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B.Com 4th Semester (CBCS)

STUDY MATERIAL
UNIT-4
SUBJECT: BUSINESS MATHEMATICS
Syllabus
Unit IV Linear Programming (Use of Excel spreadsheet & Other mathematical
software)
Formulation of linear programming problems (LPP): Graphical solution to LPPs. Cases of
unique and multiple optimal solutions, Unbounded solutions and infeasibility, Solution to
LPPs using Simplex method – maximization and minimization cases, PERT and CPM
(simple Problem)
Declaration: All the concepts and examples are referred from the textbooks listed in
the reference section of this material.
( Swarup, Gupta , & Mohan, 2001) (Kapoor, 2013) (Patri & Patri, 2017) (Sharma, 2010) (The Institute of Chartered Accountants of India, 2011)
(Dubey & Thakare, 2014)

LINEAR PROGRAMMING

Definition:
According to Danzig, “Linear programming (LP) is defined as a programming of inter-
depended activities in a linear structure.”

According to Galton, “Linear programming(LP) is a mathematical technique for determining

the optimal solution of resources and obtaining a particular objective where there are
alternative uses of resources, e.g. man, material, machinery and money etc.”

Explanation of Definition:
The term linear means that the relationship involved among two or more variables in a
particular problem are linear that the variables change proportionately i.e. of the form given
below:-

The mathematical description of linear programming problem (LPP) is

Max/min 𝒁 = 𝒄𝟏 𝒙𝟏 + 𝒄𝟐 𝒙𝟐 + ⋯ . . +𝒄𝒏 𝒙𝒏 (Objective function)

s.t. 𝑎11 𝑥1 + 𝑎12 𝑥2 + ⋯ + 𝑎1𝑛 𝑥𝑛 (≤ 𝒐𝒓 = 𝒐𝒓 ≥)𝒃𝟏 (𝒄𝒐𝒏𝒔𝒕𝒓𝒂𝒊𝒏𝒕𝒔)
𝑎21 𝑥1 + 𝑎22 𝑥2 + ⋯ + 𝑎2𝑛 𝑥𝑛 (≤ 𝒐𝒓 = 𝒐𝒓 ≥)𝒃𝟐
.
.
.
𝑎𝑚1 𝑥1 + 𝑎𝑚2 𝑥2 + ⋯ + 𝑎𝑚𝑛 𝑥𝑛 (≤ 𝒐𝒓 = 𝒐𝒓 ≥)𝒃𝒎
𝒂𝒏𝒅 𝑥1, 𝑥2,…….. 𝑥𝑛 ≥ 0 (𝑛𝑜𝑛 − 𝑛𝑒𝑔𝑎𝑡𝑖𝑣𝑖𝑡𝑦 𝑟𝑒𝑠𝑡𝑟𝑖𝑐𝑡𝑖𝑜𝑛𝑠

Where z, 𝒙𝟏 , 𝒙𝟐 , … … . 𝒙𝒏 are the variables of power one (degree one) and the other symbols
like 𝑐1 , 𝑐2 , … 𝑐𝑛 , 𝑎11 , 𝑎12 … , 𝑎1𝑛 , 𝑎21 , 𝑎22 … 𝑎2𝑛 , … 𝑎𝑚1 , 𝑎𝑚2 , … . 𝑎𝑚𝑛 are constants.

©Sudhanshu Sekhar Sahoo, Assistant Professor, DAV School of Business Management, Bhubaneswar
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The term ‘programming’ means planning and it refers to a particular plan of action from
amongst several alternatives for maximizing profit or minimizing cost etc. i.e. the problems
deal with determining optimal allocation of limited resources to meet the given objective,
such as resources to meet the given objectives, such as least cost, maximum profit, highest
margin or least time, when resources have alteranative uses.

Thus we can define linear programming as a mathematical model designed to optimize a

linear function of several variables which is subjected to certain constraints which are linear
equalities or inequalities and the variables used are non-negative as they represent output.

OBJECTIVE FUNCTION ➔ If 𝑐1 , 𝑐2 ,… . 𝑐𝑛 are constants and 𝑥1, 𝑥2 , 𝑥𝑛 are variables, then

the linear function Z=𝑐1 𝑥1 + 𝑐2 𝑥2 + ⋯ + 𝑐𝑛 𝑥𝑛 , which is to be maximized or minimized
(optimized) is called the objective function.

