Operation Research

East Africa University

BBA
Semester 7
Sept 2024
1
Operation Research
Chapter-01
introduction
3
 Grading Policy

• Attendance : 10%
• Assignments: 10%
• Participation: 10%
• Mid-term Examination: 20 %
• Final Examination: 50 %

4
 Syllabus

Introduction to Quantitative Method/Operation

Research
linear programming,
Queuing theory,
Game theory,
Time series
5
 Introduction to Operation
Research
After Studying this Chapter, you should be able to:
 Understand the meaning, purpose, and tools of Operations
Research
 Describe the history of Operations Research
 Describe the Stages of O.R
 Explain the Applications of Operations Research
 Describe the Limitations of Operation Research
 Introduction to Operation
Research
The first formal activities of Operations Research (OR)
were initiated in England during World War II, when a
team of British scientists set out to make scientifically
based decisions regarding the best utilization of war
materiel. After the war, the ideas advanced in military
operations were adapted to improve efficiency and
productivity in the civilian sector.
 Introduction to Operation
Research
• The OR starts when mathematical and quantitative
techniques are used to substantiate the decision being
taken. The main activity of a manager is the decision
making.
• Operations Research tools are not from any one discipline.
Operations Research takes tools from different discipline
such as mathematics, statistics, economics, psychology,
engineering etc. and combines these tools to make a new
set of knowledge for decision making
 Introduction to Operation
Research
Today, O.R. became a professional discipline which deals
with the application of scientific methods for making
decision, and especially to the allocation of scarce
resources. The main purpose of O.R. is to provide a
rational basis for decisions making in the absence of
complete information, because the systems composed of
human, machine, and procedures may do not have
complete information.
 Definition
According to the Operational Research Society of Great
Britain (Operational Research is the attack of modern science on
complex problems arising in the direction and management of
large systems of men, machines, materials and money in industry,
business and government. Its distinctive approach is to develop a
scientific model of the system, incorporating measurements of
factors such as change and risk, with which to predict and compare
the outcomes of alternative decisions, strategies or controls. The
purpose is to help management determine its policy and actions
scientifically).
 Definition
Operations Research is the application of scientific
methods to improve the effectiveness of operations,
decisions and management.
A method of mathematically based analysis for providing a
quantitive basis for management decisions
 Pocock stresses that O.R. is an applied Science. He states
“O.R. is scientific methodology (analytical, mathematical,
and quantitative) which by assessing the overall
implication of various alternative courses of action in a
management system provides an improved basis for
management decisions”.
Importance of Operations Research
• Improved Decision Making: As the above example shows, operations research techniques
can take a muddle of factors and numbers and reduce them to simple formulas. These
formulas will find the optimal solutions within the constraints of the problem.
• Better Control: OR techniques give managers the tools that provide better direction and
control over subordinates. A manager can use OR methods to set up performance standards
for employees and identify areas that need improvement.
• Higher Productivity: A significant use of OR is the ability to identify optimal solutions. A
few examples are finding the best inventory mix, optimal utilization of manpower, most
desirable use of plant machinery and highest-producing marketing campaigns.
• Better Departmental Coordination: When the optimal results from OR analysis are shared
with all departments, everyone works together toward the same goal. For example, the
marketing department might coordinate their efforts with the schedules laid out by the
production supervisor.
 Features of Operations Research
The main characteristics or features of operations
research (OR) are:-
1. Creating a Model : OR first makes a model. A model is a logical
representation of a problem. It shows the relationships between the
different variables in the problem. It is just like a mathematical formula.
For e.g. Assets - Liabilities = Capital + Accumulated Reserves
2. Shows Important Variables : OR shows the variables which are
important for solving the problem. Many of the variables are
uncontrollable.
3. Symbolizes the Model : The OR model, its variables and goals are
converted into mathematical symbols. These symbols can be easily
identified, and they can be used for calculation
4. Achieving the Goal : The main goal of OR is to select the best
solution for solving the problem.
5. Quantifying the Model : All variables in the OR model
are quantified. That is, they are converted into numbers.
This is because only quantified data can be put into the
model to get results.
6. Using Mathematical Devices : Data is supplemented
with mathematical devices to narrow down the margin of
error.
7. Use of Computer : The main focus is on decision-making
and problem solving. For this purpose computers are widely
used.
8. Interdisciplinary : OR is interdisciplinary, because it
uses techniques from economics, mathematics, chemistry,
physics, etc.
9. Highest Efficiency : The main aim of OR is to make
 Limitations of Operations
Research
The demerits or limitations of operations research (OR) are
depicted below.
• Costly : Operations Research (OR) is very costly. This is
because OR makes mathematical models for taking
decisions and solving problems. The company has to make
various models for solving different problems. All this
increments the cost.
• Not Realistic : OR experts make very complex models for
solving problems. These models may not be realistic.
Hence, they may not be useful for real-life situations.
• Complex : OR is very complex concept. It is very difficult
for an average manager to understand it. Therefore, most
managers do not use OR techniques.
 Stages of Development of Operations
Research
• The stages of development of O.R. are also known as phases and process
of O.R, which has six important steps. These six steps are arranged in
the following order:
Step I: Observe the problem environment
Step II: Analyze and define the problem
Step III: Develop a model
Step IV: Select appropriate data input
Step V: Provide a solution and test its reasonableness
Step VI: Implement the solution
Step I: Observe the problem environment
The first step in the process of O.R. development is the problem
environment observation. This step includes different activities;
they are conferences, site visit, research, observations etc.
These activities provide sufficient information to the O.R.
specialists to formulate the problem.
Step II: Analyze and define the problem
This step is analyzing and defining the problem. In this step in
addition to the problem definition the objectives, uses and
limitations of O.R. study of the problem also defined. The outputs
of this step are clear grasp of need for a solution and its nature
understanding.
Step III: Develop a model
This step develops a model; a model is a representation of some abstract or real situation. The models
are basically mathematical models, which describes systems, processes in the form of equations,
formula/relationships. The different activities in this step are variables definition, formulating
equations
etc. The model is tested in the field under different environmental constraints and modified in order
to
work. Some times the model is modified to satisfy the management with the results.

