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Chapter 1
Introduction
Management Science is a tool used by managers and administrators in the performance of their
vital task: making crucial decisions . Common management decisions, such as inventory
management, forecasting, project management, and operational efficiency, require an objective basis
when choosing the best solution. Management science, which is another term for operations research
or decisions science, carries an immense option of tools to aid manager when faced with decisions.

Lesson 1.1
What does Management Science mean?
Management refers to the process of administering and controlling the affair of the
organization by creating an environment that will contribute to achieving the business goals
effectively and efficiently. To attain a level of productivity, managers need to successfully execute the
following functions: planning, organizing, leading, and controlling. Such functions are carried out by
engaging in an endless cycle of maki8ng decisions. As an example, even a small supermarket manager
will face the most basic decision of whether to add more store operating time to increase gross sales or
shorten the store operations to reduce overtime pay. The decision, which may increase
profitability/productivity, can be arrived by observing the hourly sales to properly allocate manpower
efficiently either the current business environment or advances in technology, business decision, more
than ever, must be based on the results of a scientific investigation. Success executives and managers,
therefore, must be fully equipped with new tools and technique in their respective fields of expertise.

The management science approach views that precise decisions are a product of the following:

(1) Analysis of the circumstances that can be measured;

(2) Verification of the quantifiable relationships; and

(3) Test to determine the presence of cause-and-effect relationships among factors or variable.

The objective of management science is to translate the many situations in business into
quantifiable values that can be utilized to select the best solutions according to the available
mathematical tools and techniques. Thus, this enables managers to gain more confidence in deciding on
complex issues.

Lesson 1.2
Definitions of Management Science
There are many definitions of management science as it has evolved into several terminologies,
such as operations research, operations analysis, quantitative analysis, quantitative methods, and
decision science. The following are some of the many definitions of management science:
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1. Operations research is defined as the scientific process of transforming data into

insights to making better decisions.
2. Quantitative analysis is the process of collecting and evaluating measurable and
verifiable data, such as revenues, market share, and wages, to understand the behavior
and performance of a business.
3. According to Lancaster university, management science can be defined as a concept that
is “concerned with developing and applying models and concepts that help to illuminate
issues and solve managerial problems.” The approach is essentially interested in looking
at an organization and finding ways it can manage itself better and improve its
productively.
4. Management science, an approach to decision-making based on the scientific method,
makes extensive use of quantitative analysis.

Lesson 1.3
Special characteristics of management science
The formal definitions of management science can be summarized through its special characteristic:

1. A primary focus on managerial decision-making

2. The application of the scientific approach to decision-making
3. The examination of the decision situation from a broad perspective
4. The use of methods and knowledge from several disciplines
5. A reliance on formal mathematical models
6. The use technology, such as computers, software, or applications

In reality, however, the components of a business phenomenon, such as intuition, judgment,

and attitude toward a decision, are very difficult to translate into quantifiable measures. The symbolic
relationship between quantitative and qualitative models is shown in figure 1.1.

QUALITATIVE APPROACH QUANTITATIVE APPROACH

STABLE CONDITION AND WELL-

GUESS DATA
DECISION DEFINED SIMPLE PROBLEM DECISION
INTUITION INFORMATION
PROCESS PROCESS
JUDGEMENT UNSTABLE CONDITION AND
UNCLEAR COMPLEX PROBLEM HYPOTHESIS

Figures 1.1. Symbolic Relationship between quantitative and qualitative models

It can be gleamed from figure 1.1. That the qualitative approach to management is more
important when there is a higher degree of complexity and uncertainty in the business situation.
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Lesson 1.4
Development of management science
As early as the industrial revolution or even at earlier period, traces of the scientific approach to
management were evident. It was during 1900s when Frederick W. Taylor initiated the scientific
management revolution that marked the beginning of industrial engineering. At that time, some
mathematical models were being used, such as Erlang’s work on waiting to line problems, Edison’s work
on war games, and notable inventory management formula by Harris, the economic order quantity
(EOQ) modern management science was established during world war II when teams composed of
different disciplines were formed to aid the military with the strategic and tactical problems.
Mathematicians, scientific, and engineers joined together to solve problems using the scientific method.
After war, these teams continued their practice and joined industries, such as oil refineries, steel, and
paper mills. These industries operate on large volumes, resulting in high savings on production expense.
The most significant development post-world was the discovery of simplex method for solving linear
problems by George Dantzig in 1947.

During the 1970s, the use of management science had extend into the social and urban systems
like healthcare, education, and criminal justice. In the 1980s, with the rise of the computer technology,
management information system was integrated into management science. The explosion of computer
technology in the 1990s was manifested in the production of more advanced devices that can solve
mathematical problems with the same speed as the mainframes. More recently, the growth of data
sources from smart phones and other personal electronic devices provides access to reliable date, which
are used in varied ways for more cost cost-efficient business processes, forecasting, and marketing
promotion activities.