CONSTRAINTS → The in-equations or equations of LPP which describe the conditions

under which the optimization (maximization or minimization) is to be accomplished are
called constraints of ≤ or = 𝒐𝒓 ≥ type.
The constraints are

𝑎11 𝑥1 + 𝑎12 𝑥2 + ⋯ + 𝑎1𝑛 𝑥𝑛 (≤ 𝒐𝒓 = 𝒐𝒓 ≥)𝒃𝟏

𝑎21 𝑥1 + 𝑎22 𝑥2 + ⋯ + 𝑎2𝑛 𝑥𝑛 (≤ 𝒐𝒓 = 𝒐𝒓 ≥)𝒃𝟐
.
.
.
𝑎𝑚1 𝑥1 + 𝑎𝑚2 𝑥2 + ⋯ + 𝑎𝑚𝑛 𝑥𝑛 (≤ 𝒐𝒓 = 𝒐𝒓 ≥)𝒃𝒎

Inequations in the form of greater than (or less than) equal to indicate that the total use of the
resources must be more than (or less than) or equal to (i.e. at least or at most) the specified
amount whereas equations in the constraints indicate that the resources described are to be
fully used.

NON NEGATIVITY RESTRICTIONS

These are the constraints which describe that the variables involved in a LPP are non-
negative.

As the number of unit sold, purchased, produced, invested or controlled can not be negative,
non-negative (≥ 𝑂" 𝑡𝑦𝑝𝑒)restrictions are modeled.

©Sudhanshu Sekhar Sahoo, Assistant Professor, DAV School of Business Management, Bhubaneswar
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Types of Linear Programming Problem (LPP)

LPP are classified into two types:

They are,
(i) General or Primal Linear Programming Problem,
(ii) Duality Linear Programming problem.
The procedures of determining the desired results under the above two types are described
below:-
(i) Steps to get solution in case of General or Primal LPP
(a) Formulation of the given problem
(b) Solution of the formulated problem
Each of the above steps will again require the following sub-steps.

1. FORMULATION OF LPP

Under this step, the given data relating to a problem will be arranged first under the following
three types of equation functions:
(1.1) objective function
(1.2) Constraints function
(1.3) Non-negative restrictions function.
Procedure of formulation of LPP:-
Step-1: In every LPP certain decisions are to be made. These decisions are represented by
decision variables. These decision variables are those quantities whose values are to be
determined. Identify the variables and denote them by 𝑥1 , 𝑥2 , 𝑥3 , ……. Construct a decision
table as an aid for subsequent steps.
Step-2 – Identify the objective function and express it as a linear function of the variables
introduced in Step-1.
Step-3 - Identify the type of the objective function (maximization or minimization).
Step-4 - Identify the set of constraints, and express them as linear inequations or equations

©Sudhanshu Sekhar Sahoo, Assistant Professor, DAV School of Business Management, Bhubaneswar
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2. SOLUTION OF THE FORMULATED PROBLEMS:-

After a LPP has been properly formulated, the next is to attempt on its solution to determine
the values of the different decision variables, 𝑥1 , 𝑥2 , … . . 𝑥𝑛 etc.
Solution of the LPP may be of three types, e.g.
(2.1) – Feasible Solution,
(2.2) Non-feasible (infeasible) solution, and
(2.3) Optimal solution
(2.1) Feasible Solution → A solution which satisfies the constraints and non negativity
conditions of a general LPP is called a feasible solution.
(2.2) Non-feasible (infeasible) solution → A solution of a LPP is an infeasible solution, if
the system of constraints has no point which satisfies all the constraints and non-negativity
restrictions.
(2.3) Optimal solution→ A feasible solution which optimizes (minimizes or maximizes) the
objective function of a LPP is called an optimum solution.
METHODS OF SOLUTION OF L.P.P
There are two methods of solving a LPP,
1. Graphic method
2. Simplex method
Graphical methods of Solving LPP:-
Graphical method can only be applied to LPP having two variables. The following methods
are used to solve the linear programming problems graphically,
(i) Corner-point method
(ii) Iso-profit or Iso cost method
(i) Corner point method →
Procedures :-
Step-1 → Formulate the given LPP in mathematical form, if it is not given in mathematical
form.
Step-2 → Convert all inequations into equations and draw their graphs
Step-3 → Determine the region represented by each equation
Step-4 → Obtain the common feasible region in xy-plane containing all points that
simultaneously satisfy all constraints including non-negativity restrictions.
Step-5 → Determine the coordinates of the vertices (corner points) of the common feasible
region (convex polygon) obtained in Step-2. These vertices are known as the extreme points
of the set of all feasible solutions of LPP>

©Sudhanshu Sekhar Sahoo, Assistant Professor, DAV School of Business Management, Bhubaneswar
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Step-6 → Obtain the values of the objective function of each of the vertices of the convex
polygon. The point where the objective function attains its optimal solution of the given
L.P.P.

