutes grinding
work to complete the manufacturing process.
• In the workshop, a max of 3000 mts are available on Lathe machine, 2000 mts are available
on Milling Machine and 900 mts are available on Grinding machine.
• Profit of Rs/40 and Rs/100 per part 1 and 2 respectively is calculated.
• Find the number of part 1 and 2 to be manufactured per week to maximize the profit.

Type of machine Machining time Machine time

1. Maximize profit from mfg mix required for available/week
2. x1 and x2 are # of parts P1 and P2 the parts (mts) (mts)
Define Objective function;
Part1 Part2
Maximum Profit = P = 40 . x1 + 100 . x2
3. Identify resources & constraints; Lathe Machine 12 6 Max 3000
lathe: 12 . x1 + 6 . x2 ≤ 3000
Milling: 4 . x1 + 10 . x2 ≤ 2000 Milling Machine 4 10 Max 2000
Grinding: 2 . x1 + 3 . x2 ≤ 900 Grinding Machine 2 3 Max 900
x1 ≥ 0 ; x2 ≥ 0 Profit/part Rs/40 Rs/100
 LPP – Solution by Graphical Method
Maximize Profit : P = 40 . x1 + 100 . x2
Subject to resources & constraints
For lathe : 12 . x1 + 6 . x2 ≤ 3000
For Milling: 4 . x1 + 10 . x2 ≤ 2000
For Grinding: 2 . x1 + 3 . x2 ≤ 900
x1 ≥ 0 , x 2 ≥ 0

some important definitions:

• Feasible Region: The common region determined by all the constraints and non-
negativity limitations of LPP.
• Corner point: A point in the feasible region that is the intersection of two
boundary lines
• Solution: A set of decision variables values which satisfy all the constraints of an
LPP.
• Feasible solution: Any solution which also satisfies the non-negative limitations
of the problem.
• Optimal feasible solution: Any feasible solution which maximizes or minimizes
the objective function.
 LPP – Machine utilization case study
A manufacturing firm uses lathe, milling 1. Maximum profit from mfg mix
machine and grinder to make two machine 2. Objective function;
parts. The table below represents the Maximum Profit = P = 40 . x1 + 100 . x2
machining time required for each part, 3. Resources & constraints;
machine time available on different machines lathe: 12 . x1 + 6 . x2 ≤ 3000
and the profit on each machined part. Find the Milling: 4 . x1 + 10 . x2 ≤ 2000
number of part 1 and 2 to be manufactured Grinding: 2 . x1 + 3 . x2 ≤ 900
per week to maximize the profit. x1 ≥ 0 ; x 2 ≥ 0

• Solution space is bounded by an area

OABCO
• Profit = P = 40 . x1 + 100 . x2
• Calculate profit at corner points
Point O (0,0); P = Rs/0
Point A (0,200); P = Rs/20000
Point B (187.5,125); P = Rs/20000
Point C (250,0); P = Rs/10000
• It is a case of multiple optima on line AB
(Points A & B)
• Can u see redundant constraint (FJ)
 LPP – Mfg mix case study
A company ABC makes two products, P1 and P2. Each P1 requires 5 kg of
material M and 3 kg of material N. Each P2 requires 3 kg of material M and
3 kg of material N. In the warehouse, 350 kg of M and 270 kg on N are
available. The profit is $50 for each P1 and $40 for each P2. What mix of
P1 and P2 should the company manufactures in order to maximize profit.
Formulation of LP Problem Formulation of LP Problem
1. Find the key decision to be made 1. Maximization of profit from product mix
for the problem in hand. 2. Let x1 and x2 are # of products P1 and P2 to
2. Identify the variables and assume be manufactured respectively
variables x1, x2, x3, … for variable 3. Define Objective function;
quantities Maximum Profit = 50 . x1 + 40 . x2
3. Mention the objective 4. Identify alternatives and constraints;
quantitatively and express it as a 5 . x1 + 3 . x2 ≤ 350
linear function of variables 3 . x1 + 3 . x2 ≤ 270
4. Express the possible alternatives x1 ≥ 0
and constraints mathematically x2 ≥ 0
as linear quantities/inequalities in
terms of variables
 LPP – Mfg mix case study
A company ABC makes two products, P1 and P2. Each P1 requires 5 kg of
material M and 3 kg of material N. Each P2 requires 3 kg of material M and
3 kg of material N. In the warehouse, 350 kg of M and 270 kg on N are
available. The profit is $50 for each P1 and $40 for each P2. What mix of
P1 and P2 should the company manufactures in order to maximize profit.

