UNIT ONE

INTRODUCTION TO OPERATIONS RESEARCH

1.1 Overview of Operation Research

Now a day Operations research has been applying by every large organization
in developed nation and developing country in every department at all level.
Availability of faster and flexible computing facilities and the number of
qualified OR professionals have enhanced the acceptance and popularity of
the discipline. In the country like USA and the UK growth of OR has not been
limited, now it has reached to many countries including India.

Operational research encompasses a wide range of problem-solving techniques

and methods applied in the detection of improved decision-making and
efficiency. Some of the tools used by operational researchers are statistics,
optimization, probability theory, queuing theory, game theory, graph theory,
decision analysis, mathematical modeling and simulation. Because of the
computational nature of these fields, OR also has strong ties to science.

Application work in operational research, like other engineering and economics'

disciplines, attempts to use models to make a practical impact on real-world
problems.
1.2 History: The Development of OR
1.2.1 Origin of Operations Research

The term Operations Research (OR) was first coined by MC Closky and Trefthen
in 1940 in a small town, Bowdsey of UK. The main origin of OR was during the
second world war – The military commands of UK and USA engaged several
inter-disciplinary teams of scientists to undertake scientific research into
strategic and tactical military operations.

Their mission was to formulate specific proposals and to arrive at the decision
on optimal utilization of scarce military resources and also to implement the
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decisions effectively. In simple words, it was to uncover the methods that can
yield greatest results with little efforts. Thus it had gained popularity and was
called “An art of winning the war without actually fighting it”

The name Operations Research (OR) was invented because the team was
dealing with research on military operations. The encouraging results obtained
by British OR teams motivated US military management to start with similar
activities. The work of OR team was given various names in US: Operational
Analysis, Operations Evaluation, Operations Research, System Analysis, System
Research, Systems Evaluation and so on.

The first method in this direction was simplex method of linear programming
developed in 1947 by G.B Dantzig, USA. Since then, new techniques and
applications have been developed to yield high profit from least costs.

Now OR activities has become universally applicable to any area such as

transportation, hospital management, agriculture, libraries, city planning,
financial institutions, construction management and so forth. In India many of
the industries like Delhi cloth mills, Indian Airlines, Indian Railway, etc are
making use of OR activity.

The development of operations research as a science consists of the

development of its methods, concepts, and techniques. As a formal discipline,
operational research has expanded into a field widely used in industries ranging
from petrochemicals to airlines, finance, logistics, and government, moving to a
focus on the development of mathematical models that can be used to analyze
and optimize complex systems.

The ambiguous term Operations Research (OR) was coined during World War II,
when the British Military Management called upon a group of scientists together
to apply a scientific approach to the study of military operations to win the
battle. Due to the availability of faster and flexible computing facilities and the
no. of qualified O.R. professionals, it is now widely used in military, business,
industry, transportation, public health etc. Since its birth in the 1940, OR has
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been widely recognized as an important approach to decision-making in the
management of all aspects of an organization. Operations Research as a new
field started in the late 1930's and has grown and expanded tremendously in
the last 30 years. The British army was conducting exercises on the radar
system for detecting the aircrafts.

On 15th May 1940, with German forces advancing rapidly in France, Stanmore
Research Section was asked to analyze a French request for ten additional
fighter squadrons. In 1941 Operational Research Section (ORS) was established
in Coastal Command which was to carry out some of the most well-known OR
work in World War II. Thus OR as a separate field of specialization was born!
The Operations research is usually the mathematical treatment, analysis of a
process, problem, or operation to determine its purpose and effectiveness and
to gain maximum efficiency. The operation technique is utilized by functional
groups such as Industrial Engineering in effort to support Operations Managers
to make economically feasible decisions on a range of systematic challenges.
The main responsibilities of operations management are to manage and
operate as efficiently and effectively as possible with the given resources.
Quantitative methods which comprises of Simulation, Linear and nonlinear
programming, Queuing Theory and Stochastic Modeling, are well accepted
techniques by both research and practice communities.

Functional entities such as Industrial or Systems Engineering use methodologies

to provide feasible alternatives for operations mangers to decide on. An
important component of decision-making process is verifying and validating
alternatives, which typically involve decision makers, engineers or analysts.

In India, Operation Research came into existence in 1949 when an Operation

Research unit was established at Regional Research Laboratory, Hyderabad.
Also Prof. R.S.Verma set up an Operation Research team at Defense Science
Laboratory to solve problems of store, purchase and planning. During the
1950‟s there was substantial progress in the application of Operation Research
techniques for civilian activities along with a great interest in the professional
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 development and education in Operation Research. Many colleges and
universities introduced Operation Research in their curricula. They were
generally schools of engineering, public administration, business management,
applied mathematics, economics, computer science etc.

In 1953, Prof. P.C. Mahalanobis established an Operation Research team in the

Indian Statistical Institute, Calcutta to solve problems related to national
planning and survey. In 1958, project scheduling techniques: PERT (Program
Evaluation and Review Technique) and CPM (Critical Path Method) were
developed as efficient tools for scheduling and monitoring lengthy, complex and
expensive projects of that time. The real progress of Operation Research in the
national field was approved out by Prof. Mohalanobis in India when he used it in
national planning. Operation Research is also being used in Railway, waiting or
queuing problems of passengers for tickets at booking windows or trains
queuing up in marshalling yard, waiting to be sorted out are tackled by various
Operation Research techniques.

1.2.2 EVOLUTION OF OPERATION RESEARCH AS AN ACADEMIC

DISCIPLINE

Because of this historical legacy, operational research was accepted as a

legitimate management tool in defense research establishments and
subsequently for efficient resource planning and allocation by Government
departments. Business supported the accelerated growth of this discipline by
funding real and potential applications. Over period of time, a symbiotic
relationship between government, business and academia ensured the growth
and expansion of the discipline for their mutual benefit. During the last 50
years, operational research has evolved as a multidisciplinary function involving
economics, mathematics, statistics, industrial engineering and management.