(ii) ISO-Profit or ISO-Cost Method →

Procedures :-
Step-1 → Formulate the given LPP in mathematical form, if it is not given so.
Step-2 → Obtain the region in xy-plane containing all points that simultaneously satisfy all
constraints including non-negative restrictions (common feasible region).
Step-3 → Determine the coordinates of the vertices (corner points) of the feasible region
obtain in Step-2
Step-4 → Give some convenient value to Z and draw the line and obtained in XY plane.
Step-5 → If the objective function is of maximization type, then draw line parallel to the line
in Step-4 and obtain a line which is furthest from the origin and has at least one point
common to the feasible region.
If the objective function is minimization type, then obtain a line which is nearest to the origin
and has at least one point common to the feasible region.
Step-6 → Find the coordinates of the common points obtained in Step-5. the pionts so
obtained determine the optimal solutions and the values of the objective function at these
point(s) give the optimal solution.

©Sudhanshu Sekhar Sahoo, Assistant Professor, DAV School of Business Management, Bhubaneswar
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2. SIMPLEX METHOD
The simplex method is an iterative procedure by which we can obtain an optimum feasible
solution, once any basic feasible solution has been determined in a finite number of steps.
The various steps of the computation in simplex method are given below:
Procedure :
Step-1 → Check whether the objective function of the given LPP is to be maximized or
minimized. If it is to be minimized then we convert it into a problem of maximizing it by
using, Minimum Z = − (Maximum) (-Z)

Step-2 → Check whether all 𝑏𝑖 (𝑖 = 1,2, … . 𝑚) are non-negative. If any one 𝑏𝑖 is negative,
then multiply the corresponding inequation of the constraints by -1, so as to get all 𝑏𝑖 (𝑖 =
1,2, … . 𝑚), non negative.

Step-3 → Convert all the inequations of the constraints into equations by introducing slack
/surplus variables in the constraints. Put the cost of these variables equal to Zero.

Step-4 → Obtain an initial basic feasible solution to the problem in the form 𝑌𝐵 = 𝐵 −1 𝑋𝐵 and
put it in the first column of the simplex table.

Step-5 → Compute the net evaluations 𝑍𝑗 − 𝐶𝑗 (j=1,2,….n), using the relations 𝑍𝑗 − 𝐶𝑗 =

𝐶𝐵 𝑌𝑗 − 𝐶𝑗 where 𝑌𝑗 = 𝐵 −1 . 𝑎𝑗 and 𝑎𝑗 ∈ 𝐴

Examine the sign of 𝑍𝑗 − 𝐶𝑗

(i) If all (𝑍𝑗 − 𝐶𝑗 ) ≥ 0, then the initial basic feasible solution 𝑋𝐵 is an optimum basic feasible
solution.

(ii) If at least one (𝑍𝑗 − 𝐶𝑗 ) < 0, proceed on to the next step.

Step-6 → If there are more than one negative 𝑍𝑗 − 𝐶𝑗 , then choose the most negative of them,
let it be 𝑍𝑟 − 𝐶𝑟 for some j=r.

(i) If all 𝑌𝑖𝑟 ≤ 0 (𝑖 = 1,2, … . 𝑚), then the corresponding vector 𝑌𝑟 enters the basic 𝑌𝐵 .
𝑋𝐵𝑖
Step-7 → Compute ratios { , 𝑦𝑖𝑟 > 0, 𝑗 = 1,2, … . 𝑚} and choose the minimum of
𝑌𝑖𝑟
𝑋𝐵𝑘
them. Let the minimum of these ratios be . Then the vector 𝑦𝑘 will leave the basis 𝑦𝐵 .
𝑌𝑘𝑟
The common element 𝑌𝑘𝑟 (which is the 𝑘𝑡ℎ row and 𝑟𝑡ℎ column) is known as leading
element (or pivotal element or key element

©Sudhanshu Sekhar Sahoo, Assistant Professor, DAV School of Business Management, Bhubaneswar
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Step-8 → Convert the leading element to unity by dividing its row by the leading element
itself and all other elements in its column to zero by making use of the relation.:-
𝑦̂ 𝑦 𝑦𝑘𝑗 𝑦 𝑦̂ 𝑦𝑘𝑗
𝑖𝑗 = 𝑖𝑗 -𝑦𝑘𝑟 . 𝑖𝑟 , j=1,2,….m and 𝑘𝑗 =𝑦
𝑘𝑟

Step-9 → Go to step-5 and repeat the computational procedure, until either an optimum
solution is obtained or there is an indication of unbounded solution.
USE OF ARTIFICIAL VARIABLES
We have seen that in the computational procedure of the simplex method, it is most convenient to
have the slack variables as the starting (initial) basic variables.
Thus, If the original constraints is an equation (“=”) or is of greater than equal to type (" ≥ ") , we
may no longer have a ready starting basic feasible solution.

