Rift Valley University Bishoftu Campus

Department of Business Management

Reading Material Prepared for Operations Research
(Tutorial Class for National Exit Exam)
By: Mekonnen Sorsa (MBA)
Operations Research (4chrs): Tutorial Class
Prepared for National Exit Exam by:
Mekonnen Sorsa (MBA)
 Test Blue Print for Course: Operations Research
Contents Questions Learning Out comes:

#1  Understand the significance

1.Introduction to of OR in managerial decision
Operations Research Making
 Understand the different
#2 models of OR.
 Appreciate the application of
CH 2: Linear Programming OR model in solving different
quantitative problem
#2 Competencies: Perform various
CH 3: Transportation and Quantitative analysis techniques
Assignment Problems and tools for supporting managerial
#1 decision
CH 4: Decision Theory
#1
CH 5: Network Models
 Chapter One
Introduction to Operations Research

Contents of the chapter

1.1 Introduction
1.2 Origin and Definition of Operations Research
1.3 Scope of Operations Research
1.4 Models in Operations Research
1.5. Features of Operations Research
Objectives of the chapter
 After studying this unit, you should be able to:
Define Operations Research;
Describe the scope, and uses of Operations
Research;
Explain the models in Operations Research
1. Introduction
 It is universally agreed that human beings have the tendency of
getting maximum gains with minimum effort.

 However, the complexities in every aspect of life are increasing

now a days, as a result, we would like to create/use scientific
methods and techniques that help us attain optimum solutions
in decision making problems.

 Hence, Operations Research is a discipline that concerned

with the application of this scientific methods and techniques to
decision making and solving problems and establishing the
optimal solutions.
 1.2. Origin and Definition of Operations Research
 Operation…implies some action applied in any area of
interest….Research… means some organized process of getting
and analyzing information about the problem environment.

 It is generally agreed that operations research came into existence

as a discipline during World War II when there was a critical
need to manage scarce resources i.e the term Operations
Research was coined for the first time in 1940 by MC Closky and
Trefthen in UK, and gained prominence during the Second
World War when military planners were faced with logistical
tasks requiring prompt and effective solutions.

 Hence, a group of scientists with diverse educational backgrounds

including mathematics, statistics and physics became involved in
applying a scientific approach to deal with strategic and tactical
problems of various military operations.
 After World War II, scientists who had been active in
the military OR groups made efforts to apply the
operations research approach to civilian problems
related to business, industry, research, etc.

 Hence, the word “military” was dropped and it was

named as Operations Research

 Operations Research gained momentum in the market

place and solutions to problems involving
manufacturing processes, personnel and material
planning, inventory, scheduling and others were
sought through O.R.
 Operations Research is not a pure single disciple
rather it is multidiscipline that involve mathematics,
statistics, computer science, accounting,
engineering, management, etc
 Operations Research has been defined in different ways by
different scientists from time to time

 The more general and comprehensive definition of Operations

Research is as follows:

 Operations Research is a branch of science which

is concerned with the application of scientific
methods and techniques to decision making and
problems solving and establishing the optimal
solutions.
 Operations research tools and techniques include:
Linear programming, decision theory, game
theory, network scheduling, inventory models,
transportation problem model, assignment
model etc
 “O.R is the application of scientific method by interdisciplinary
teams to problems involving the control of organized (men-
machines) systems so as to provide solution which best serve the
purpose of the organisation as a whole”.
 “Operation research is an aid for the executive in making his
decisions by providing him with the needed quantitative
information based on the scientific method of analysis”.
 Another term which is used for this field is "management science"
("MS"). …The Americans
 Sometimes combine the terms OR and MS together and say
"OR/MS" or "ORMS".
 sometimes some used the terms "industrial engineering" ("IE")
and "decision science" ("DS").

 In recent years there has been a move towards a standardization

upon a single term for the field, namely the term "OR"
 1.3 Scope and application areas of Operations
Research
 OR has a wide scope which is applicable in everyday
life as it provides better solutions to various decision-
making problems with great speed and competence as
human beings make decisions all the time.

 It finds applications in a wide range of areas including

defence operations, planning, agriculture, industry
(finance, marketing, personal management,
production management), research and
development.
1.3.1.In Defence Operations
 Since the Second World War, Operations Research
techniques have been used for defence operations
with the objective of getting maximum gains with
minimum effort.

 It has been used for coordinating various activities of

Air Force, Army in optimum resource utilization

 Decisions regarding formulation and selection of

strategies of the various available courses of action
are taken by a team of scientists.
1.3.1. In Planning for Economic Development
 Careful planning is necessary for economic
development of any country.

