Introduction to OR:

The British/Europeans refer to "operational research", the Americans to "operations research" - but both are often
shortened to just "OR" - which is the term we will use.

Another term which is used for this field is "management science" ("MS"). The Americans sometimes
combine the terms OR and MS together and say "OR/MS" or "ORMS". Yet other terms sometimes used are
"industrial engineering" ("IE") and "decision science" ("DS"). In recent years there has been a move towards a
standardization upon a single term for the field, namely the term "OR".

Operation Research is a relatively new discipline. The contents and the boundaries of the OR are not yet
fixed. Therefore, to give a formal definition of the term Operations Research is a difficult task. The OR starts
when mathematical and quantitative techniques are used to substantiate the decision being taken. The main
activity of a manager is the decision making. In our daily life we make the decisions even without noticing them.
The decisions are taken simply by common sense, judgment and expertise without using any mathematical or any
other model in simple situations. But the decision we are concerned here with are complex and heavily
responsible. Examples are public transportation network planning in a city having its own layout of factories,
residential blocks or finding the appropriate product mix when there exists a large number of products with
different profit contributions and production requirement etc.
Operations Research tools are not from any one discipline. Operations Research takes tools from different
discipline such as mathematics, statistics, economics, psychology, engineering etc. and combines these tools to
make a new set of knowledge for decision making. Today, O.R. became a professional discipline which deals
with the application of scientific methods for making decision, and especially to the allocation of scarce
resources. The main purpose of O.R. is to provide a rational basis for decisions making in the absence of complete
information, because the systems composed of human, machine, and procedures may do not have complete
information.
Operations Research can also be treated as science in the sense it describing, understanding and
predicting the systems behaviour, especially man-machine system. Thus O.R. specialists are involved in three
classical aspect of science, they are as follows:
i) Determining the systems behaviour
ii) Analyzing the systems behaviour by developing appropriate models
iii) Predict the future behaviour using these models

The emphasis on analysis of operations as a whole distinguishes the O.R. from other research and
engineering. O.R. is an interdisciplinary discipline which provided solutions to problems of military operations
during World War II, and also successful in other operations. Today business applications are
primarily concerned with O.R. analysis for the possible alternative actions. The business and industry
befitted from O.R. in the areas of inventory, reorder policies, optimum location and size of warehouses,
advertising policies, etc.
History of Operations Research
Operation Research is a relatively new discipline. Whereas 70 years ago it would have been possible to study
mathematics, physics or engineering (for example) at university it would not have been possible to study
Operation Research, indeed the term O.R. did not exist then. It was really only in the late 1930's that operational
research began in a systematic fashion, and it started in the UK. As such it would beinteresting to give a short
history of O.R.

Stages of Development of Operations Research

The stages of development of O.R. are also known as phases and process of O.R, which has six
important steps. These six steps are arranged in the following order:

Step I: Observe the problem environment

Step II: Analyze and define the problem

Step III: Develop a model

Step IV: Select appropriate data input

Step V: Provide a solution and test its reasonableness

Step VI: Implement the solution

O.R. Tools and Techniques

Operations Research uses any suitable tools or techniques available. The common frequently used
tools/techniques are mathematical procedures, cost analysis, electronic computation. However, operations
researchers given special importance to the development and the use of techniques like linear programming, game
theory, decision theory, queuing theory, inventory models and simulation. In addition to the above techniques,
some other common tools are non-linear programming, integer programming, dynamic programming, sequencing
theory, Markov process, network scheduling (PERT/CPM), symbolic Model, information theory, and value
theory. There is many other Operations Research tools/techniques also exists. The brief explanations of some of
the above techniques/tools are as follows:

Linear Programming:

This is a constrained optimization technique, which optimize some criterion within some constraints. In Linear
programming the objective function (profit, loss or return on investment) and constraints are linear. There are
different methods available to solve linear programming.

Game Theory:

This is used for making decisions under conflicting situations where there are one or more players/opponents. In
this the motive of the players are dichotomized. The success of one player tends to be at the cost of other players
and hence they are in conflict.
Decision Theory:

Decision theory is concerned with making decisions under conditions of complete certainty about the future
outcomes and under conditions such that we can make some probability about what will happen in future.

Queuing Theory:

This is used in situations where the queue is formed (for example customers waiting for service, aircrafts waiting
for landing, jobs waiting for processing in the computer system, etc). The objective here is minimizing the cost of
waiting without increasing the cost of servicing.

Inventory Models:

Inventory model make a decisions that minimize total inventory cost. This model successfully reduces the total
cost of purchasing, carrying, and out of stock inventory.
Simulation:

Simulation is a procedure that studies a problem by creating a model of the process involved in the problem and
then through a series of organized trials and error solutions attempt to determine the best solution. Some times this
is a difficult/time consuming procedure. Simulation is used when actual experimentation is not feasible or
solution of model is not possible.