In order to obtain an initial basic feasible solution 𝐼𝑚 = 𝐵, 𝑚 ≤ 𝑛), we first put the given L.P.P into
its standard form and then a non-negative variable is added to the left side of each of equation that
lacks the much needed starting basic variables.

The so added variable is called on “artificial variable” and plays the same role as a slack variable in
providing the initial basic feasible solution. Since such artificial variables have no physical meaning
from the stand point of original problem, the method will be valid only if we are able to force. Thus,
variables to be out or at zero level when the optimum solution is attained.

In other words to get back to the original problem, artificial variable must be driven to zero in the
final solution, otherwise the resulting solution, may be infeasible.

Methods : Two method are generally employed for the solution of linear programming problems
having artificial variables:-

1. Big M method or method of penalties

2. Two phase method
1. Big M method : The Big-M method is an alternative method of solving a linear programming
problem involving artificial variables in the objective function.
The iterative procedure of the algorithm is given below:
Step-I : Write the given L.P.P into its standard form and check whether there exists a starting basic
feasible solution,
(a) If there is a ready starting basic feasible solution, move on to Step-3
(b) If there does not exist a ready starting basic feasible solution, move on to Step-2

Step-2: Add artificial variable to the left side of each equation that has no obvious starting basic
variables. Assign a very high penalty (say M) to these variables in the objective function.
Step-3: Apply simplex method to the modified L.P.P, following cases may arise at the last iteration.
(a) At least one artificial variable is present in the basis with zero value. In such a case the current
optimum basic feasible solution is degenerate.
(b) At least one artificial variable is present in the basis with a positive value. In such a case, the given
L.P.P does not possess an optimum basic feasible solution. The given problem is said to have a
pseudo optimum basic feasible solution.

©Sudhanshu Sekhar Sahoo, Assistant Professor, DAV School of Business Management, Bhubaneswar
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TWO PHASE METHOD

In the first phase of this method, the sum of the artificial variables is minimized subject to the
given constraints (known as auxiliary L.P.P) to get a basic feasible solution to the original
L.P.P. Second phase then optimizes the original objective function starting with the basic
feasible solution obtained at the end of Phase-I.

The iterative procedure of the algorithm may be summarize as below:

Step-1 – Write the given L.P.P into its standard form and check whether there exists a
starting basic feasible solution.

(a) If there is a ready starting basic feasible solution, go to Phase-2.

(b) If there does not exist a ready starting basic feasible solution, go on to the next step.

PHASE-I

Step-2 – Add the artificial variable to the left side of the each equation that lacks the needed
starting basic variables. Construct an auxiliary objective function aimed at minimizing the
sum of all artificial variables.

Thus, the new objective is to,

Minimize 𝑧 = 𝐴1 + 𝐴2 + ⋯ + 𝐴𝑛
Maximize 𝑧 ∗ = −𝐴1 − 𝐴2 − ⋯ − 𝐴𝑛

i.e. where 𝐴𝑖 (𝑖 = 1,2, … . 𝑚)𝑎𝑟𝑒 𝑡ℎ𝑒 𝑛𝑜𝑛 𝑛𝑒𝑔𝑎𝑡𝑖𝑣𝑒 𝑎𝑟𝑡𝑖𝑓𝑖𝑐𝑖𝑎𝑙 𝑣𝑎𝑟𝑖𝑎𝑏𝑙𝑒𝑠.

Step-3 – Apply simplex algorithm to the specially constructed L.P.P. The following three
cases may arise at the least interaction:

(a) max 𝑧 ∗ < 0 and at least one artificial variable is present in the basis with positive
value. In such a case, the original L.P.P does not possess any feasible solution.

(b) max 𝑧 ∗ = 0 and at least one artificial variable is present in the basis at zero value. In
such a case, the original L.P.P posses the feasible solution. In order to get basic
feasible solution, we may proceed directly to Phase-2 or else eliminate, the artificial
basic variable and then proceed to Phase-2.

(c) maximum 𝑧 ∗ = 0 and no artificial variable is present in the basis. In such a case, a
basic feasible solution to the original L.P.P has been found. Go to Phase-2.

