Chapter 1.

Management Science
• Management science(operation research) is the
application of a scientific approach to
solving management problems in order to
help managers make better decisions
• Management science encompasses a number of
mathematically oriented techniques that have
either been developed within the field of
management science or been adapted from
other disciplines, such as the natural sciences,
mathematics, statistics, and engineering
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 Contd.
• Management science is a scientific approach to
solving management problems
• Management science is a recognized and
established discipline in business. The
applications of management science techniques
are widespread, and they have been frequently
credited with increasing the efficiency and
productivity of business firms

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 Contd.
• Management science (also referred to as
operations research, quantitative methods,
quantitative analysis, and decision
sciences) is part of the fundamental
curriculum of most programs in business

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 The Management Science
Approach to Problem Solving
• Management science encompasses a logical,
systematic approach to problem solving, which
closely parallels what is known as the
scientific method for attacking problems
• This approach, follows a generally recognized and
ordered series of steps: (1) observation, (2)
definition of the problem, (3) model
construction, (4) model solution, and (5)
implementation of solution results

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 Contd.
• Observation
• The first step in the management science process
is the identification of a problem that exists in the
system (organization)
• The system must be continuously and closely
observed so that problems can be identified as
soon as they occur or are anticipated
• Problems are not always the result of a crisis that
must be reacted to but, instead, frequently involve
an anticipatory or planning situation
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 Definition of the Problem
• Once it has been determined that a problem exists,
the problem must be clearly and concisely
defined.
• Improperly defining a problem can easily result in
no solution or an inappropriate solution.
Therefore, the limits of the problem and the degree
to which it pervades other units of the organization
must be included in the problem definition.
• Because the existence of a problem implies that
the objectives of the firm are not being met in
some way, the goals (or objectives) of the
organization must also be clearly defined
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 Model Construction
• A management science model is an
abstract representation of an existing
problem situation. It can be in the form of a
graph or chart, but most frequently a
management science model consists of a
set of mathematical relationships.
These mathematical relationships are
made up of numbers and symbols.

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 Application
• Management science techniques can be
applied to solve problems in different
types of organizations, including services,
government, military, business and
industry, and health care

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 MSC/OR Solution methods
• The manual, mathematical solution
approach
• A computer solution is possible for each of
the modeling techniques.

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 Contd.
• Management science is more than just a
collection of techniques
• Management science also involves the
philosophy of approaching a problem in a
logical manner (i.e., a scientific approach). The
logical, consistent, and systematic approach to
problem solving can be as useful (and valuable)
as the knowledge of the mechanics of the
mathematical techniques themselves.

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 Contd.
• As an example, consider a business firm that sells a
product. The product costs $5 to produce and sells for
$20. A model that computes the total profit that will
accrue from the items sold is
• Z = $20x - 5x
• A variable is a symbol used to represent an item that can
take on any value.
•
In this equation x represents the number of units of the
product that are sold, and Z represents the total profit
that results from the sale of the product. The symbols x
and Z are variables. The term variable is used because
no set numeric value has been specified for these items

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 Contd.
• These two variables can be further
distinguished. Z is a dependent variable
because its value is dependent on the
number of units sold; x is an independent
variable because the number of units sold
is not dependent on anything else.

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 Contd.
• The parameter values are derived from data
(i.e., pieces of information) from the problem
environment )
• The equation as a whole is known as a
functional relationship (also called function and
relationship). The term is derived from the fact
that profit, Z, is a function of the number of units
sold, x, and the equation relates profit to units
sold.
• A model is a functional relationship that includes
variables, parameters, and equations.
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 Contd.
• The profit equation is an objective function
, and the resource equation is a constraint
• The manager's problem of determining
the number of units to produce –is known
as a decision variable

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 Model Solution

• A management science technique usually

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Pioneers in Management Science
• The field of management science itself can
trace its beginnings to military operations
research (OR) groups formed during
World War II in Great Britain circa 1939
• These OR groups typically consisted of a
team of about a dozen individuals from
different fields of science, mathematics,
and the military, brought together to find
solutions to military-related problems.

