OPERATIONS RESEARCH

DR. NAGA SAI KUMAR TIRTHALA PhD (NIT Warangal)

 Unit 1.
Introduction to Operations Research
• Learning Objectives:
• Understanding the concept ,importance,
characteristics of OR.
• Scope of O.R. (Problem areas) in management
• Organizational objectives and use of OR
effectively.
 History of OR
• Origin: During the world war 2, when the british
military asked scientists to analyse military
problems(moving troops to the war field
allocating appropriate resources,managing
inventory etc).
• The problems in warfield are multi disciplinary.
• The application of mathematics and scientific
method to military applications was called
operations Research.
• Today it is called Management Science. It deals
with conditions of allocating scarce resources.
• These OR teams were successful in solving
England's war problems. Therefore USA used
to solve their war problems.
• After the war, industries and businesses
started using OR to solve their complex
management problems.
• Useful in SCM,Healthcare management,tele
communications networks,service systems etc
 Introduction to OR
• OR is interdisciplinary mathematical science
which focuses on the effective use of
technology by an organization
• We have technology
• We know how to use it
• But we don't know "How to use it effectively"!
• Therefore we needed a mathematical science
which tells us this.
• OR employs techniques from other
mathematical sciences such as:
• Mathematical Modelling
• Statistical Analysis
• Mathematical optimization
• OR arrives at optimal solution to 'complex
decision making problems'
• OR emphasises human resources and
technology interaction with a focus on
practical problems and applications
• It overlaps with all other disciplines such as
industrial engineering, Operations
Management, psychology, and organiational
science etc.
 Definitions of O.R.
• " OR is a scientic approach to decision making
which seeks to determine how best to design
and operate a system,usually under conditions
requiring the allocation of scarce resources"
----- Winsten
• "OR is a scientific method of providing
executive departments with a quantitative
basis for decisions regarding the operations
under their control"
• "OR is the application of scientific methods to
arrive at the optimal solutions to the
problems"
 Why OR is used?
• To determine :
• Maximum profit, maximum performance,
maximum yied
• Minimum of cost, loss, risk.
=> "Use of technology effectively"
• OR is the art and science of applying advanced
analytical techniques to solve real, practical
business problems.
• OR makes managers make the best use of their
scarce resources.
• Design of aircraft and aerospace structures for
minimum weight ( Minimize weight)
• Design of civil engineering structures like bridges,
towers, dams, for minimum cost ( Minimize cost)
• Optimum design of electrical machinery like
motors, generators and transformers
• Optimum design of electrical networks
• Shortest route taken by salesman visiting
different cities.
• Inventory control to minimise inventory costs
such as ordering cost, carrying cost,shortage cost
etc
• Controlling waiting time and idle time and
queuing time in production lines to reduce the
cost
• Planning the best strategy against competirors to
obtain maximum benefit /profit (or to minimise
the losses )
 Scope of O.R.
• OR encompasses a wide range of problems, techniques, and
methods for decision making efficiently.
• Tools used in O.R.
• Statistics
• Optimization
• Probability theory
• Queuing theory
• Graph theory
• Decision analysis
• Mathematical modelling
• Simulation
• Computer Science
• Analytics
 A Few Specific Areas where OR
quantitative analysis is applied
• Finance and accounting: Cash flow analysis,
Caoital budgeting, Dividend and portfolio
management,Financial planning
• Marketing management: Selection of product
mix, sales resources allocation and assignments.
• Production management; Facilities planning,
manufacturing, inventory control,quality control,
work scheduling, job sequencing, project
planning and scheduling.
• Personnel management; Manpower
planning,resource allocation, staffing,
scheduling, of training programmes
• General management: Decision support
system and management of information
systems (MIS), organisational design and
control, Software process management,and
knowledge mannagement
 Features of OR
• Decision Making: OR as a body of knowledge
aims to provide an optimal solution through
the use of OR techniques
• Scientific Approach: OR applies scientific
methods, techniques and tools for the
purpose of analysis solution of the complex
problems. It eliminates personal bias of the
decision maker
• Inter disciplinary team approach: Industrial
problems require team effort and the team
comprises scientists, mathematicians,
technocrats' joint effort to obtain a feasible
and optimum solution.
• System Approach: The interrelationship and
interaction of each subsystem can be handled
with the help of mathematical, analytical
models of OR to obtain acceptable solution.
• Use of Computers: Various models in OR
efficiently use the advances in
computing/computers. With the use of
computers it is possible to handle problems
with high degree of complexity. Which require
large amount of calculations.
 Phases (Steps) of OR
• OR is a logical and systematic approach to
provide a rational basis for decision making.
• The following steps are required for the analysis
of a problem under OR.