Formulation of LP Problem
1. Maximization of profit from product mix
2. Let x1 and x2 are # of products P1 and P2
respectively
3. Define Objective function;
Maximum Profit = 50 . x1 + 40 . x2
4. Identify resources and constraints;
5 . x1 + 3 . x2 ≤ 350
3 . x1 + 3 . x2 ≤ 270
x1 ≥ 0
x2 ≥ 0
 LPP – Mfg mix case study
A company ABC makes two products, P1 and P2. Each P1 requires 5 kg of
material M and 3 kg of material N. Each P2 requires 3 kg of material M and
3 kg of material N. In the warehouse, 350 kg of M and 270 kg on N are
available. The profit is $50 for each P1 and $40 for each P2. What mix of
P1 and P2 should the company manufactures in order to maximize profit.
• Solution space is bounded by an
area OABCO
• Profit = P = 50 . x1 + 40 . x2
• Calculate profit at corner points
of feasible region
Point O (0,0); P = $0
Point A (0,90); P = $3600
Point B (40,50); P = $4000
Point C (70,0); P = $3500
• Optimum profit is at Point B
 LPP – Mfg mix case study
• Solution space is bounded by an
area OABCO
• Profit = P = 50 . x1 + 40 . x2
• Calculate profit at corner points
of feasible region
Point O (0,0); P = $0
Point A (0,90); P = $3600
Point B (40,50); P = $4000
Point C (70,0); P = $3500
What is Profit line or Iso Profit line??
• This method assigns a value to objective function, profit in this case, let say profit = $1000
• P = 1000 = 50.x1 + 40.x2 , and calculate values for decision variables x1 and x2
• For x1=0, x2 = 1000/40 = 25 and for x2=0, x1 = 1000/50=20. Iso profit line is drawn between
points (0,25) and (20,0)
• The process is repeated until we get to profit value which corresponds to a corner point that
yields optimum value within the feasible region
• Conceptually this method is similar to corner points method of feasible region but requires
more steps/calculations to get to the solution.
 Special cases in LPP
There are four special cases when using graphical method
to solve LPP;
– Infeasibility - lack of feasible solution region can occur if
constraints conflict with one another
– Unboundedness - open ended feasible region can occur
without violating any constraints, leading to very high value of
objective function
– Redundancy - A redundant constraint is one that does not affect
the feasible solution region
– Alternate optimal solutions - multiple optimal solutions are
possible when the objective function isoprofit or isocost line runs
perfectly parallel to one of the constraint of the problem
 Infeasibility Unboundedness

Infeasibility-- lack of feasible Unboundedness -- open ended

solution region can occur if feasible region can occur without
constraints conflict with one violating any constraints, leading to
another very high value of objective function
 Alternate Optimal
Redundancy Solutions

Redundancy – A redundant Alternate optimal solutions – are

constraint is one that does not affect possible when objective function
the feasible solution region isoprofit or isocost line runs parallel
to one of the constraint of the
problem
 Larger size LP Problem
• LP graphical method finds optimal solution that lies at a corner
point of the feasible region for problems involving two decision
variables

• For LP problem having large number of decision variables, the

feasible region cannot be graphed because it has many
dimensions.

• Most real life problems have more than two variables; may be
dozens, hundreds, thousands-- and constraints may go as high
as hundreds, thousands, etc-- requiring numerical algorithms to
solve.
– Even in this case, the optimal solution would still lie at a corner
point of many sided, many-dimensional figure (n-dimension
polyhedron) that represents the area of the feasible solutions.

– Simplex Method examines the corner points in a systematic

fashion, using algebraic concepts in an iterative manner.
 Case Study # 1
Scheduling Planes of Delta Airlines
• Each time an airliner takes off with an empty seat, a revenue opportunity is lost for
ever. For Delta airlines, which flies more than 2400 domestic flights per day using
450 aircraft of 10 different models, flight schedule is the heartbeat of the airline.
One flight leg for Delta might consist of Boeing 757 jet assigned to fly at 6:21 am
from Atlanta to arrive in Boston at 8:45 am carrying 235 passengers and 12 crew
members. Delta problem, the same as that of every competitor, is to match
airplanes such as 747s, 757s, 767s, etc to flight legs between A to B and fill
maximum seats with passengers.
• Advances in LP algorithms and computer hardware have made it possible to solve
optimization problems of this scope. Delta runs its huge LP model (Cold start)
everyday and was the first airline to solve a problem of this scope.
• Typical size of daily Cold Start model is about 40,000 constraints and 60,000
variables. The constraints are aircraft availability, balancing arrivals and
departures at airports, airplane maintenance needs and schedules, and so on.
Cold Start Objective is to minimize a combination of operating costs and lost
passenger revenues (spill cost).