1.3 Concepts and Definition of OR

1.3.1. Terminology

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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"), "decision
science"("DS"), and “problem solving”.

In recent years there has been a move towards a standardization upon a single
term for the field, namely the term "OR".

“Operations Research (Management Science) is a scientific approach to decision

making that seeks to best design and operate a system, usually under
conditions requiring the allocation of scarce resources.”

A system is an organization of interdependent components that work

together to accomplish the goal of the system.

The term Operations Research (OR) describes the discipline that is focused on
the application of information technology for informed decision-making. In other
words, OR represents the study of optimal resource allocation. The goal of OR is
to provide rational bases for decision making by seeking to understand and
structure complex situations, and to utilize this understanding to predict system
behavior and improve system performance. Much of the actual work is
conducted by using analytical and numerical techniques to develop and
manipulate mathematical models of organizational systems that are composed
of people, machines, and procedures. Hence, it is important to give few opinions
about the definitions of OR. OR is a Mathematical or scientific analysis of a
process or operation, used in making decisions

According to Moarse and Kimbal (1946) “OR is a scientific method of providing

executive department with a quantitative basis for decision regarding the
operations under their control.
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Similarly, according to Dictionary of Military and Associated Terms US
Department of Defense 2005 “The analytical study of military problems
undertaken to provide responsible commanders and staff agencies with a
scientific basis for decision on action to improve military operations is called
OR”. It is also called operational research; operations analysis.

According to Britannica Concise Encyclopedia, “OR is the application of scientific

methods to management and administration of military, government,
commercial, and industrial systems. It is characterized by a systems orientation,
or systems engineering, in which interdisciplinary research teams adapt
scientific methods to large-scale problems that must be modeled, since
laboratory testing is impossible.

In the same way, McGraw-Hill Science & Technology Encyclopedia defines OR as

the application of scientific methods and techniques to decision-making
problems. A decision-making problem occurs where there are two or more
alternative courses of action, each of which leads to a different and sometimes
unknown end result. Operations research is also used to maximize the utility of
limited resources. The objective is to select the best alternative, that is, the one
leading to the best result.

In its essence, an operation research (OR), is the branch of applied mathematics

that deals with optimizing the use of available resources, given limitations and
constraints. A collection of several analytical techniques is generally referred to
as operations research.

Other prominent definitions given by experts of OR are as follows

• According to O.R. Society of America: O.R. is concerned with scientifically
deciding how to best design and operate man-machine systems usually
under conditions requiring the allocation of scarce resources. -
• O.R. is the art of winning wars without actually fighting. - Aurther Clarke
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 • O.R. is the art of giving bad answers to problems which otherwise have
worse answers. -T.L. Saaty
• O.R. is applied decision theory. It uses any scientific, mathematical or
logical means to attempt to cope with the problems that confront the
executive, when he tries to achieve a thorough-going rationality in dealing
with his decision problems. -D.W. Miller and M.K. Starr
• O.R. is a scientific approach to problems solving for executive
management. -H.M. Wagner
• O.R. is the application of scientific methods, techniques and tools to
problems involving the operations of a system so as to provide those in
control of the system with optimum solution to the problem. -Churchman,
Ackoff and Arnoff
• O.R. is scientific methodology-analytical, experimental, quantitative-which
by assessing the overall implication of various alternative courses of
action in a management system, provides an improved basis for
management decisions. –Pocock

1.4 Management Science

In 1967 Stafford Beer characterized the field of management science as "the

business use of operations research. However, in modern times the term
management science may also be used to refer to the separate fields of
organizational studies or corporate strategy. It uses various scientific research-
based principles, strategies, and analytical methods including mathematical
modeling, statistics and numerical algorithms to improve an organization's
ability to enact rational and meaningful management decisions by arriving at
optimal or near optimal solutions to complex decision problems. In short,
management sciences help businesses to achieve their goals using the
scientific methods of operational research.

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The terms Operations Research and Management Science tend to be used
synonymously. Operations research refers to scientific methods (statistical and
mathematical modeling, experiments, simulation, and optimization) applied to
the solution of complex business problems. Operations research is about
deriving optimal solutions to maximize sales or profits and/or to minimize costs,
losses, or risks
The management scientist's mandate is to use rational, systematic, science-
based techniques to inform and improve decisions of all kinds. Management
science is concerned with developing and applying models and concepts that
may prove useful in helping to illuminate management issues and solve
managerial problems, as well as designing and developing new and better
models of organizational excellence. The application of these models within the
corporate sector became known as Management science.

Table 1.1: Brief Time Line for History of OR

Year Development taken place for and by

1600’s Expected Values (Blaise Pascal); Newton’s Method for finding a
minimum of a function
(Isaac Newton)
1700’s Bayes Rule (Thomas Bayes); Least Squares (Carl F. Gauss)
1826 Solution of linear equations (Carl F. Gauss)
1890 Scientific Management (Frederick W. Taylor- known as the father of
Scientific
Management – always looking for the “one best way”)
1900 Gantt Charts (Henry Gantt, Frederick W. Taylor)
1902 Solution of inequality systems (J. Farkas)
1936 The term “operational research” first used by British military
applications
1939 Optimality condition for constrained problems (W. Karush)
1941 Transportation Problem (F. L. Hitchcock)
1942 UK & US Navy and Air Force start OR groups
1944 Utility Theory (John von Neumann, Oskar Morgenstern)

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 1944 Exponential Smoothing (R. Brown)
1946 Methods of Operations of Operations Research OEG Report (Philip M.
Morse & G. E.
Kimball) – classified until 1951
1947 Linear programming model (Simplex method) (George B. Dantzig)
1947 Theory of Games & Economic Behavior (von Neumann & Morgenstern)
1948 First course in OR at MIT
1949 Monte Carlo simulation (S. M. Ulam, J. von Neumann)
1950 Shortest-path problem
1950 First OR journal: Operations Research Quarterly (UK) – OR in US in 1952
1951 Nonlinear Programming (optimality condition for constrained problems)
(H. Kuhn & A.
Tucker)
1960 Decision Trees

1.5. Features of Operations Research

From the various definitions of Operations Research, the important

features or characteristics of Operations Research can be listed as
below:

1. System Orientation. The main aim of the system approach is to trace for
each proposal all significant and indirect effects on all sub-system on a
system and to evaluate each action in terms of effects for the system as a
whole. The interrelationship and interaction of each sub-system can be handled
with the help of mathematical/analytical models of OR to obtain acceptable
solution.

