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Operation Research-Introduction

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14 views18 pages

Operation Research-Introduction

Uploaded by

eyobirhanu1992
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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CPU College

Analytical Modeling for Business Decision

To be delivered by:
Bersisa Kacho (PhD)
Operations Research - Introduction
Definition
1. OR/MS is the application of scientific methods, techniques
and tools to problems involving the operations of systems so
as to provide those in control of the operations with
optimum solutions to the problems.

2. OR/MS is the application of the scientific method to the


study of the operations of large, complex organizations or
activities.

3. OR/MS is the application of the scientific method to the


analysis and solution of managerial decision problems.
Operations Research - Introduction
Definition - summary
 Application of SCIENTIFIC METHOD
 Study of LARGE & COMPLEX SYSTEMS
 Analysis of MANAGERIAL PROBLEMS

 Finding OPTIMAL SOLUTION

 Use of MATHEMATICAL MODELS

 Use of COMPUTERS & SPECIAL SW


Operations Research - Introduction
Modeling Process
Recognition and Formulation and
Real-World Definition of the Construction of
Problem Problem the Mathematical
Model

Interpretation
Validation and Solution
Implementation Sensitivity of the Model
Analysis
of the Model
Operations Research - Introduction
Recognition & Definition of the Problem
 Processes
 Restrictions
 Goal
Mathematical Model: It usually describes a system by a set of
variables and a set of equations that establish relationships
between the variables. Variables may be of many types
Variables
Constraints (equations, inequalities)
Objective function
Operations Research - Introduction
Mathematical Model

Reality Model
Finding a proper balance between the
level of simplification of reality and
good representation of reality.

Model
 Deterministic
 Probabilistic
A deterministic mathematical model is meant
to yield a single solution describing the
outcome of some "experiment" given
appropriate inputs.
A probabilistic model is, instead, meant to
give a distribution of possible outcomes
(i.e. it describes all outcomes and gives
some measure of how likely each is to
occur).
Operations Research - Introduction
Solution
 Feasible
 Optimal
 Infeasible

Model Interpretation

Model Validation
The process of determining the degree to which the
model corresponds to the real system,
Operations Research - Introduction

Sensitivity Analysis
It is determining how different values of an
independent variable affect a particular dependent
variable under a given set of assumptions

Implementation
Operations Research - Introduction
Management Science Techniques
 Linear Programming
 linear objective function – min/max
 linear constraints

 Integer LP, Binary LP, Mixed Integer LP


 Nonlinear Programming
 nonlinear objective function
and/or
 nonlinear constraints
Operations Research - Introduction
Management Science Techniques
 Distribution Models
 special type of LP problems
(special structure of model)
 transportation problem
 assignment problem
Operations Research - Introduction
Management Science Techniques
 Multiple Criteria Decision Making
 multiple criteria
 compromise
 limited/unlimited number of alternatives
 goal programming
Operations Research - Introduction
Management Science Techniques
 Network Models
 network – nodes, arcs
 evaluated network
 minimal distance, maximal flow etc.

 Project Management
 planning, scheduling & controlling projects
 CPM, PERT
Operations Research - Introduction
Management Science Techniques
 Inventory Models
 how much to order?
 when to order?
 deterministic/probabilistic models

 Waiting Line Models (Queuing Models)


 servers, customers
 goal – optimal number of servers
 analytical approach, computer simulation
Operations Research - Introduction
Management Science Techniques
 Computer
Simulation
 computer experiments with models
 complex systems
 Games Theory
 2 or more decision makers
 possible strategies
Example of Model construction

Information and Data:


 Business firm makes and sells a steel product
 Product costs $5 to produce
 Product sells for $20
 Product requires 4 pounds of steel to make
 Firm has 100 pounds of steel
Business Problem:
 Determine the number of units to produce to make
the most profit, given the limited amount of steel
available.
Example of Model Construction

Variables: X = # units to produce (decision


variable)
Z = total profit (in $)
Model: Z = $20X - $5X (objective function)
4X = 100 lb of steel (resource constraint)
Parameters: $20, $5, 4 lbs, 100 lbs (known
values)
Formal Specification of Model:
maximize Z = $20X - $5X
Example of Model Construction

Model Solution:
Solve the constraint equation:
4x = 100
(4x)/4 = (100)/4
x = 25 units
Substitute this value into the profit function:
Z = $20x - $5x
= (20)(25) – (5)(25)
= $375
(Produce 25 units, to yield a profit of $375)

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