Delta airlines reported savings of 0.25Millon$ per day by optimizing its flight
scheduling, close to a saving of 100 Million$ per year. (case study of 1994)
 Case Study # 2
Purchase of new airplanes by PIA
PIA owns an aging fleet of Boeing-727 jet airplanes. It is considering a major
purchase of new models of Boeing aircrafts; B‐757 and B‐767, to maximize
passenger travelling (max seat occupancy).
The decision must take into account numerous cost and capability factors,
including the following:
A. purchase of up to 17 new models of Boeing aircrafts; B‐757 and B‐767
B. airline can finance up to $400 million in purchases; each B‐757 will cost $35
million while each B‐767 will cost $22 million
C. at least one third of the planes purchased should be longer range B‐757
D. annual budget is to be no more than $8 Million; annual maintenance cost per
B‐757 is estimated to be $800,000, and $500,000 for each B‐767
E. each B‐757 can carry 125,000 passengers per year, while each B‐767 can
fly 81,000 passengers annually.
Formulate the problem as Integer Programming problem. Use LINGO to
solve. Interpret the solution and give your comments.
 Case Study # 4
Purchase of new airplanes by PIA
Constraints
A. purchase of up to 17 new models of Boeing aircrafts; B‐757 and B‐767
B. airline can finance up to $400 million in purchases; each B‐757 will cost $35
million while each B‐767 will cost $22 million
C. at least one third of the planes purchased should be longer range B‐757
D. annual budget is to be no more than $8 Million; annual maintenance cost per
B‐757 is estimated to be $800,000, and $500,000 for each B‐767

Objective Function
each B‐757 can carry
125,000 passengers per
year, while each B‐767 can
fly 81,000 passengers
annually
 LPP – Diet Selection case study

A house wife wishes to mix two types of food F1 and F2 in

such a way that the vitamin contents of the mixture contain
at least 8 units of vitamin A and 11 units of vitamin B. Food
F1 costs E60/Kg and Food F2 costs E80/kg. Food F1
contains 3 units/kg of vitamin A and 5 units/kg of vitamin B
while Food F2 contains 4 units/kg of vitamin A and
2 units/kg of vitamin B.
Formulate this as a LPP to minimize the cost of the
mixtures.
 LPP – Diet Selection case study

A house wife wishes to mix two types of LP formulation of the diet

food F1 and F2 in such a way that the
problem is:
vitamin contents of the mixture contain at
least 8 units of vitamin A and 11 units of Let Food F1 is X and food F2
vitamin B. Food F1 costs E60/Kg and is Y, and cost is C
Food F2 costs E80/kg. Food F1 contains Minimize: C = 60X + 80Y
3 units/kg of vitamin A and 5 units/kg of Subject to: 3X + 4Y ≥ 8
vitamin B while Food F2 contains
5X + 2Y ≥ 11
4 units/kg of vitamin A and 2 units/kg of
vitamin B. X≥0,Y≥0
Formulate this as a LPP to minimize the
cost of the mixtures
https://brilliant.org/wiki/linear-programming/
https://www.cuemath.com/algebra
/linear-programming/
 Linear Programming
Simplex with 3 Decision Variables

https://people.richland.edu/james/ictcm/2006/3dsimplex.html
 Limitations to LPP
• The optimal solution may be buy 6.7 trucks or manufacture 5.3
parts. Obviously one would buy either 6 or 7 trucks or manufacture 5
or 6 parts instead of the mixed number solution. Therefore, the
optimal solution is rounded either up or down , as appropriate.
– There is another algorithm, called Integer Programming, that provide
solution integer (whole number ) solution.
• Very often, the objective function and constraints / resources are not
relate linearly with the variables.
– Non Linear programming techniques are available to deal with such
cases.
• LP does not deal with uncertainty but real life problems often deal
with uncertainty.
– Methods such as chance constrained programming or LP under
uncertainty may be used in such cases.