OR study the situation or problem as a whole. This means that any action or
activity has same effect on the other part of the organization. The optimum
result of one part of a system may not be the optimum for some other part.
Therefore to evaluate any decision, one must identify all possible interactions
and determine their impact on the organization as a whole.

2. Inter-disciplinary Team Approach. Basically the industrial problems are of complex

nature and therefore require a team effort to handle it. This team comprises of

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 scientist/mathematician and technocrats. Who jointly use the OR tools to obtain a
optimal solution of the problem. The tries to analyze the cause and effect relationship
between various parameters of the problem and evaluates the outcome of various
alternative strategies.

Operations Research is inter-disciplinary in nature, and is performed by a team

of scientists whose individual members have been drawn from different
scientific and engineering disciplines. No single individual can have a thorough
knowledge of all aspects of the undertaking. Managerial problems have
economic, physical, psychological, biological, sociological and engineering
aspects. This requires a number of people which expertise in the areas of
mathematics, statistics, engineering, economics, management, computer
science and so on. Another reason for the existence of Operations Research
teams is that knowledge is increasing at a very fast rate. No single person can
collect all the useful scientific information from all managerial areas. So,
Operations Research team brings the latest scientific know how to analyze the
problem and helps in providing better results.

3. Scientific Approach. OR applies scientific methods, techniques and tools for

the purpose of analysis and solution of the complex problems. In this approach
there is no place for guess work and the person bias of the decision maker.
Operations Research uses the scientific methods to solve the problems.

Most of the science studies such as Chemistry, Physics, Biology etc. can be
carried out in the laboratories, without much interference from the outside
world. But same is not true in the systems under study by OR teams. For
example, no company can risk its failure in order to conduct a successful
experiment.

So, Operations Research is a formalized process of reasoning. Under OR the

problem is to be analyzed and defined clearly. Observations are made under
different conditions to study the behavior of the system. On the basis of these
observations, a hypothesis describing how the various factors involved are
believed to interact and the best solution to the problem is formulated. To test
the hypothesis experiment is designed and executed. Observations are made
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 and measurements are recorded. Finally results of the experiments are
studied and the hypothesis is accepted or rejected. So, Operations Research is
the use of scientific method to solve the problem under study.

4. Decision making. Every industrial organization faces multi facet problems

to identify best possible solution to their problems. OR aims to help the
executives to obtain optimal solution with the use of OR techniques. It also
helps the decision maker to improve his creative and judicious capabilities,
analyze and understand the problem situation leading to better control,
better co-ordination, better systems and finally better decisions. Operations
Research increases the effectiveness of a management decisions.
Management is most of the time making decisions. It is thus a decision
science which helps management to make better decisions. So, the major
premise of OR is the decision-making, irrespective of the situation involved.
So decision making is a systematic process and consists of the following
steps.

(a) Diagnose the problem, and establish the criterion. The criterion may be
the maximization of profits, utility and minimization of cost etc.

(b) Select the alternative course of action for consideration.

(c) Determine the model to be used and values of the parameters.

(d) Evaluation of various alternatives.
(e) Selecting the best and the optimum alternative.
OR is thus a decision science which helps management to make better
decisions.

5. Use of computer. The models of OR need lot of computation and therefore,

the use of computers becomes necessary. With the use of computers it is
possible to handle complex problems requiring large amount of calculations.
The objective of the operations research models is to attempt and to locate
best or optimal solution under the specified conditions. For the above
purpose, it is necessary that a measure of effectiveness has to be defined
which must be based on the goals of the organization. These measures can

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 be used to compare the alternative courses of action taken during the
analysis.
Operations research (OR) often requires a computer to solve the complex
mathematical model or to perform a large number of computations that are
involved. Use of a digital computer has become an integral part of the
operations research approach to decision making.
6. Objectives. Operations research always attempts to find the best and optimal
solution to the problem. For this purpose objectives of the organization are
defined and analyzed. These objectives are then used as the basis to compare
the alternative courses of action.
7. Quantitative solution. Operations research provides the managers with a
quantitative basis for decision-making. OR attempts to provide a systematic
and rational approach for quantitative solutions to the various managerial
problems.

8. Human factors. In deriving quantitative solution we do not consider human

factors, which doubtlessly play a great role in the problems. So study of the OR
is incomplete without a study of human factors.

1.6. Decision Making and Relevance of OR/MS

The role of quantitative analysis in the managerial decision making process is
perhaps best understood by considering the decision making process. Note
that the process is initiated by the appearance of a problem. The manager is
responsible for making a decision or selecting a course of action will probably
make an analysis of the problem, which includes a statement of the specific
goals or objectives, an identification of constraints, an evaluation of
alternative decisions, and a selection of the apparent "best" decision or
solution for the problem.

The analysis process employed by manager may take two basic forms:
qualitative and quantitative.

