INTRODUCTION TO OPERATION

RESEARCH
Exploring Operations Research –
A Quantitative Approach to Decision-Making,

Operations research approach helps in the comparison of all possible

alternatives (courses of action or acts) with respect to their potential
outcomes and then sensitivity analysis of the solution to changes or
errors in numerical values. However, this approach (or technique) is an
aid to the decision-makers’s judgement not a substitute for it.
OPERATION RESEARCH
TYBCS CS
• While attempting to solve a real-life problem, the decision-maker must
examine the given problem from both quantitative as well as qualitative
perspective.
Why quantitative approach:
The evaluation of each alternative can be extremely difficult or time
consuming for two reasons: First, the amount and complexity of
information that must be processed, and second the availability of large
number of alternative solutions. For these reasons, decision-makers
increasingly turn to quantitative factors and use computers to arrive at
the optimal solution for problems
 DEFINITIONS OF OPERATIONS
• RESEARCH
Operations research is the application of the methods of science to
complex problems in the direction and management of large systems
of men, machines, materials and money in industry, business,
government and defence. The distinctive approach is to develop a
scientific model of the system incorporating measurements of factors
such as chance and risk, with which to predict and compare the
outcomes of alternative decisions, strategies or controls. The purpose
is to help management in determining its policy and actions
scientifically.
• Operations research is the systematic application of quantitative
methods, techniques and tools to the analysis of problems involving
the operation of systems.
FEATURES OF OPERATIONS RESEARCH
APPROACH
OR utilizes a planned approach following a scientific method and an
interdisciplinary team, in order to represent complex functional relationship as
mathematical models, for the purpose of providing a quantitative basis for
decision-making and uncovering new problems for quantitative analysis:
• Interdisciplinary approach For solving any managerial decision problem often
an interdisciplinary teamwork is essential. This is because while attempting to
solve a complex management problem, one person may not have the
complete knowledge of all its aspects such as economic, social, political,
psychological, engineering, etc. Hence, a team of individuals specializing in
various functional areas of management should be organized so that each
aspect of the problem can be analysed to arrive at a solution acceptable to all
sections of the organization.
• Scientific approach Operations research is the application of scientific
methods, techniques and tools to problems involving the operations of
systems so as to provide those in control of operations with optimum
solutions to the problems. The scientific method consists of observing
and defining the problem; formulating and testing the hypothesis; and
analysing the results of the test. The data so obtained is then used to
decide whether the hypothesis should be accepted or not. If the
hypothesis is accepted, the results should be implemented, otherwise
not.
• Holistic approach While arriving at a decision, an operations research
team examines the relative importance of all conflicting and multiple
objectives. It also examines the validity of claims of various departments
of the organization from the perspective of its implications to the whole
organization.
• Objective-oriented approach An operations research approach seeks to
obtain an optimal solution to the problem under analysis. For this, a
measure of desirability (or effectiveness) is defined, based on the
objective(s) of the organization. A measure of desirability so defined is
then used to compare alternative courses of action with respect to their
possible outcomes.
OPERATIONS RESEARCH APPROACH
TO PROBLEM SOLVING
The most important feature of operations research is the use of the scientific
method and the building of decision models. The operations research
approach to problem solving is based on three phases, namely (i) Judgement
Phase; (ii) Research Phase, and (iii) Action Phase.
• Judgement phase:
• This phase includes: (i) identification of the real-life problem, (ii) selection of
an appropriate objective and the values of various variables related to this
objective, (iii) application of the appropriate scale of measurement, i.e.
deciding the measures of effectiveness (desirability), and (iv) formulation of
an appropriate model of the problem and the abstraction of the essential
information, so that a solution to the decision-maker’s goals can be obtained.
• Research phase:
This phase is the largest and longest amongst all the phases. However, even
though the remaining two are not as long, they are also equally important as they
provide the basis for a scientific method. This phase utilizes: (i) observations and
data collection for a better understanding of the problem, (ii) formulation of
hypothesis and model, (iii) observation and experimentation to test the hypothesis
on the basis of additional data, (iv) analysis of the available information and
verification of the hypothesis using pre-established measures of desirability, (v)
prediction of various results from the hypothesis, and (iv) generalization of the
result and consideration of alternative methods.
Action phase:
This phase consists of making recommendations for implementing the decision.
This decision is implemented by an individual who is in a position to implement
results. This individual must be aware of the environment in which the problem
occurred, be aware of the objective, of assumptions behind the problem and the
required omissions of the model.
 MODELS AND MODELLING IN OPERATIONS RESEARCH