PHASE-2
Step-4 – Consider the optimum basic feasible solution of Phase-1 as a starting basic feasible
solution for the original L.P.P. Assign actual coefficient to the variables in the objective
function and a value zero to the artificial variables that appear at zero value in the final
simplex table of Phase-1.

Apply usual simplex algorithm to the modified simplex table to get the optimum solution of
the original problem.

©Sudhanshu Sekhar Sahoo, Assistant Professor, DAV School of Business Management, Bhubaneswar
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Some Definitions

Slack Variables :
Slack variable represents an unused quaintly of resources; it is added to less than or equal
( ≤ ) to type constraints in order to get an equality constraint.

Let the constraints of a general L.P.P be

𝑎𝑖1 𝑥1 + 𝑎𝑖2 𝑥2 + ⋯ + 𝑎𝑖𝑛 𝑥𝑛 ≤ 𝑏1 , i=1,2……k

Then, the non negative variables 𝑠𝑛+𝑖 which satisfy,

𝑎𝑖1 𝑥1 + 𝑎𝑖2 𝑥2 + ⋯ + 𝑎𝑖𝑛 𝑥𝑛 + 𝑠𝑛+𝑖 = 𝑏1 , i=1,2……k

are called slack variables.

Surplus Variables :
Surplus variable represents an unused quaintly of resources; it is subtracted from more than
or equal ( ≥ ) to type constraints in order to get an equality constraint.

Let the constraints of a general L.P.P be

𝑎𝑖1 𝑥1 + 𝑎𝑖2 𝑥2 + ⋯ + 𝑎𝑖𝑛 𝑥𝑛 ≥ 𝑏1 , i=1,2……k

Then, the non negative variables 𝑠𝑛+𝑖 which satisfy,

𝑎𝑖1 𝑥1 + 𝑎𝑖2 𝑥2 + ⋯ + 𝑎𝑖𝑛 𝑥𝑛 − 𝑠𝑛+𝑖 = 𝑏1 , i=1,2……k

are called surplus variables.

©Sudhanshu Sekhar Sahoo, Assistant Professor, DAV School of Business Management, Bhubaneswar
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Artificial Variables –

In simplex method if the original constraint is an equation (" = ") or is of type (" ≥ ") we
may no longer have a ready starting basic feasible solution. In order to obtain an initial basic
feasible solution, we first put the LPP into standard form and then a non negative of equation
that lacks the much needed starting basic feasible solution. The so added variables is called
artificial variable. The cost of the artificial in Big-M method is given as (-M) and in two
phase method is given as (-1)
Let the constraints of a general L.P.P be

𝑎𝑖1 𝑥1 + 𝑎𝑖2 𝑥2 + ⋯ + 𝑎𝑖𝑛 𝑥𝑛 ≥ 𝑏1 , i=1,2……k

Then, the non negative variables 𝑠𝑛+𝑖 , 𝐴𝑖 which satisfy,

𝑎𝑖1 𝑥1 + 𝑎𝑖2 𝑥2 + ⋯ + 𝑎𝑖𝑛 𝑥𝑛 − 𝑠𝑛+𝑖 + 𝐴𝑖 = 𝑏1 , i=1,2……k

are called surplus variables and artificial variable respectively.

Degenerate Solution : A basic solution to the system is called degenerate. If one or more of
the basic variable vanish. 𝐸𝑥: 𝑥1 = 1, 𝑥2 =0, 𝑥3 =0 is a degenerate solution of 𝐴𝐵 𝑋 = 𝑏.

ADVANTAGES OF LINEAR PROGRAMMING

The method of linear programming offers the following advantages:
1) Scientific Approach: Being a mathematical technique, the linear programming
method provides a scientific approach to the problem faced by an organization. It
gives a clear picture of the real problem of resource allocation.

2) Help to choose the Best Solution: Management problems are varied and complex.
Therefore, it creates difficulty in planning and getting a feasible solution. Linear
programming helps the manager to select, the best from among various alternatives.

3) Reflects Restriction: Constraints are portrayed in the form of linear equation or

inequalities in linear programming. Thus, it shows the restrictions under which a firm
operates and how to extract the best.

4) Incorporating Changes: Once a basic programming has been done, it can be

revalidated with respect to changing situation or condition. Similarly, future planning
can be done by changing various conditions.

5) Highlights Bottleneck: Sometimes, in the production process bottlenecks are found,

e.g. one machine fails to meet the market demand while other machines may remain
idle. So immediate steps can be taken once these are detected by linear programming.