• 1. Observe the problem environment:
Organisational climate, its objectives, alternative
courses of actions are discovered in this step. The
activities are visits, observations, research,
getting sufficient information and support to
formulate the problem
• 2. Analyse and define the problem:In addition to the
problem definition, the objectives, uses and limitations
of the study of the problem are defined. The objectives
may be such as maximise profit or minimise cost where
resources are limited. (The constraints are restrictions
on the variables wrt limited resources)
• 3. Develop a model : A model is a represntation of
some abstract or real situation. The models are
basically mathematical models which describe systems,
processes in the form of equations, formulas,
relationships.
• 4. Selection of data input : A model works
appropriately when there is appropriate data
input. The data includes internal/external data
analysis, fact analysis, and collection of
opinions and use of computer data banks. This
step provides sufficient data input to operate
and test the model developed in step 3.
5. Solution and testing: This step is to get a
solution with the help of the model and input
data. The limitations are found during the
testing of the model. If reliability ( consisten
solution by repeating the experiment) and
validity ( The model is measuring what it is
supposed to measure accurately) of the model
are satisfactory then we go to the next step.
• 6. Implementation of the solution: The last
step is to implement the model to get the
solution. The experts execute the model .
 Limitations of OR
• Magnitude of computation: Voluminous calculations are
handled by computers
• Non quantifiable factors: Factors which cannot be
quantified find no place on OR
• Distance between user and analyst: Mathematicians might
not be aware of the business problems and a manager fails
to understand the complex working of OR.
• Time and money costs very wrt size and complexity of the
problem and accuracy of the results desired.
• Implementation: Implementation of any decision is a
delicate task which must consider complexities of human
relations and behavior ( employee resistance due to
psychological factors etc)
 Decision Making
• It is the process which results in the selection
from a set of alternative courses of action
• It is a process characterised by adoption of
systematic , logical,reasoning to understand
problem situation and includes observation,
investigation,experimentation, measurement
and analysis of data.
A good decision
• is based on logic
• Considers all relevant and
available data
• Considers all possible
alternatives
• Applies QT.
 Characteristics of decision making
• It is goal oriented
• It involves alternatives
• It is objective ( rather than subjective)
• It involves reasoning ( rather than emotion)
• It is an orderly precise process ( rather than
haphazard process)
• It depends on personal characteristics of
decision maker ( freedom to decision maker)
 Nature of decision making
• It is a dynamic process
• Freedom to decision maker regarding the
"final choice"
• It is done in the face of uncertainty, certainty,
and risk
• Decision is a final judgment on what to do.
 Types of decisions
• Type 1 :
• Routine decision ( tactical, for daily functioning of the
organization; no indepth analysis or study required)
• Strategic decision ( long term, taken by upper and
middle level management; requires analysis and
careful study)
• Type 2:
• Operating decisions (Putting the policy decision into
action by lower level management to implement plans
and policies made by top management)
• Policy decisions ( by top level management Ex: Bonus
issues)
• Type 3:
• Organizational decision ( by manager) ( These
decisions can be delegated to subordinates.
when an executive takes a decision in an
official capacity, on behalf of the
organization.)
• Personal decision ( The manager takes a
decision in a personal capacity.These decisions
can not be delegated)
• Type 4:
• Programmed decision ( relate to functions
which are repititive in nature. Standard
procedure/Rules. Ex: BAMA, granting leave to
employees, purchasing spareparts etc.)
• Non- programmed decision ( General. No
standard procedure. They are not routine.)
• Type 5:
• Individual decision ( These decisions are taken
by an individual in official capacity.small
organizations, autocratic style of
management)
• Group decision (taken by a group or a
collective of the firm's employees and
management. Ex: decisions taken by board of
directors
 Factors affecting decision making
• Personal values and organizational culture (
values influence decision making at all levels)
• Group decision making ( by teams)
• Creativity and innovation ( Effective decision
making requires creativity and innovation0
 Decision Making Process
• Problem recognition
• Analyzing the problem
• Specification of goals to be achieved
• Developing alternatives ( various ways of
achieving goals)
• Evaluation of alternatives
• Selecting the best alternative for implementation
• Post operational analysis
• Controlled implementation ( Rectification)
• Follow up
 Types of environments in decision
making
• Decision making under certainty (
Consequences are known prior to
implementation)
• Decision making under risk (Probability of
occurrence of each outcome is known)
• Decision making under uncertainty (
Probability of occurrence of outcomes is not
known)
• DM under certainty: Investment of Rs 10,000
in business gives us 6% interest per annum or
Investment of Rs 10,000 in government
treasury bond ( NSC) gives us 10% interest on
the savings.
• DM under risk: Probability of getting 4 on a six
faced die ( dice) = 1/6
Heads on a coin tossed= 1/2
A Heart from a well shuffled pack = 0.25
• DM under Uncertainty ; Probability of a
communist will be president of India after 25
years =? ( not known)
 Fundamentals of OR
• Linear programming- Formulations
• Linear programming-Solution
• Duality and Sensitivity Analysis
• Transportation problem
• Assignment Problem
• Dynamic programming
• Deterministic Inventory models