 Operations Research is used to frame future economic

and social policies
1.3.2. In Agriculture
 Agricultural output needs to be increased due to
increasing needs for adequate quantity and quality of
food for our increasing population.
 But there are a number of restrictions under which
agricultural production is studied.
 Problems of agricultural production under various
restrictions such as optimum allocation of land to
various crops in accordance with the climatic
conditions, optimum distribution of water from
various resources for irrigation purposes can easily be
solved by application of Operations Research
techniques
1.3.3.In Industry
 Now-a-days, due to complexities of operations and huge sizes of
industries, important decisions regarding various sections of the
organization, e.g., planning, procurement, marketing, finance, etc. have to
be taken division wise.

 For example, the production department needs to minimize the cost of

production, but maximise output; the finance department needs to optimize
capital investment; the personnel department needs to appoint competent
work force at minimum cost.

 Each department has to plan its own objectives which may be in conflict
with the objectives of other departments and may not conform to the
overall objectives of the organisation.

 For example, the sales department of an organisation may want to keep

sufficient stocks in the inventory, whereas the finance department may
want to have minimum investment.
 In that case, both departments would be in conflict with
each other. The applications of O.R. techniques to such
situations help in overcoming this difficulty by evolving an
optimal strategy and serving efficiently the interest of the
organisation as a whole

 The marketing department of any organisation has to face

various problems like product selection, formulation of
competitive strategies, sales forecasting, distribution
strategies, selection of advertising media with respect to
cost and time, finding the optimal number of salesmen,
finding optimum time to launch a product.
 All such problems can be overcome using Operations
Research methods.
1.3.4. In Research and Development
 Operations Research helps in planning and control of
new research and development projects.
 It also helps in planning the launch of new products.

 Operations Research helps in solving many other

problems faced by public as well as private sectors such
as the ones in economic and social planning,
management of natural resources, energy, housing,
pollution control, waiting lines and administrative
problems, insurance policies, and many more.
1.3.5.Application in allocation and control of
resources in project
 Optimal allocation of resources such as men
materials machines, time and money to
projects.

 Project scheduling, monitoring and control,

determination of slack, precedence
relationship between tasks, start and finishing
points of activities etc
Remarks: Tools of Operation Research:
 In any area of human endeavor, whether it is a production
system, business system or service system where an objective is
to be optimized, the problem falls into the domain of operation
research.
 Some of the commonly used techniques/tools of operation
research are as follows:
1. Linear programming.
2. Inventory control models.
3. Network Analysis.
4. Assignment problems.
5. Decision theory.
6. Transportation Problems.
7. Game Theory.
1.4 Models in Operations Research
 A model is an approximation or abstraction of reality
which considers essential variables (or factors) and
parameters in the system along with their relationships.
 A model is a mathematical or theoretical description of
the various variables of a system
 The objective of the model is to identify the significant
factors and interrelationships.
 It helps in deciding how the changes in one or
more variables of a model may affect other
variables or the system as a whole.
For example, the variables in linear
programming, transportation and assignment
problems, are deterministic.
1.4.1. Classification of Models
i. Based on structure
a. Physical model (Iconic, Analogue models)
b. Symbolic Model (Mathematical model)
ii. Based on function or purpose
c. Descriptive model
d. Predictive model
e. Normative (or Optimization) models
iii. Based on time reference
f. Static model
g. Dynamic model
iv. Based on degree of certainty
h. Deterministic model
i. Probabilistic model
v. Based on Method of Solution
j. Heuristic models
k. Analytical
i. Based on structure
a. Physical model (Iconic, Analogue models)
 Physical models are used to represent the physical appearance
of the real object under study, either reduced in size or scaled
up.
 Physical models are useful only in design problems because they
are easy to observe, build and describe. For example, in the
aircraft industry, scale models of a proposed new aircraft are
built and tested in wind tunnels to record the stresses
experienced by the air frame.
 Physical models cannot be manipulated and are not very useful
for prediction.
 Problems such as media selection, production scheduling, etc.,
cannot be analysed with the help of these models.
 Physical models are classified into two categories iconic and
analogue
1. Iconic models
 Are physical replicas of real life systems and are based on a
smaller scale than the original.
 In many cases, they provide a pictorial presentation of various
aspects of a system.
 Examples of iconic model are, blueprints of a home, maps, globes,
photographs, drawings, etc.
2. Analogue Models
 An analogue model does not resemble physically the system they
represent, but retain a set of characteristics of the system.
 Such models are more general than iconic models and can also be
manipulated
 For example…organizational chart represents the structure,
authority, responsibilities and relationship, with boxes and arrows;
maps in different colours represent water, desert and other
geographical features,
b. Symbolic models
 These models use algebraic symbols (letters, numbers)
and functions to represent variables and their
relationships for describing the properties of the system.