Qualitative Approach to Decision Making

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o The qualitative analysis is based on primarily upon the manager's judgment
and experience.
o The type of analysis includes the manager's intuitive "feel" for the problem and
is more of an art than a science.
o If the manager has had experience with similar problems, or if the problem is
relatively simple, heavy emphasis may be placed up on qualitative analysis.
o However, if the manager has had little experience with similar problems, or if
the problem is sufficiently important and complex, then quantitative analysis of
the problem can be a very important consideration in the managers’ final
decision.
o It is considered when the decision maker doesn’t have data about the problem.
o The skills in qualitative approach to problem solving are inherent in the
decision maker.
o It is used when the problem under consideration doesn't involve too many
variables or it is not complex, it is not new or familiar, when the cost of the
decision is not heavy and when immediate action is required.

Quantitative Approach to Problem Solving

o In this approach, an analyst will concentrate on the quantitative factors or
data associated with the problem and develops mathematical expressions
that describe the objectives, constraints and relationships that exist in the
problem.
o It is supported by the available data.
o It uses mathematical models.
o The skills in quantitative approach is acquired by studying the mathematical
tools or OR techniques.
o It is used under the following situations
o When the problem involves too many variables
o When the problem is new (not familiar)
o When the decision is very important involving a great amount of money
o When the problem is repetitive (unique)

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 o This approach is believed to reduce time and effort to make decisions.

Both the qualitative and the quantitative analysis of a problem provide

important information for the manager or decision maker. In many cases, a
manager will draw upon both sources and, through a comparison and
evaluation of the information, make a final decision.

While skills in the qualitative approach are inherent in the manager and
usually increase with experience, the skills of the quantitative approach can
be learned only by studying the assumptions and methods of management
science. A manager can increase decision making effectiveness by learning
more about quantitative methodology and by better understanding its
contribution to the decision making process. The manager who is
knowledgeable in quantitative decision making procedures is in a much better
position to compare and evaluate the qualitative and quantitative sources of
recommendations and ultimately combine the two sources in order to make
the best possible decision.

1.7. Types of Operations Research Models

A Model is a representation of the reality. Most of our thinking of operations

research in business take place in the context of models. A model is a general
term denoting any idealized representation or abstraction of a real life system
or situation. The objective of the model is not to identify all aspects of the
situation but to identify significant factors and their inter-relationship. A model
can be helpful in decision-making as it provides a simplified description of
complexities and uncertainties of a problem in hand in logical structure. A
major advantage of modeling is that it permits the decision maker to examine
the behavior of a system without interfering with as going operations.

A broad classification of operations research models is

given below:

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(a) Physical Models. These models include all forms of diagrams, drawings
graphs, and charts. Most of which are designed to deal with specific types of
problems. By presenting significant factors and inter-relationships in pictorial
term, physical models are able to indicate problem in a manner that facilitates
analysis. For example, a BAR chart can be used effectively as a summary
presentation of a company's monthly production forecast. These models are
easy to observe, build and describe, but cannot be manipulated and used for
prediction. There are two types of physical models - Iconic models and Analog
models.

(i) Iconic Models. An icon is an image or likeness of an object or system it

represents. An iconic model the least abstract physical replica of a system is
usually based on a smaller scale than the original. The range of management
problem areas where these models can be used effectively is extremely
narrow. However, it consists largely of these fields that are oriented towards
engineering and science. For instance Indian Airlines as well as Air India use
flight simulators to train their pilots and members of the crew. These flight
simulators are Iconic models of different types of aircraft and the trainee
really feels as if he is piloting the actual aircraft. Thus an iconic model has all
the operating features of the real system. These models can simulate the
actual performance of a product thereby availing the tremendous expense of
designing full scale experimental models.

(ii) Analog models. Analog models are closely associated with iconic models.
However they are not replicas of problem situations. Rather, they are small
physical systems that have similar characteristics and work like an object or
system it represents e.g. children's toys model of rail, roads etc., whereas the
actual objects are complex and might not allow direct handing or manipulation.
The objectives of constructing these models is to understand by analogy.

(b) Mathematical Model or Symbolic Model. Symbolic model employ a set of

mathematical symbols to represent the decision variable of the system under
study. These variables are related together by mathematical equations. In

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 other words equations are mathematical model commonly used in operations
research. Simple demand curve in economics is a symbolic model predicting
buyer's behaviour at different price levels. Similarly profit and loss statement
and budget for next year are both symbolic models. Profit and loss account is
just reproduced on one sheet of paper, and it summarizes the result of a year
but does not recreates every action, which took place during the year.
Following are the examples of mathematical models which have been
applied to business and industry.

 Allocation model — Sequencing model

 Routing model — Competitive model
 Queuing model — Dynamic Programming model
 Simulation — Decision theory
 Replacement model — Goal programming
 Markov analysis.

(c) By Nature of Environment.

(i) Deterministic Models. In this model everything is defined and the results
are certain. Certainty is the state of nature assumed in these models. For any
given input variable there shall be same output variable, e.g. in EOQ models,
one can easily determine economic lot size, one can apply sensitivity analysis,
where change of one variable shall cause certain change in the outcome.

(ii) Probabilistic Model. In cases of risk and uncertainty, the input and output
variables take the form of probability distribution. In fact such models are semi-
closed model and reveal the probability of occurrence of an event. In fact they
reveal the complexity of the real world and uncertainty prevailing in it, e.g. in a
game theory where saddle points or equilibrium points of the player does not
exist, we apply probabilistic model. Similar kind of model can be applied in
inventory control.

(d) By the Extent of Generality

(i) General Models. General model is one which does not apply one situation
only rather it has got general applications. For example linear programming

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 model is known as a general model since it can be used for product mix,
production scheduling, marketing, transportation, assignment problems.

(ii) Specific Model. Specific model is applicable under specific condition only,
e.g. sales response curve, or equation as a function of advertising is
applicable in the marketing function alone.

1.8. Principles of Operations Research Modeling

The following principles must be kept in mind while formulating models.

1. Principle of Simplicity. Mathematicians are of the habit of making complex

models whereas one should go in for simple model if it is sufficient. It means
model must be kept simple & understandable.