6) Optimal use of the Input: Linear programming makes optimal use of the factors of
production such as labour, capital etc. by indicating the best use of existing facilities.
The inputs are used in a way so as to maximize output.

©Sudhanshu Sekhar Sahoo, Assistant Professor, DAV School of Business Management, Bhubaneswar
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7) Solving Agricultural Problem: In agriculture, problem lies with the allocation of

inputs such as land area, water, labour, fertilizer etc. Linear programming technique
helps best allocation of these resources to maximize output.

8) Production Management: Linear programming can be used to determine the optimal

product mix taking into account various limitations which a firm has. Besides, it is
also used for product smoothing and assembly line balancing.

9) Financial Management: In financial management, linear programming helps in

selecting a specific investment from a number of alternatives. It also helps in
maximisation and selecting the appropriate portfolio mix.

10) Other Advantages:

a) LPP also helps in solving the problem of selection, training and development
of man power in the field of human resource management.
b) It can analyse the audience coverage of an advertising campaign within the
budget restriction. It helps in allocating the advertisement expenditure among
different medias.
c) LPP is also useful in flight scheduling of airlines both domestic and
international.

DISADVANTAGES OF LPP
Despite the above advantages, LP suffers from the following limitations:
1) The linear programming model can be used in the situations where the objective
function and the constraints can be expressed in linear form. But actually such
relationship may not exist in some business and industrial problems.

2) The parameter appearing in the objective and constraint are assumed to be constant
and known. But in real life situation neither they are known with certainty nor they
remain constant.

3) The answers provided by linear programming are not always integers. Sometimes it
gives fractional valued answer. If these fractions are rounded up to the nearest integer
it may not yield optimal solution.

4) Linear programming deals with single objective. So it fails to give a solution if

management has conflicting multiple goals.

5) This method does not take into account the effect of time and uncertainty.

6) In real life situation the number of variables are so large and complex that the
problem can’t be solved even by a super computer.

©Sudhanshu Sekhar Sahoo, Assistant Professor, DAV School of Business Management, Bhubaneswar
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APPLICATIONS OF L.PP
Linear programming technique has been widely used in the field of management, industry
and other area which are briefed as under:
(A) Managerial Application
1) Optimization: The manager now-a-days are confronted with resource limitation. So
they try either to maximise profit / output or to maintain cost / loss within the
available resources such as manpower, capacity, cash etc. LP is widely used technique
to deal with the optimization problem.

2) Portfolios Mix: Managers always try to maximise shareholders wealth by minimising

risks. They have to choose the correct investment portfolio from among various
alternatives such as bond, equity share, preference share, public deposits etc. They
have to decide how much should be invested in each category to maximise return.
While taking such decision they are confronted with the problem of limited
investment, company law, and policy of the company itself. The correct portfolio mix
can be decided by using the method of L.P.P

3) Selection of Media Mix: Usually the advertisement budget is limited and a firm has
to take up advertisement in various medias such as newspaper, magazine, TV, radio,
etc. In this connection LPP helps in allocating total advertisement expenditure in
different Medias and the number of insertion in each media in order to maximize the
total exposure of the principal buyers.

4) Staffing: Many big organizations operate on shift basis. So they have to allocate
appropriate manpower (which is limited) to each shift so that cost can be minimized
and work will flow smoothly. In this respect LPP helps us to calculate the optimal
manpower to be required.

5) Transportation: After a product is produced at a given place it is to be sent to

different destinations to meet the market demand. If supply position, market demand
at different destinations, routes and cost of transportation are known, LP can help to
minimize total transportation cost.

INDUSTRIAL APPLICATION
1) Product Mix: In order to cater to the market demand a firm produces different
products with different unit cost and unit profit. Since capacity of machines and
availability of raw material and labour hours are limited, the firm has to decide how
much to produce from each category to meet the market demand. LPP provides an
answer to this problem.

2) Blending Problem: Many a times, a product is produced by mixing different types of

raw material in a definite proportion. In the light of availability of different raw
materials and storage capacity, LPP helps to find out proper proportion of different
materials. This problem is seen in the production of gasoline, whisky, chemicals etc.

3) Production Scheduling: An optimum product scheduling is necessary to meet the

fluctuations in demand. The problem is to decide a programme which will allocate
operators to machines, product to machines and connection between production centre

©Sudhanshu Sekhar Sahoo, Assistant Professor, DAV School of Business Management, Bhubaneswar
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and wholesaler at the same time ensuring cost minimization and smooth flow of
product to markets.