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 Contd.
• The successes achieved by the British OR
groups were observed by two Americans
working for the U.S. military
• who recommended that OR teams be
established in the U.S. branches of the
military. Subsequently, both the Air Force
and Navy created OR groups

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 Contd.
• After World War II the contributions of the OR
groups were considered so valuable that the
Army, Air Force, and Navy set up various
agencies to continue research of military
problems
• As the war ended and the mathematical models
and techniques that were kept secret during the
war began to be released, there was a natural
inclination to test their applicability to business
problems

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 Contd.
• Various consulting firms were established to
apply these techniques to industrial and
business problems, and courses in the use of
quantitative techniques for business
management began to surface in American
universities
• In the early 1950s the use of these quantitative
techniques to solve management problems
became known as management science, and
it was popularized by a book of that name by
Stafford Beer of Great Britain
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 contd.
• A management science solution can be
either a recommended decision or
information that helps a manager make
a decision.
• Implementation
• Implementation is the actual use of the
model once it has been developed or the
solution to the problem the model was
developed to solve problems
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 1.Model Building: Break-Even
Analysis /Profit Analysis
• The purpose of break-even analysis is to
determine the number of units of a product
(i.e., the volume) to sell or produce that
will equate total revenue with total cost
2.Sensitivity Analysis
• The study of changes on a management
science model is called sensitivity
analysis that is, seeing how sensitive the
model is to changes.
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 3. EOQ Model
• when inventory reaches a specific level,
referred to as the reorder point, a fixed
amount is ordered. The most widely used
and traditional means for determining how
much to order in a continuous system is
the economic order quantity (EOQ)
model, also referred to as the economic lot
size model.

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• The function of the EOQ model is to
determine the optimal order size that
minimizes total inventory costs. There
are several variations of the EOQ model,
depending on the assumptions made about
the inventory system
• Three EOQ model versions: the basic
EOQ model, the EOQ model with non
instantaneous receipt, and the EOQ model
with shortages.
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 4.Safety Stocks
• As a hedge against stockouts when
demand is uncertain, a safety (or buffer)
stock of inventory is frequently added to
the demand during lead time
• Determining Safety Stock By Using
Service Levels
• The service level is the probability that the
inventory available during the lead time
will meet demand.
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 Management Science Modeling
Techniques
• Classification of management science
techniques
– Linear Mathematical Programming Techniques:
– Linear programming model
– Graphic analysis
– Sensitivity analysis
– Transportation, transshipment and assignment
– Integer linear programming
– Goal programming

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 Probabilistic Techniques
• Probability and statistics
• Decision Analysis
• Queuing

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 Network techniques
• Network flow
• Project management (PERT/CPM)
• Other Techniques:
• Analytical hierarchy Process (AHP)
• Nonlinear programming
• Monte Carlo Simulation
• Forecasting inventory
• Game theory
• Markov analysis
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 Business Usage of Management
Science Techniques
• Not all management science techniques are
equally useful or equally used by business firms
and other organizations. Some techniques are
used quite frequently by business practitioners
and managers; others are used less often
• The most frequently used techniques are linear
and integer programming, simulation, network
analysis (including critical path method/project
evaluation and review technique [CPM/PERT]),
inventory control, decision analysis, and queuing
theory, as well as probability and statistics.
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 Contd.
• Historically management science models have
been applied to the solution of specific types
of problems; for example, a waiting line model
is used to analyze a specific waiting line system
at a store or bank
• However, the evolution of computer and
information technology has enabled the
development of expansive computer systems
that combine several management science
models and solution techniques in order to
address more complex, interrelated
organizational problems.

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 Management Science Models in
Decision Support Systems
• A decision support system (DSS) is a computer-
based system that helps decision makers address
complex problems that cut across different parts of
an organization and operations.
• A DSS is normally interactive, combining various
databases and different management science
models and solution techniques with a user
interface that enables the decision maker to ask
questions and receive answers. In its simplest form
any computer-based software program that
helps a decision maker make a decision can be
referred to as a DSS
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 Contd.

• A DSS can be primarily a data-oriented

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