Non-linear Programming:

This is used when the objective function and the constraints are not linear in nature. Linear relationships may be
applied to approximate non-linear constraints but limited to some range, because approximation becomes poorer
as the range is extended. Thus, the non-linear programming is used to determine the approximation in which a
solution lies and then the solution is obtained using linear methods.

Dynamic Programming:

Dynamic programming is a method of analyzing multistage decision processes. In this each elementary decision
depends on those preceding decisions and as well as external factors.

Integer Programming:

If one or more variables of the problem take integral values only then dynamic programming method is used. For
example number or motor in an organization, number of passenger in an aircraft, number of generators in a power
generating plant, etc.

Markov Process:

Markov process permits to predict changes over time information about the behavior of a system is known. This is
used in decision making in situations where the various states are defined. The probability from one state to
another state is known and depends on the current state and is independent of how we have arrived at that
particular state.
Network Scheduling:

This technique is used extensively to plan, schedule, and monitor large projects (for example computer
system installation, R & D design, construction, maintenance, etc.). The aim of this technique is minimize
trouble spots (such as delays, interruption, production bottlenecks, etc.) by identifying the critical factors.
The different activities and their relationships of the entire project are represented diagrammatically with
the help of networks and arrows, which is used for identifying critical activities and path. There are two
main types of technique in network scheduling, they are:

Program Evaluation and Review Technique (PERT) – is used when activities time is not known
accurately/ only probabilistic estimate of time is available.
Critical Path Method (CPM) – is used when activities time is know accurately.

Information Theory:

This analytical process is transferred from the electrical communication field to O.R. field. The objective
of this theory is to evaluate the effectiveness of flow of information with a given system. This is used
mainly in communication networks but also has indirect influence in simulating the examination of
business organizational structure with a view of enhancing flow of information.

Applications of Operations Research

Today, almost all fields of business and government utilizing the benefits of Operations Research. There
are voluminous of applications of Operations Research. Although it is not feasible to cover all
applications of O.R. in brief. The following are the abbreviated set of typical operations research
applications to show how widely these techniques are used today:

Accounting:
Assigning audit teams effectively
Credit policy analysis
Cash flow planning
Developing standard costs
Establishing costs for byproducts
Planning of delinquent account strategy

Construction:
Project scheduling, monitoring and control
Determination of proper work force
Deployment of work force
Allocation of resources to projects

Facilities Planning:
Factory location and size decision
 Estimation of number of facilities required
International logistic system design
Transportation loading and unloading
Warehouse location decision
Finance:
Building cash management models
Allocating capital among various alternatives
Building financial planning models
Investment analysis
Portfolio analysis
Dividend policy making

Manufacturing:
Inventory control
Marketing balance projection
Production scheduling
Production smoothing

Marketing:
Advertising budget allocation
Product introduction timing
Selection of Product mix
Deciding most effective packaging alternative

Organizational Behavior / Human Resources:

Personnel planning
Recruitment of employees
Skill balancing
Training program scheduling
Designing organizational structure more effectively

Purchasing:
Optimal buying
Optimal reordering
Materials transfer

Research and Development:

R & D Projects control
R & D Budget allocation
Planning of Product introduction

1.7 Limitations of Operations Research

Operations Research has number of applications; similarly it also has certain limitations. These
limitations are mostly related to the model building and money and time factors problems involved in its
application. Some of them are as given below:
i) Distance between O.R. specialist and Manager

Operations Researchers job needs a mathematician or statistician, who might not be aware of
the business problems. Similarly, a manager is unable to understand the complex nature of
Operations Research. Thus there is a big gap between the two personnel.

ii) Magnitude of Calculations

The aim of the O.R. is to find out optimal solution taking into consideration all the factors. In
this modern world these factors are enormous and expressing them in quantitative model and
establishing relationships among these require voluminous calculations, which can be
handled only by machines.

iii) Money and Time Costs

The basic data are subjected to frequent changes, incorporating these changes into the
operations research models is very expensive. However, a fairly good solution at present may
be more desirable than a perfect operations research solution available in future or after some
time.

iv) Non-quantifiable Factors

When all the factors related to a problem can be quantifiable only then operations research
provides solution otherwise not. The non-quantifiable factors are not incorporated in O.R.
models. Importantly O.R. models do not take into account emotional factors or qualitative
factors.

v) Implementation

Once the decision has been taken it should be implemented. The implementation of decisions
is a delicate task. This task must take into account the complexities of human relations and
behavior and in some times only the psychological factors.