4) Trim Loss Problem: In industries like paper, glass, tin etc. a big size sheet is to be
cut into different sizes as per the requirement of the customers. When a big size sheet
is cut into different pieces some cut pieces (wastage) may result. LPP, here help to
reduce such loss i.e. to keep the trim loss to the minimum.

5) Assembly Line: Sometimes different component parts are assembled together to

make a finished product. LPP helps us to determine the proportion in which different
parts are to be produced which will not minimize cost but also will not create the
problem of storage.
OTHER AREAS OF APPLICATION:
1) Urban Development: LP is useful in analysing public expenditure planning, drug
control, public distribution system, housing, sewerage management etc.
2) Agriculture: In the field of agriculture, the technique of LP is used for land allocation
to different crops, water, and fertilizer management to various crops in order to
maximize output.
3) Air Line and Railway: In the field of aviation the timing of flight and determination
of the most economical pattern etc. are done with the help of LPP. Similarly, the
optimal programming of railway freight, handling of train movement and allocation of
trainmen are done by LPP with the objective to minimize total crew and engine
expenses.
4) Facilities Location: LPP helps location analysis to find out the best location of parks,
hospitals, telephone exchange, school, college, community centres etc.
5) Environmental Problem: LPP is used to analyse various alternatives of waste
disposal, paper re-cycling, air cleaner design, energy policy to satisfy anti-pollution
requirement.
CPM AND PERT
A project is a combination of interrelated activities all of which must be executed in a
certain order to achieve a predetermined goal.
The two widely used techniques for the three phases of complex project development
, Planning, Scheduling and Controlling are CPM and PERT.
CPM- Critical Path Method
PERT- Programme Evaluation and Review Technique
Activity- an activity is a task of work to be done in a project.
A
1 2

Predecessor Activity: An activity which must be completed before the start of one more activity

Event: The starting and finishing points of an activity or a group of activities

Tail Event: The staring of an activity is called a tail event ( Ei )(Starting Event)

Head Event: The ending of an activity is called a head event ( Ej )(Completion Event)

©Sudhanshu Sekhar Sahoo, Assistant Professor, DAV School of Business Management, Bhubaneswar
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CRITICAL PATH ANALYSIS (CPM)

The objective of critical path analysis is to estimate the total project duration and to assign starting
and finishing times to all the activities involved in the project.

For this special computations are carried out to produce the following information.

(a) Total duration needed for the completion of the project

(b) Categorization of the activities of the project as being critical or non -critical

Critical activity: An activity in a network diagram is said to be critical , if the delay in its start will
further delay the project completion time.

Non-critical activity: It allows some scheduling slack, so that the start time of the activity may be
advanced or delayed with in limits without affecting the completion date of the entire project.

Ei = Earliest occurrence time of event i

Lj = Latest occurrence time of event j

tij = Duration of activity (i , j)

The critical path calculations are done in the following two ways:

a) Forward Pass Calculations

b) Backward Pass Calculations

Forward Pass Calculations- We start from the initial node 1(event 1) with starting time of the
project as zero. Proceed through the network visiting nodes in an increasing order of node number and
end at the final node of the network. At each node we calculate earliest start and finish times for each
activity by considering Ei as the earliest occurrence of node i.

The algorithm of forward pass calculation is as follows:

Step 1. Set Ei = 0 ; i=1 (initial node)

Step 2. Set the earliest start time for each activity that begins at node i as

ESij = Ei ; for all activities (i , j) that start at node i.

Step 3. Compute the earliest finish time of each activity that begins with node i by adding the earliest
start time of the activity to the duration of the activity. Thus

EFij = ESij + tij = Ei + tij

Step 4. Move on to next node, say node j (i > j) and compute the earliest occurrence for node j,

using Ej = maxi { EFij } = max { Ei + tij ) for all immediate predecessor activities.

Step 5. If j =n (final node) , then the earliest finish time for the project is given by

En = max { EFij } = max { En-1 + tij }

©Sudhanshu Sekhar Sahoo, Assistant Professor, DAV School of Business Management, Bhubaneswar
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Backward Pass Calculations- We start from the final node n(event n) with ending time of the project
as Ln = En. Proceed through the network visiting nodes in an decreasing order of node number and
end at the initial node 1 of the network . At each node we calculate latest occurrence finish and start
times for each activity by considering Lj as the latest occurrence of node j.

The algorithm of forward pass calculation is as follows:

Step 1. Ln = En ; j=n (final node)

Step 2. Set the latest finish time of each activity that ends at node j as

LFij = Lj ; for all activities (i , j) that ends at node j.