• Models do not, and cannot, represent every aspect of a real-life problem/system because of its large and
changing characteristics.
• The key to model-building lies in abstracting only the relevant variables that affect the criteria of the
measures-of-performance of the given system and in expressing the relationship in a suitable form. However,
a model should be as simple as possible so as to give the desired result. On the other hand, oversimplifying
the problem can also lead to a poor decision. Model enrichment is done by changing value of variables, and
relaxing assumptions.
• The essential three qualities of any model are:
• • Validity of the model – model should represent the critical aspects of the
system/problem under study
• • Usability of the model – a model can be used for the specific purposes, and
• • Value of the model to the user.
METHODOLOGY OF OPERATIONS RESEARCH

Step 1: Defining the problem Problem definition involves the process of

identifying, understanding, and describing the problem being faced by an
organization. It helps to define the objective(s) to be achieved, and the alternative
courses of action. The procedure begins with gathering information (data) of the
organizational structure, communication and control system, objectives and
expectations. Such information will help in assessing the difficulty likely to be
faced in terms of costs, time, resources, probability of success of the study, etc.
The major components involved in problem formulation are as under:

Decision-maker’s Point of View The first component of the problem

formulation is to know the point of view of the decision-maker who is not
satisfied with the existing state of affairs. Such interaction with the decision-
maker will help to understand whether he has already obtained the solution of
the problem and wants to retain it, Or wants to improve it to next level of
satisfaction. If the decision-maker has conflicting multiple objectives, he may
be advised to rank his objectives in order of preference; overlapping among
several objectives may be eliminated.

Decision Environment It is desirable to know the details about resources

(such as manpower, material, money, etc.) that are required to attain objectives
of the organization while keeping in mind the social norms in which the
organization need to function. Knowledge of such factors will help in
modifying the initial set of the decision-maker’s objectives.
Alternative Courses of Action If several courses of action are available for
solution to a problem, then an exhaustive list of such courses of action should
be prepared. Courses of action that are not feasible with respect to objectives
and resources may be ruled out.
Step 2: Formulating a mathematical model

After the problem is clearly defined and understood, the next step is to collect required data and then formulate a

mathematical model. Model formulation requires to define relationships among decision variables. Certain basic

components required in every decision problem model are:

Controllable (Decision) Variables These are certain factors (or variables) associated with the problem whose values
are to be determined by solving the model. The possible values assigned to these variables are called decision
alternatives.
Uncontrollable (Exogenous) Variables The values of these variables are not under the control of the
decision-maker and are also termed as state of nature.
Objective Function It represents the criterion of evaluating alternative courses of action in terms of value
of decision variables so as to optimize (minimized or maximized) the desired performance.