2. Understand the problem, only then apply the appropriate technique. If

we do not understand the problem properly, we can not apply the appropriate
technique of Operation Research. For example, in case of allocation of scarce
resources, the technique of LPP may be applied.

For queuing problem we must apply queuing theory. So, 50% of the problem is
solved, if it is properly understood and the required technique is
recommended.

3. Model must be validated before implementation, otherwise it can be

implemented in phases for validation e.g. Two-Phase Simplex Method.

4. A model can analyze the data but it can not be better than the information that
goes into it. It means data can be interpreted but can not be generated.

5. Models are for the decision makers. Operations Research models are to aid
the decision maker but not to replace them. The decision is to be taken by the
management.

6. A model should never be taken too literally. It means it does not provide
unique answer. In sensitivity analyses, or under simulation, we can find still better
results.

7. Flexible Model: Model should be flexible enough to incorporate changes. It

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 should give range where one solution is valid as in case of sensitivity analyses.

8. Seek Cooperation from Operations Research Experts. As we know, the

tested results of the model are implemented. It is to be done by Operation
Research Experts. Hence it must be according to the expectation of those who
are to execute so that cooperation of Operation Research Experts may be
sought to implement the models.

9. Use of Computers. Use of computers is made wherever possible in case of

implementation of models. OR techniques are usually complex and only
computers can solve them. Hence, steps should be clearly stated to enable the
OR researcher to develop computer software for future implementation of the
techniques. Without computers, perhaps the OR experts will be like illiterate
person in the years to come.

1.9 TECHNIQUES OF OR USED IN MANAGEMENT SCIENCE

Some of the fields that are considered within Management Science include:
• Decision analysis
• Engineering
• Forecasting
• Game theory
• Industrial engineering
• Mathematical modeling
• Optimization
• Probability and statistics
• Project management
• Simulation
• Social network
• Transportation forecasting models
• Supply chain management

1.10. APPLICATIONS OF MANAGEMENT SCIENCE

The application of OR as management science are as follows
• Scheduling of activities which includes manpower and resources

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 • Selection of right place for new facilities such as a warehouse, factory or
fire station
• Identifying future development paths for parts
• Establishing the information system and needs analysis with appropriate
utility mechanism, and
• Developing strategies for enriching information systems
1.11 THE METHODOLOGY / PHASES OF OPERATION RESEARCH STUDY
When OR is used to solve a problem of an organization, the following
seven step procedure should be followed:
Step 1. Formulate the Problem/ Observe the problem environment
OR analyst first defines the organization's problem. Defining the problem
includes specifying the organization's objectives and the parts of the
organization (or system) that must be studied before the problem can be
solved.
Step 2. Observe the System/ Define and analyze the problem
Next, the analyst collects data to estimate the values of parameters that
affect the organization's problem. These estimates are used to develop (in
Step 3) and evaluate (in Step 4) a mathematical model of the
organization's problem.
Step 3. Formulate a Mathematical Model of the Problem/ Develop a
model
The analyst, then, develops a mathematical model (in other words an
idealized representation) of the problem. In this class, we describe many
mathematical techniques that can be used to model systems.
Step 4. Verify the Model and Use the Model for Prediction/ Collecting
data required by the model/Select appropriate data input
The analyst now tries to determine if the mathematical model developed in Step
3 is an accurate representation of reality. To determine how well the model fits
reality, one determines how valid the model is for the current situation.
Step 5. Select a Suitable Alternative/ Coining up with a solution
Given a model and a set of alternatives, the analyst chooses the alternative (if
there is one) that best meets the organization's objectives. Sometimes the set

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of alternatives is subject to certain restrictions and constraints. In many
situations, the best alternative may be impossible or too costly to determine.
Step 6. Present the Results and Conclusions of the Study/ Qualifying
the models and solution
In this step, the analyst presents the model and the recommendations from
Step 5 to the decision-making individual or group. In some situations, one might
present several alternatives and let the organization choose the decision
maker(s) choose the one that best meets her/his/their needs.

After presenting the results of the OR study to the decision maker(s), the
analyst may find that s/he does not (or they do not) approve of the
recommendations. This may result from incorrect definition of the problem on
hand or from failure to involve decision maker(s) from the start of the project. In
this case, the analyst should return to Step 1, 2, or 3.
Step 7. Implement and Evaluate Recommendation/ Implement the
solution
If the decision maker(s) has accepted the study, the analyst aids in
implementing the recommendations. The system must be constantly monitored
(and updated dynamically as the environment changes) to ensure that the
recommendations are enabling decision maker(s) to meet her/his/their
objectives.
The summary of steps have been depicted in Fig1.1 below

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 Fig.1.1: Flow chart of Methodology of OR

1.12 MATHEMATICAL MODELS OF OR: (Basic facts about OR as a concept)

"OR is the representation of real-world systems by mathematical models

together with the use of quantitative methods (algorithms) for solving such
models, with a view to optimizing." We can also define a mathematical model
as consisting of:
• Decision variables, which are the unknowns to be determined by the
solution to the model.
• Constraints to represent the physical limitations of the system
• An objective function
• An optimal solution to the model is the identification of a set of variable
values which are feasible (satisfy all the constraints) and which lead to the
optimal value of the objective function.
• In general terms we can regard OR as being the application of scientific
methods / thinking to decision making.

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 • Underlying OR is the philosophy that: decisions have to be made; and
using a quantitative (explicit, articulated) approach will lead to better
decisions than using non-quantitative (implicit, unarticulated) approaches.
• Indeed it can be argued that although OR is imperfect it offers the best
available approach to making a particular decision in many instances
(which is not to say that using OR will produce the right decision).

