Management

Science
What is Management Science?
• It is the application of a scientific approach to solving management
problems in order to help managers make better decision.
• It encompasses a number of mathematically oriented techniques that
have either been developed within the field of management science or
been adapted from other disciplines,
• It 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.

 Note: Businesses represent the main users of management science.

However, management science techniques can be applied to solve
problems in different types of organizations, including services,
government, military, business and industry, and health care.
Management Science approach to Problem
solving
Steps of the Scientific Method:
1. Observation
 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.
Problems normally identified by a manager, however it can also be identified by a
Management Scientist. (a person skilled in the techniques of management
science and trained to identify problems, who has been hired specifically to solve
problems using management science techniques)

2. Problem Definition
 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
Management Science approach to Problem solving

Steps of the Scientific Method:

3. Model Construction
A model is an abstract mathematical representation of a 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
⇒ Example, consider a business firm that sells a product. The product costs P500 to
produce and sells for P2000. A model that computes the total profit that will accrue
from the items sold is (Z (Profit) = 2000x - 500x) ; where X represents the number of
units sold and produced.
⇒ The symbols X and Z are variables. 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 (in this equation). A
variable is a symbol used to represent an item that can take on any value.
⇒ The numbers P2000 and P500 in the equation are referred to as parameters.
Parameters are constant values that are generally coefficients of the variables
(symbols) in an equation. They usually remain constant during the process of
solving a specific problem
Management Science approach to Problem solving

Steps of the Scientific Method:

4. Model Solution
Once models have been constructed in management science, they are
solved using the management science techniques presented in this text.
When we refer to model solution, we also mean problem solution

For the example model developed in the previous section,

 maximize Z = +2000x - 500 ; subject to 4x = 100
 the solution technique is simple algebra. Solving the constraint equation for x, we have.
4x = 100 ; x = 100/4 ; x= 25 units
 Substituting the value of 25 for x into the profit function results in the total profit
Z = 2000(25) – 500(25) ; = P37,500

Note : Thus, if the manager decides to produce 25 units of the product and all 25 units sell, the
business firm will receive P37,500 in profit.
Management Science approach to Problem solving

Steps of the Scientific Method:

Model Solution
Once models have been constructed in management science, they are
solved using the management science techniques presented in this text.
When we refer to model solution, we also mean problem solution

5. Implementation
The final step in the management science process for problem solving
described in Figure 1.1 is 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.
This is a critical but often overlooked step in the process. It is not always a
given that once a model is developed or a solution, it is automatically used.
Frequently the person responsible for putting the model or solution to use is
not the same person who developed the model, and thus the user may not
fully un_x0002_derstand how the model works or exactly what it is supposed
to do.
What are the benefits of Management Science?
 itapplies systematic approaches to identify and resolve complex
organizational issues.
 itenhances effieciency by streamlining operations and resource
allocation to minimize waste and maximize output.
 it optimizes the cost by identifying and reducing unnecessary costs
 itimproves performance by measuring and monitoring key
performance indicators .
 itplans strategically by developing effective long-term strategies
based on data analysis and future projections.
 itprovides data-driven decision by uilizing quantitative data and
analytical tools .
DECISION ANALYSIS
 Have you ever made a decision considering its major
consequences? If YES, that would be difficult to determine the
best course of action especially when the outcome is not clear.
DECISION TREE analysis can help you visualize the impact your
decisions will have so you can find the best course of action.

• A DECISION TREE is a flowchart that starts with one main idea and
then branches out based on the consequences of your decisions.
It’s called a “decision tree” because the model typically looks like
a tree with branches.
• These trees are used for decision tree analysis, which involves
visually outlining the potential outcomes, costs, and consequences
of a complex decision. You can use a decision tree to calculate the
expected value of each outcome based on the decisions and
consequences that led to it. Then, by comparing the outcomes to
one another, you can quickly assess the best course of action. You
can also use a decision tree to solve problems, manage costs, and
reveal opportunities.
Decision tree symbols
• Alternative branches
 are two lines that branch out from
one decision on your decision tree.
These branches show two
outcomes or decisions that stem
from the initial decision on your
tree.

• Decision nodes
 are SQUARES and represent a
decision being made on your tree.
Every decision tree starts with a
decision node

• Chance nodes
 are CIRCLES that show multiple
possible outcomes

• End nodes
 are TRIANGLES that show a final
outcome
How to create a decision tree
1. Begin your diagram with one main idea or decision. You’ll
start your tree with a decision node before adding single
branches to the various decisions you’re deciding
between.
2. After adding your main idea to the tree, continue adding
chance or decision nodes after each decision to expand
your tree further. A chance node may need an alternative
branch after it because there could be more than one
potential outcome for choosing that decision.
3. Keep adding chance and decision nodes to your decision
tree until you can’t expand the tree further. At this point,
add end nodes to your tree to signify the completion of the
tree creation process.
4. Once you know the cost of each outcome and the
probability it will occur, you can calculate the expected
value of each outcome using the following formula:
Expected value (EV) = (First possible outcome x Likelihood
of outcome) + (Second possible outcome x Likelihood of
outcome) - Cost
5. Once you have your expected outcomes for each decision,
determine which decision is best for you based on the
amount of risk you’re willing to take. The highest expected
value may not always be the one you want to go for. That’s
because, even though it could result in a high reward, it
also means taking on the highest level of project risk.
 Decision tree
analysis example
DECISION TREE ANALYSIS