Policies and Constraints There are certain constraints (limitations) on the use of resources, and such
constraints arise due to organizational policy, legal restraints or limited resources such as space, money,
manpower, material, etc. The constraints on the use of resources are expressed either in the form of
equations or inequalities.
Functional Relationships In a decision problem, the decision variables in the objective function and in
the constraints are connected by a specific functional relationship. A general decision problem model might
take the following form:
 Linear Programming and Duality
Example 1. A manufacturing company is engaged in producing three types of products: A, B and C. The
production department produces, each day, components sufficient to make 50 units of A, 25 units of B and
30 units of C. The management is confronted with the problem of optimizing the daily production of the
products in the assembly department, where only 100 man-hours are available daily for assembling the
products. The following additional information is available:

The company has a daily order commitment for 20 units of products A and a total of 15 units of
products B and C. Formulate this problem as an LP model so as to maximize the total profit.
Decision variables Let x1, x2 and x3 = number of units of products A, B and C to be produced, respectively.
EG 2: A company has two plants, each of which produces and supplies two products: A and B. The plants can each
work up to 16 hours a day. In plant 1, it takes three hours to prepare and pack 1,000 gallons of A and one hour to
prepare and pack one quintal of B. In plant 2, it takes two hours to prepare and pack 1,000 gallons of A and 1.5 hours
to prepare and pack a quintal of B. In plant 1, it costs Rs 15,000 to prepare and pack 1,000 gallons of A and Rs 28,000
to prepare and pack a quintal of B, whereas in plant 2 these costs are Rs 18,000 and Rs 26,000, respectively. The
company is obliged to produce daily at least 10 thousand gallons of A and 8 quintals of B. Formulate this problem as
an LP model to find out as to how the company should organize its production so that the required amounts of the two
products be obtained at the minimum cost.
LP model formulation The data of the problem is summarized as follows
Decision variables Let
x1, x2 = quantity of product A (in ’000 gallons) to be produced in plant 1 and 2, respectively.
x3, x4 = quantity of product B (in quintals) to be produced in plant 1 and 2, respectively.
The LP model
Minimize (total cost) Z = 15,000x1 + 18,000x2 + 28,000x3 + 26,000x4
Eg 3: An electronic company is engaged in the production of two components C1 and C2 that are used in radio
sets. Each unit of C1 costs the company Rs 5 in wages and Rs 5 in material, while each of C2 costs the company Rs 25
in wages and Rs 15 in material. The company sells both products on one period credit terms, but the company’s labour
and material expenses must be paid in cash. The selling price of C1 is Rs 30 per unit and of C2 it is Rs 70 per unit.
Because of the company’s strong monopoly in these components, it is assumed that the company can sell, at the
prevailing prices, as many units as it produces. The company’s production capacity is, however, limited by two
considerations. First, at the beginning of period 1, the company has an initial balance of Rs 4,000 (cash plus bank
credit plus collections from past credit sales). Second, the company has, in each period, 2,000 hours of machine time
and 1,400 hours of assembly time. The production of each C1 requires 3 hours of machine time and 2 hours of
assembly time, whereas the production of each C2 requires 2 hours of machine time and 3 hours of assembly time.
Formulate this problem as an LP model so as to maximize the total profit to the company.
ADVANTAGES OF MODEL BUILDING