Step 3. Compute the latest occurrence time of each activity that ends with node j by subtracting the
duration of each activity from the latest finish time of the activity. Thus

LSij = EFij - tij = Lj - tij

Step 4. Proceed backward to the node in the sequence, that decrease j by 1. Also compute the latest
occurrence time of node i (i<j)

using Lj = minj { LSij } = minj { Lj - tij } for all immediate suscessor activities.

Step 5. If j =1 (initial node) , then the latest occurrence starting time for the project is given by

L1 = minj { LSij } = minj { L2 - tij }

Condition of Critical activity:

An activity (i , j) will be critical if it satisfies the following conditions :

(i) Ei = Li and Ej = Lj
(ii) Ej – Ei = Lj – Li = tij

An activity that does not satisfy the above condition is termed as non-critical activity.

Critical Path: The critical activities of a network that constitute an uninterrupted path which spans
the entire network from start to finish is known as critical path.

Float(or Slack) of an Activity : The float of an activity is the amount of time by which it is possible
to delay its completion time without affecting the total project completion time.

There are three types of activity floats, Total Float, Free Float, Independent Float.

Ei tij Ej

Li Lj

Total Float = Lj - Ei - tij (An activity is critical if its total float is zero)

Free Float = Ej - Ei - tij

Independent Float = Ej - Li - tij

©Sudhanshu Sekhar Sahoo, Assistant Professor, DAV School of Business Management, Bhubaneswar
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Table to evaluate critical nodes

Activity Normal time Earliest time Latest time Total float

(i , j) tij Ei Ej = Ei + tij Li = Lj – tij Lj Lj - Ei - tij

Start(ES) Finish(EF) Start(LS) Finish(LF)

Algorithm of Critical Path Method(CPM):

It is an important technique of project scheduling . Under CPM , the activity time is deterministic, i.e.,
there is only one time estimate of each activity.This method involves the following steps in
determining the critical path.

Step- 1: Construct/ Draw the project network of the given problem.

Step-2: Number all the events by numericals and all the activities by alphabets in order.

Step-3: Indicate the activity time on the arrows.

Step-4: Calculate the ES, EF, LS,LF , Total Float

Step-5: Identify the Critical Activities( Total Float=0)

Step-6: Calculate the total project duration( Sum of the durations of critical activities)

Programme Evaluation and Review Technique(PERT)

It is another important and widely used technique of project scheduling . PERT is probabilistic
method where the activity time is assumed to be uncertain and unknown. Therefore the probability of
activity completion is estimated.

𝑡𝑜 +4𝑡𝑚 +𝑡𝑝
Expected Time (Te) =
6

2 𝑡𝑝−𝑡𝑜 2
Variance(𝜎 ) = [ ]
6
Where,

𝑡𝑜 = Optimistic time estimate: It is the smallest time taken to complete

the activity if everything goes well.

𝑡𝑚 = Most likely time estimate: It refers to the estimate of the normal

time the activity would take.

𝑡𝑝 = Pessimistic time estimate: It is the longest time that an activity

would take if everything goes wrong\

©Sudhanshu Sekhar Sahoo, Assistant Professor, DAV School of Business Management, Bhubaneswar
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𝑋−𝑋̅
Standard normal variate Z=
𝜎
𝑋̅ = Expected Project duration = Sum of the Expected times(Te) asoociated with the critical
path

X= Scheduled time

𝜎 = Standard Deviation= Square root of the sum of variances associated with critical path

=√∑ 𝑉𝑎𝑟𝑖𝑎𝑛𝑐𝑒 𝑜𝑓 𝑐𝑟𝑖𝑡𝑖𝑐𝑎𝑙 𝑎𝑐𝑡𝑖𝑣𝑖𝑡𝑖𝑒𝑠

Algorithm of PERT

Sep-1: Draw the Project Network

Step-2: Compute the expected time and variance of each activity

Step-3: Compute the earliest occurrence and latest occurrence time of each activity

Step-4: Identify the critical activities and determine the critical path

Step-5: Find Expected project duration, 𝑋̅ by adding the expected time of the critical path
activities

Step-6: Find Standard Dviation , 𝜎 𝑎𝑠 𝑡ℎ𝑒 Square root of the sum of variances associated
with critical path
𝑋−𝑋̅
Step-7: Calculate the standard Normal variate Z= 𝜎 , where X is the scheduled time
Step-8: Using the Area Table of Normal Distribution curve ,we can estimate the probability
of completing wih in scheduled time X.(i.e., on or before a specified time)

©Sudhanshu Sekhar Sahoo, Assistant Professor, DAV School of Business Management, Bhubaneswar