1.13 SCOPE AND APPLCATION OF OPERATIONS RESEARCH

As presented in the earlier paragraphs, the scope of OR is not only confined to

any specific agency like defense services but also today, it is widely used in all
industrial organizations. It can be used to find the best solution to any problem
be it simple or complex. It is useful in every field of human activities, where
optimization of resources is required in the best way. Thus, it attempts to
resolve the conflicts of interest among the components of organization in a way
that is best for the organization as a whole. The main fields where OR is
extensively used are given below, however, this list is not exhaustive but only
illustrative.

i. National Planning and Budgeting

OR is used for the preparation of Five Year Plans, annual budgets, forecasting
of income and expenditure, scheduling of major projects of national importance,
estimation of GNP, GDP, population, employment and generation of agriculture
yields etc.

ii. Defense Services

Basically formulation of OR started from USA army, so it has wide application in
the areas such as: development of new technology, optimization of cost and
time, tender evaluation, setting and layouts of defense projects, assessment of
“Threat analysis”, strategy of battle, effective maintenance and replacement of
equipment, inventory control, transportation and supply depots etc.

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iii. Industrial Establishment and Private Sector Units
OR can be effectively used in plant location and setting finance planning,
product and process planning, facility planning and construction, production
planning and control, purchasing, maintenance management and personnel
management etc. to name a few.

iv. R & D and Engineering

Research and development being the heart of technological growth, OR has
wide scope for and can be applied in technology forecasting and evaluation,
technology and project management, preparation of tender and negotiation,
value engineering, work/method study and so on.

v. Business Management and Competition

OR can help in taking business decisions under risk and uncertainty, capital
investment and returns, business strategy formation, optimum advertisement
outlay, optimum sales force and their distribution, market survey and analysis
and market research techniques etc.

vi. Agriculture and Irrigation

In the area of agriculture and irrigation also OR can be useful for project
management, construction of major dams at minimum cost, optimum allocation
of supply and collection points for fertilizer/seeds and agriculture outputs and
optimum mix of fertilizers for better yield.

vii. Education and Training

OR can be used for obtaining optimum number of schools with their locations,
optimum mix of students/teacher student ratio, optimum financial outlay and
other relevant information in training of graduates to meet out the national
requirements.

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 viii. Transportation

Transportation models of OR can be applied to real life problems to forecast

public transport requirements, optimum routing, forecasting of income and
expenses, project management for railways, railway network distribution, etc. In
the same way it can be useful in the field of communication.

ix. Home Management and Budgeting

OR can be effectively used for control of expenses to maximize savings, time

management, work study methods for all related works.

1.14. APPLICATION OF VARIOUS OPERATION RESEARCH TECHNIQUES

Operation Research, in today’s context, is comprehensively used in industry,

business, government, military and agriculture operations. The significant
techniques of OR which has been successfully applied to decision making are
the following:

• Linear Programming. Linear Programming (LP) is a mathematical

technique. It is the process of taking various linear inequalities relating to
some situation, and finding the "best" value obtainable under those
conditions. In "real life", linear programming is part of a very important
area of mathematics called "optimization techniques”. It takes all kinds of
factors into consideration to determine the best combination of a
purchasing or manufacturing process, to either maximize profit, minimize
cost or some other goal. Therefore, LP is a very important part of any
business.

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• Transportation Problem. The transportation problem is a special type
of linear programming problem, where the objective is to minimize the
cost of distributing a product from a number of sources to a number of
destinations. Transportation helps shape an area’s economic health and
quality of life.
• Assignment Problem. In a few words, when the problem involves the
allocation of n different facilities to n different tasks, it is often termed as
an assignment problem. Assignment deals with the question how to
assign n object to m other object in an injective fashion in the best
possible way. An assignment problem is specified by its two component:
the assignment which represent the underlying combinatorial structure
and the objective function to be optimized which model “the best possible
way”
• Queuing Theory. The queuing problem is identified by the presence of a
group of customers who arrive randomly to receive some service. Queuing
theory deals with problems which involve queuing (or waiting). This theory
helps in calculating the expected number of people in the queue,
expected waiting time in the queue, expected idle time for the server, etc.

• Game Theory. : Game theory is the formal study of decision-making

where several players must make choices that potentially affect the
interests of the other players. It is used for decision making under
conflicting situations where there are one or more opponents (i.e.,
players). In the game theory, we consider two or more persons with
different objectives, each of whose actions influence the outcomes of the
game. Game theory is a mathematical method for analyzing calculated
circumstances, such as in games, where a person’s success is based upon
the choices of others.

• Inventory Control Models. The literal meaning of inventory is “idle but

usable resources. Thus, this model is concerned with the acquisition,

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 storage, handling of inventories so as to ensure the availability of material
whenever needed and minimize wastage and losses.
• Goal Programming. It is a powerful tool to tackle multiple and
incompatible goals of an enterprise. Goal programming models are very
similar to linear programming models but whereas linear programs have
one objective goal programs can have several objectives.
• Simulation. It is a technique that involves setting up a model of real
situation and then performing experiments. Simulation is used where it is
very risky, cumbersome, or time consuming to conduct real experiment to
know more about a situation.
• Nonlinear Programming. These methods may be used when either the
objective function or some of the constraints are not linear in nature. Non-
Linearity may be introduced by factors such as discount on price of
purchase of large quantities.

• Integer Programming. These methods may be used when one or more

of the variables can take only integral values. The Integer Programming
problem (IP) is that of deciding whether there exists an integer solution to a
given set of m rational inequalities on n variables. E.g. the number of trucks in
a fleet, the number of generators in a power house, etc.

• Dynamic Programming. Dynamic programming is a methodology useful

for solving problems that involve taking decisions over several stages in a
sequence. One thing common to all problems in this category is that
current decisions influence both present & future periods.
• Sequencing Theory. It is related to Waiting Line Theory. It is applicable
when the facilities are fixed, but the order of servicing may be controlled.
The scheduling of service or sequencing of jobs is done to minimize the
relevant costs.
• Replacement Models. These models are concerned with the problem of
replacement of machines, individuals, capital assets, etc. due to their
deteriorating efficiency, failure, or breakdown.