Lesson 1.5
Major Limitations of Management Science
Management science is very reliable tool for decision-makers. However, the problem isthat
some managers are inept on how to interpret the results of such scientific analysis while others do not
know what to do with the factors that cannot be translated to numerical values. Needless to say,
management science involves skilled and experienced individuals to be able to arrive at optimal
solutions to complex management problems.

According to those who do not support the idea of management science, this scientific
management tools can sometimes be costly and time consuming. They argue that if inappropriate
models were applied or inaccurate data was used, the result would be more detrimental to the
organization’s operation. But for those who were able to implement its full potential can attest its
benefits (turban and Meredith 1986):
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1. A methodical approach to problem-solving and decision-making

2. Facilities communication among the different experts in the organization
3. Allows exhaustive analysis of different options to arrive at a solution
4. Permits proper evaluation of situations with uncertainty
5. Helps the decision-makers decide on how much data needs to be gathered based on a given
problem
6. Improves effectiveness of the decision
7. Identifies the finest solution
8. A more cost-efficient means of examining a large number of alternative solutions
9. A wide selection of available mathematical models prevents erroneous calculations while
experimenting with real-life situations

On the other hand, arguments against management science are the following:

1. Time consuming,
2. some decision-makers do not appreciate the results,
3. difficulty in assessing uncertainties,
4. the use of oversimplified mathematical tools that do not match real-life situation
5. the tendency to be more costly relative to the size of the problem, and
6. some experiments/studies are not used for various reasons, which take up unnecessary
expense.

Lesson 1.6:
Areas of Application
Since management science deals with an interdisciplinary approach to problem solving and
decision-making, the list of its applications has expanded continuously. Some of the typical managerial
applications of management science are the following:

 Inventory control
 Facility design
 Product-mix determination
 Portfolio analysis for securities
 Scheduling and sequencing
 Transportation planning
 Design management information systems
 Allocation of scarce resources
 Investment decisions or capital budgeting
 Project management
 New product decisions
 Manpower or sales force decisions
 Market research decisions
 Research and development decisions
 Pricing decisions
 Distributions decisions
 Credit policy analysis
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 Machine setup problem in production

 Research and development effectiveness

Some applications mentioned in the list are given as examples and problems in this book.

Conclusion

With the ever-changing global business environment increasing, and as more traditional
businesses are being disrupted, companies must find ways to increase their operational efficiencies
without compromising the quality of their products/services. Based on research, the main reason for
most companies experiencing unfavorable sales performances or even bankruptcy can be traced to a
single faulty decision. Thus, managers must be knowledgeable of modern techniques, tools, and
technologies to ensure the continued success of the organization.

Review Questions

1. Give an example of a business situations that needs the application of management

science based on your personal experience.
2. Explains the advantages of using management science.
3. Discuss the major disadvantages of management science.
4. Explain the development of management science and its relevance to managerial
decisions

Case Analysis

In 1996, the chairman of a shopping mall company with four branches in metro manila was
confronted with a crucial decision regarding the expansion of one if its competitive strategy. A vacant
properly located beside the branch along Espana, Manila was being offered for sale to all the mall
operations.

This shopping mall company started the operations of its fourth branch in December 1997, and
at that time, the company had just begun payment for the loans used for its construction. In order to
push through with the expansion in the espana branch, the company needs to borrow additional
syndicated dollar loans from the biggest banks in the country.

“if we will not expand, them another mall will buy the property beside the espana branch and
would definitely further lower our market share since we are already facing so many big competitors in
the area,” was the chairman’s main concern. However, the majority of the shareholders, fearing that the
country is already overleveraged, did not agree to the expansion plan. After a series of meetings with
the bank officials, who promised to give full financial support, the chairman decided to push through
with expansion plan. This decision was not fully approved by other stockholders.

Then, during the last quarter of 1997, as the construction of Espana extension was almost 80%
complete, the Asian financial crisis hit the Philippines, which resulted in a sharp devaluation of the peso.
The crisis had a severe impact on the company’s cash flow because the company’s monthly amortization
on the dollar loans had almost tripped. The banks, foresaw the forthcoming gloomy financial situation of
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the company, refused to provide the rest of the loans proceeds. Without the additional funding, the
construction of the expansion area was never completed. The lack of cash flow led the company to file
for bankruptcy.

Question

1. Do you think the chairman made a very drastic decision without the proper evaluation of the
entire scenario and the full support of the stockholders? Explain your answer.
2. If you were the chairman, what information or data should you gather prior to the decision for
expansion?

Further Readings

 https://www.sciencedirect.com/management-science-guide/
 https://www.sciencedirect.com/science/article/abs/pii/S0747563219300706
 https://doi.org/10.1057/jors.1992.125