Step IV: Select appropriate data input

A model works appropriately when there is appropriate data input. Hence, selecting appropriate
input
data is important step in the O.R. development stage or process. The activities in this step include
internal/external data analysis, fact analysis, and collection of opinions and use of computer data
banks.
The objective of this step is to provide sufficient data input to operate and test the model developed
in Step_III
Step V: Provide a solution and test its reasonableness
This step is to get a solution with the help of model and input data. This solution is not implemented
immediately, instead the solution is used to test the model and to find there is any limitations. Suppose if
the solution is not reasonable or the behavior of the model is not proper, the model is updated and
modified at this stage. The output of this stage is the solution(s) that supports the current organizational
objectives.

Step VI: Implement the solution

At this step the solution obtained from the previous step is implemented. The implementation of
the
solution involves so many behavioral issues. Therefore, before implementation the
implementation
authority has to resolve the issues. A properly implemented solution results in quality of work
and gains the support from the management.
 Operation Research Tools and
Technique
Operation researchers given special importance to the
development and the use of techniques like
linear programming,
Queuing theory,
Game theory,
Time series
 Applications of Operations
Research
O.R. is a problem solving and decision taking technique. It is
considered a kit of scientific and programmable rules which
provides the management a “quantitative basis” for
decisions concerning the operation under its control.
Some areas of management where O.R techniques
have been successfully utilized are as follow:
1. Allocation and Distribution in
Projects:
(i) Optimal allocation of resources such as men materials
machines, time and money to projects.
(ii) Determination and deployment of proper workforce.
(iii) Project scheduling, monitoring and control.
 2.Production and Facilities
Planning:
i. Factory size and location decision.
ii. Estimation of number of facilities required.
iii. Preparation of forecasts for the various inventory items and
computation of economic order quantities and reorder levels.
iv. Scheduling and sequencing of production runs by proper allocation of
machines.
v. Transportation loading and unloading,
vi. Warehouse location decision.
vii. Maintenance policy decisions.
 3. Programs Decisions:

(i) What, when and how to purchase to minimize

procurement cost.
(ii) Bidding and replacement policies.
 4. Marketing:
(i) Advertising budget allocation.
(ii) Product introduction timing.
(iii) Selection of advertising media.
(iv) Selection of product mix.
(v) Customer’s preference of size, color and packaging of
various products.
 5. Organization Behavior:

i) Selection of personnel, determination of retirement age

and skills.
(ii) Recruitment policies and assignment of jobs.
(iii) Recruitment of employees.
(iv) Scheduling of training programs
 6. Finance:

(i) Capital requirements, cash flow analysis.

(ii) Credit policies, credit risks etc.
(iii) Investment decision.
(iv) Profit plan for the company.
 7. Research and Development:

(i) Product introduction planning.

(ii) Control of R&D projects.
(iii) Determination of areas for research and development.
(iv) Selection of projects and preparation of their budgets.
(v) Reliability and control of development projects thus it may be
concluded that operation research can be widely utilized in
management decisions and can also be used as corrective measure.
THANKS