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 • Network Scheduling-PERT and CPM. Network scheduling is a
technique used for planning, scheduling and monitoring large projects.
Such large projects are very common in the field of construction,
maintenance, computer system installation, research and development
design, etc.
• Information Theory. It is an analytical process transferred from the
electrical communications field to operations research. It seeks to
evaluate the effectiveness of information flow within a given system and
helps in improving the communication flow.
1.15. ROLE OF COMPUTERS IN OPERATION RESEARCH

As has been presented earlier that OR tries to find optimal solutions with
multiple variables. In most of the cases a large number of iterations are
required to reach optimal solution. Manually this task becomes time consuming
and single mistake at any point can generate erroneous results. With the
development of computers and P.C’s this has reduced manual efforts
considerably and solutions can be obtained in a short period of time and
possibility of errors is also minimized considerably. Storage of information/data
is easy and faster with the use of computers because of its memory. The
computational time requirements are also less and no paper work is required.
Transfer of data from one place to another is also possible through
net/computers. The reliability of solutions is also high. For the large size
problems, where simulation was to be used, it was not possible to carry it out
manually, which is now possible with the use of computers. To handle linear
programming problem with multiple variables use to be cumbersome and time
taking; can be done at wink of moment without any manual efforts.

Some of the widely used OR software’s have been given below:

SAS/OR software: SAS/OR software provides a powerful array of optimization,

simulation and project scheduling techniques to identify the actions that will
produce the best results, while operating within resource limitations and tight
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restrictions. It enables organizations to consider more alternative actions and
scenarios, and determine the best allocation of resources and the best plans for
accomplishing goals.

QSB+ software: QSB+ stands for Quantitative System for Business Plus. It is a
software package developed by Chang and Sullivan for problem solving
algorithms for OR as well as modules of statistics, non –linearity programming
and financial analysis.

LINDO: It is a very popular OR software package and is used. LINDO is the

abbreviated form of Linear, Interactive, and Discrete Optimizer. It is an
interactive linear, quadratic, and integer programming system useful to a wide
range of users. LINDO can be used:

• to solve interactive linear, quadratic, general integer and zero-one integer

programming programs up to 500 rows and 1,000 columns
• To perform sensitivity analysis and parametric programming.

CPLEX: CPLEX is optimization software with such features as infeasible problem

analysis, automatic and dynamic algorithm parameter control, input/output
options and post solution information and analysis for objective function value,
solution variable and slack values, sensitivity ranges, basic variables and
constraints, solution infeasibilities, iteration/node count, solution time, and
process data information.

CPLEX solves linear and convex quadratic programs by simplex or interior-point

methods, and linear and convex quadratic integer programs by a branch-and-
bound procedure

GUROBI: Gurobi solves linear programs by simplex and interior-point methods,

and linear mixed integer programs by a branch-and-bound procedure. Support
for convex quadratic programs, both continuous and mixed-integer, is planned
for version 4.0 to be released in November 2010.

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 LIPSOL: LIPSOL is a Mat lab-based package for solving linear programs by
interior-Point methods

1.16 Where Does OR’s Future Lie?

Today there are 28 countries in the European federation of OR Societies (EURO)

and 45 in the International Federation (IFORS). The application reality is a little
more complex and a little less dramatic. The model of OR as an activity
conducted for executives by internal OR groups with a good deal of choice as to
which issue to tackle. A new model of highly specific investigations and
developments conducted by external specialist firms and management
consultancies is alive and flourishing.

This is not an unequivocally happy outcome. There was, and still is, great merit
in the sort of grounded, detailed investigation that is the hallmark of good
traditional OR. The technically efficient, goal oriented, socially aware OR
consultants of tomorrow may get things done and satisfy their clients but they
may miss the potential implications or the valuable insight as they rush to the
next challenge.

1.17. Operations Research & Management Decision Making

We know that operations research increases the creative capabilities of a

decision maker. Operations Research increases the effectiveness of a
management decisions. Management is most of the time making decisions. It is
thus a decision science, which helps management to make better decisions. In
these days, business problems are so complex that it is almost impossible for
the human being to comprehend and assimilate all the important factors.
Operations Research techniques can be very useful in such situations. It is this
scientific quantification used in Operations Research, which helps management
to make better decisions. Thus in Operations Research, the essential features
of decisions namely; objectives, alternatives, and influencing factors are

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 expressed in terms of scientific quantifications or mathematical equations. This
gives rise to certain mathematical relations, termed as a mathematical model.

Thus operations research may be regarded as a tool to supplement the feeling

of the decision maker. For example in distribution areas Operations Research
suggest the best locations for agencies, warehouses as well as the most
economical kind of transportation; in marketing areas Operations Research may
help in indicating the most profitable type, use, and size of advertising
campaigns, in regard to available financial limits. Operations Research models
frequently yield actions that do improve an intuitive decision-making.
Sometimes Operations Research has been instrumental in bringing order out of
Chaos. For example, an Operations Research oriented planning model becomes
a vehicle for coordinating marketing decisions, within the limitations imposed
on manufacturing capabilities.

Thus in Operations Research, the essential features of decisions, namely,

objectives, alternatives, and influencing factors are expressed in terms of
scientific qualifications or mathematical equations. For different situations,
different models are used and this process is continuing since World War II.
Operations Research based planning model helps the marketing executive in
taking marketing decisions relating to distribution points, choice of customer
etc. subject to the limitations imposed on manufacturing capabilities.
Operations Research techniques also help in ascertaining the best locations for
factories and warehouses, project scheduling as well as most economical
means of transportation. Recently Operations Research has exerted
successfully many different areas of research for military, Government, service
organizations and industry. In brief, Operations Research study approach in
business decisions leads to better control, better coordination, and better
system and at the end better decision.