 Such relationships can also be represented in a physical

form, symbolic models are precise and abstract and can
be analysed by using laws of mathematics.
 Best example of symbolic model is Mathematical
Model which uses mathematical symbols, letters,
numbers and mathematical operators (+, –, ×) to
represent relationships among variables
 The relationship among cost-volume-profit, etc.
ii. Classification of Models Based on Function (or
Purpose)
a. Descriptive models
 These models are used to investigate the outcomes or
consequences of various alternative courses of action
(strategies, or actions).
 Presentation of survey result in frequency,
percentage, tabulation etc

 Market data analysis – descriptive models can be

used to analyze market data and understand
customer behavior, buying preferences, and market
trend
b. Predictive models
 These models represent a relationship between dependent and independent
variables and hence measure ‘cause and effect’ due to changes in
independent variables.
 For example, the equation …..S = a + bA + cI
 Used to relates dependent variable (S) with other independent variables on
the right hand side.
 This can be used to describe how the sale (S ) of a product
changes with a change in advertising expenditure (A) and
disposable personal income (I).
 Here, a, b and c are parameters whose values must be estimated.
 Thus, having estimated the values of a, b and c, the value of
advertising expenditure (A) can be adjusted for a given value of I,
to study the impact of advertising on sales.
 Demand forecasting – a company can use predictive models to
estimate future demand for a product or service. ...
c. Normative (Optimization) models

 These models provide the ‘best’ or ‘optimal’ solution to

problems using an appropriate course of action (strategy)
subject to certain limitations on the use of resources.

 For example, in mathematical linear programming, models

are formulated for optimizing the given objective function,
subject to restrictions on resources in the context of the
problem under consideration and non-negativity of variables.
iii. Classification of model Based on Time Reference
a. Static models
 Static models represent a system at a particular point of
time and do not take into account changes over time.

 For example, an inventory model can be developed and

solved to determine an economic order quantity
assuming that the demand and lead time would remain
same throughout the planning period.
b. Dynamic models
 Dynamic models take into account changes over time,
i.e., time is considered as one of the variables while
deriving an optimal solution. Eg. Limitation of
Maintenance of machines when money value is changing
iv. Classification of models Based on Degree of Certainty
a. Deterministic models
 If all the parameters, constants and functional relationships are assumed to
be known with certainty when the decision is made, the model is said to be
deterministic.
 Thus, the outcome associated with a particular course of action is known, i.e.
for a specific set of input values, there is only one output value which is also the
solution of the model.
 Linear programming models are example of deterministic models.
b. Probabilistic (Stochastic) models
 If at least one parameter or decision variable is random (probabilistic or
stochastic) variable, then the model is said to be probabilistic.
 Since at least one decision variable is random, the independent variable, which is
the function of dependent variable(s), will also be random.
 This means consequences (or payoff) due to certain changes in the
independent variable(s) cannot be predicted with certainty.
 Insurance against risk of fire, accidents, sickness, etc., are examples where the
pattern of events is studied in the form of a probability distribution.
v. Classification Based on Method of Solution or Quantification
a. Heuristic models
 If certain sets of rules are applied in a consistent manner to
facilitate solution to a problem, then the model is said to be
Heuristic.
 Example:If it is raining outside, you should bring an umbrella. You
choose not to drive after having one too many drinks. You decide not
to eat food if you don't know what it is.
b. Analytical models
 These models have a specific mathematical structure and thus can
be solved by the known analytical or mathematical techniques.
Examples: Any optimization model (which requires maximization or
minimization of an objective function) is an analytical model.
c. Simulation models
 A simulation model is essentially a computer-assisted
experimentation on a mathematical structure of a problem
Uses Operations Research
 There are numerous advantages of Operations
Research. Some of these are:
1. Operations Research develops a model, which
provides logical and systematic approach for
understanding, solving and controlling a problem.

2. It helps in optimum use of resources. For example,

linear programming techniques in Operations Research
suggest most effective methods and efficient ways of
optimality.
 Operations Research is a very powerful method of
getting the best out of limited resources.
3. Operations Research techniques can be used for
improving the quality of decisions.
 A decision-maker can use a well-formulated
mathematical model representing a real life situation to
find the changes in the variables as per requirement.
Such changes can be incorporated even without
disturbing the system or problem under consideration.

4. It helps, in preparing future managers.

 Operations Research methods constitute a means for
improving the knowledge and skill of young managers.
 Operations Research is a very powerful method of
getting the best out of limited resources.
1.5. Features of Operations Research