Models, in general, are used as an aid for analysing complex problems. However, general advantages of
model building are as follows:
1. A model describes relationships between various variables (factors) present in a system more easily than
what is done by a verbal description. That is, models help the decision-maker to understand the system’s
structure or operation in a better way. For example, it is easier to represent a factory layout on paper than to
construct it. It is cheaper to try out modifications of such systems by rearrangement on paper.
2. The problem can be viewed in its entirety, with all the components being considered simultaneously.
3. Models serve as aids to transmit ideas among people in the organization. For example, a process chart
can help the management to communicate better work methods to workers.
4. A model allows to analyze and experiment on a complex system which would otherwise be impossible
on the actual system. For example, the experimental firing of INSAT satellite may cost millions of rupees
and require years of preparation.
5. Models considerably simplify the investigation and provide a powerful and flexible tool for predicting
the future state of the system (or process).
 APPLICATIONS OF OPERATIONS RESEARCH
Some of the industrial/government/business problems that can be analysed by the OR approach have been
arranged by functional areas as follows:
Finance and Accounting
􀁺 Dividend policies, investment and portfolio 􀁺 Break-even analysis, capital budgeting, management, auditing,
balance sheet and cash cost allocation
and control, and financial flow analysis planning
􀁺 Claim and complaint procedure, and public 􀁺 Establishing costs for by-products and
accounting developing standard costs
Marketing
􀁺 Selection of product-mix, marketing and export 􀁺 Sales effort allocation and assignment
Planning 􀁺 Launching a new product at the best possible
time
􀁺 Advertising, media planning, selection and 􀁺 Predicting customer loyalty
effective packing alternatives
Purchasing, Procurement and Exploration
􀁺 Optimal buying and reordering with or 􀁺 Replacement policies
without price quantity discount 􀁺 Bidding policies
􀁺 Transportation planning 􀁺 Vendor analysis
• Production Management
• Facilities planning
• 􀁺 Location and size of warehouse or new plant, 􀁺 Logistics, layout and engineering design
• distribution centres and retail outlets 􀁺 Transportation, planning and scheduling
• Manufacturing
• 􀁺 Aggregate production planning, assembly 􀁺 Employment, training, layoffs and quality
• line, blending, purchasing and inventory control
• Control 􀁺 Allocating R&D budgets most effectively
• Maintenance and project scheduling
• 􀁺 Maintenance policies and preventive 􀁺 Maintenance crew size and scheduling
• maintenance 􀁺 Project scheduling and allocation of resources
• Personnel Management
• 􀁺 Manpower planning, wage/salary 􀁺 Negotiation in a bargaining situation
• administration 􀁺 Skills and wages balancing
• 􀁺 Designing organization structures more 􀁺 Scheduling of training programmes to maximize
• effectively skill development and retention
• Techniques and General Management
• 􀁺 Decision support systems and MIS; 􀁺 Making quality control more effective
• forecasting 􀁺 Project management and strategic planning
• Government
• 􀁺 Economic planning, natural resources, social 􀁺 Urban and housing problems
• planning and energy 􀁺 Military, police, pollution control, etc.
 COMPUTER SOFTWARE FOR OPERATIONS RESEARCH
Many real-life OR models require long and complex mathematical calculations. Thus, computer software packages that are used to do these calculations rapidly and effectively have
become a part of OR approach to problem solving. Computer facilities such as spread sheets or statistical and mathematical
software packages that make such analysis readily available to a decision-maker.
Prentice-Hall distributes some of the leading software packages for quantitative approach to decisionmaking. The features of a
few such software packages are explained as follows.
• Quantitative Systems for Business Plus (QSB+), Version 3.0, by Yih-long Chang and Robert S Sullivan, is a software package
that contains problem-solving algorithms for operations research/management science, as well as modules on basic statistics, non-
linear programming and financial analysis. QSB+ gives tips for getting started, presents tutorials on how to use it, details the
special functions and steps involved in using each program. Because of the friendliness of this microcomputer software, the user
will not encounter much difficulty.
• Quantitative Systems for Operations Management (QSOM), by Yih-long Chang, is an interactive userfriendly system. It contains
problem-solving algorithms for most of the important operations management problems and associated information systems.
• Value STORM: MS Quantitative Modelling for Decision Support, by Hamilton Emmons, A D Flowers, Chander Shekhar, M
Khot and Kamlesh Mathur, is a special version of Personal STORM Version 3.0 developed for use in the operations
research/management science.
• Excel 97 by Gene Weiss Kopf and distributed by BPB Publications, New Delhi, is an easy-to-use taskoriented guide to Excel
Spread sheet applications. It displays data in a wide variety of charts, creates, maintains and sorts databases, while taking
advantage of improved file-sharing capabilities.
• Linear Interactive Discrete Optimization (LINDO) is also a popular package for solving LP models on personal computers. It
was developed by Linus Schrage Lindo in his book: An Optimization Modeling System, 4th ed. (Palo Alto, CA: Scientific Press,
1991)