Advantages of Operation Research

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 The significant advantages of OR are enumerated below:

• OR will provide a tool for scientific analysis.

• It provides solution for various business problems.
• It enables proper deployment of resources.
• This helps in minimizing waiting and servicing costs.
• Management decides with the help of OR when to buy and how much to
buy?
• Optimum strategy is chosen.
• Renders great aid in optimum resource allocation.
• Makes possible the process of decision-making.
• Management can know the reactions of the integrated business systems.
• Prepares future managers.

Limitations of Operations Research

OR has some limitations. However, the limitations are related to the problem of
model building and the time and money factors involved in application rather
than its practical utility. Some of them are as follows:
• Magnitude of Computation. The models of OR strive to find out optimal
solutions taking into account all the factors. These factors may be huge
and state them in quantity and establish relationships among the factors
require ample calculations which can be effectively solved by computers.
• Non-Quantifiable Factors. OR provides solution only when all elements
related to a problem can be quantified. All relevant variables do not lend
themselves to quantification. Factors which cannot be quantified find no
place in OR study.
• Distance between User and Analyst (Gap between Manager and
Operations Researcher). OR being specialist’s job requires a
mathematician or statistician, who might not be aware of the business
problems. Similarly, a manager fails to understand the complex working of
OR. Thus there is a gap between the User and Analyst.

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 • Time and Money Costs. OR models are a costly proposition as they
require time and money for scientific application. The computational time
increases depending upon the size of the problem and accuracy of results
desired.
• Implementation. Implementation of any decision is a delicate task. It
must take into account the complexities of human relations and behavior.
Sometimes, resistance is offered due to psychological factors which may
not have any bearing on the problem as well as its solution.
• Difficult to Balance the Requirement: It is often difficult to balance the
requirement of reality and those of simplicity.
• Poor and/or Inaccurate Data: The quality of data collection may be
poor and/or inaccurate.
• Lack of Suitable Solution Techniques: In many cases, the solution of
Operations Research problem is restricted by the lack of suitable solution
techniques. As example, the derived solution may be sub-optimal i.e. the
boundaries of the problem may be open.
• Conflict: An Operations Research model is static but the solution it
imitates is dynamics. Conflict between conclusion reached by the
Operations Research analyst and the opinion of time managers as to the
best course of action.

• Selection of Technique: Operations research techniques are very useful

but they cannot be used indiscriminately. Choice of technique depends
upon the nature of problem, operating conditions, assumptions,
objectives, etc. Thus, identification and use of an appropriate technique is
essential.

• Not a Substitute of Management: Operations research only provides

the tools and cannot be a substitute of management. It only examines the
results of alternative courses of action and final decision is made by
management within its authority and judgment.

• Sub-optimization: Sub-optimization is deciding in respect of a relatively

narrow aspect of the whole business situation or optimization of a
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 subsection of the whole. Functional heads some times, without taking care
of wider implications, sub-optimize their functions. This may cause loss in
that part of the organization which is left out of the exercise and as such
should be avoided.

1.18. Problem in Model Formulation in a Nut Shell

In the very first phase of O.R.-the problem formulation phase-a number of

pitfalls can and do arise. It is necessary that the right problem be selected and
it must be completely and accurately defined. Is the right problem being
solved? Is the scope considered wide and proper? Will it result in optimization
or only sub-optimization? Will the solution properly reflect the objectives as well
as the imposed constraints? Are properly effectiveness measures being used?
This phase of problem formulation is perhaps the most important and toughest
part of Operations Research study. Secondly, data collection may also consume
a very large portion of time and money spent on Operations Research study.

Thirdly, the whole study by operations analyst is based on his observations in

the past. Strictly speaking, these observations can only be related to the laws
that operated in the past, as there is no evidence that the laws will continue to
operate in future also. If the laws are applied to the future, it clearly amounts to
extrapolation in time. Fourthly, the operation researcher, while making
observations, may affect the behaviour of the system he is studying. Moreover,
however comprehensive his experiments maybe, his observations can never be
more than a sample of the whole. These difficulties present special hazards to
operation researcher. His aim is to find out what happens in a working
organization. He can get the information in two ways: by direct observation or
from the previous records, the behaviour of an organization depends upon the
activities of the persons in it and the very fact that they are being observed is
bound to affect their behaviour. On the other hand, accuracy of previous
records is always doubtful and they seldom provide the complete information in
all the points sought.

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 Perhaps the greatest difficulty in OR, however, is created by the time factor.
The managers have to make decisions one way or the other, and a fairly good
solution to the problems at the right time may be much more useful than the
perfect solution too late. Further, the cost involved is also an important factor.
Sometimes, some simple application of OR may yield a good solution quickly
and it may be unwise to spend a lot of money and effort to produce a slightly
better solution much later.

Other pitfalls in problem solving include

i. Warping the problem to fit a standard model, tool or technique

ii. Failure to test the model and solution before implementation
iii. Failure to establish proper controls.
It is the responsibility of Operations Research scientist to translate his highly
specialized and technical thoughts, ideas and concepts into simple operation
procedures capable of being easily understood by the management and
workers alike. He must also ascertain that the new proposals are properly
implemented. But for the proper implementation, the whole OR study becomes
useless.

Lastly, what may appear to be a pitfall is fact that OR study may raise more
questions than it answers. However, this may ultimately result in more deep
insight into the system yield further benefits and improvements.

CONCLUSION

The OR profession was for a time the center of managerial attention. It had its
golden era. It is now a small professional grouping, which has found its niche.
Few people realize that OR lies behind many every day events, providing the
algorithms for airline reservation systems, checking the credit worthiness of
loan applicants, and calculating the replenishment quantities required by
supermarkets.

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Despite its important role in today’s society OR lacks self-importance, it
includes many, diverse interests and has demonstrated a certain capacity for
survival.

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