Bahir Dar University

College of Business & Economics

MBA Program
Management Science (MBA 5041) Course guide book
Instructor Name: Aman Abdie
OVERVIEW
Effective use of scarce organizational resources is a major determinant of the success of organizations,
business or non-business, small or large, local or global. In the case of business enterprises, the increasing
competitive pressure makes the task of management even more demanding. In Ethiopia, there is an
increasing number of business enterprises engaged in various sectors in the economy. There is some
anecdotal evidence that inefficient use of resources is a key factor that prevented the competitiveness of
many local enterprises. There is an increasing demand for systematic approach to manage these
enterprises to enhance their efficiency and effectiveness. Increasing number and size of local enterprises
also means a greater need for more effective ways of solving problems in these organizations. In light of
this, the new generation of management/business professionals in the country need to be better prepared
with modeling techniques that facilitate effective decision making in various functional and strategic
areas. Except some of their peculiarities, the countrys not-for-profit and other institutions also need the
benefits of modern management science techniques. The trend generally is that managers conversant with
the various OR/Management science techniques are becoming highly valued among business and non
business institutions around the globe. Management science provides todays managers with state-of-art
technology of modeling techniques that have passed the test of time and have proven their value in a
variety of applications under a variety of decision making environments. This course is designed with the
aim to equip you with the some of the commonly used tools of management science/operations research
that you will find useful in your future career as practicing manager. This material sketches the content
and schedule of the course and provides additional information that you will need to plan and complete
your study effectively.
CHAPTER ONE: LINEAR OPTIMIZATION/LINEAR PROGRAMMING
Linear programming is one of success stories in applied mathematics in general and management science
specifically during the 21st century. The model has been applied in an impressive diversity of areas of
business. Typically, the model seeks to determine the optimal combination of level of activities given
certain constraints. In this chapter of the course, a deeper investigation of LP and its various applications
will be provided. The linear programming model will be described and its nature, assumptions, and areas
of applications in business and non business areas will be discussed. You will also be exposed to
illustrations and cases consisting of verbal description of problems to be converted to mathematical linear
programming models. LP model formulation involves definition of decision variables, specification of an
objective function and model constraints. You will also be introduced to solution techniques for LP
models. The graphical technique of solving simple two variable models will be introduced first. Since real
life problems are beyond the scope of graphical techniques, the discussion on the graphic technique will
be brief and is mainly intended to make the transition to more advanced algebraic techniques easier. Of
course, the larger chapter of this chapter of the course will be devoted to the most commonly used
solution technique for LP problems, the simplex algorithm.
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At the end of this chapter, you should be able to

Understand the nature of linear optimization.

Identify the main components and properties of a linear program model.
Formulate mathematical LP models for several types of business problems.
Solve simple two variable models using graphical analysis
Use the simplex method to solve linear program problems
Understand the importance and nature of duality theory
Conduct post optimality analysis to evaluate model robustness
Table 1: Plan of Chapter One Linear Optimization/Linear Programming
Sections
Contents
1.1.Model
Definition and Assumptions/Properties Model formulation in
Formulation
LP
Selected applications of LP : The diet problem, Product Mix,
Investment,
Promotion
mix,
Inventory
planning,
Transportation etc
Steps in using the graphic method
Feasible solutions, Feasible region, corner points & CPF
1.2. Graphical
solutions
method
Corner point solutions: Some Basic Properties
Obtaining Optimal solution
and Conducting sensitivity
analysis
Simplex algorithm: framework
Relationship with graphical technique
1.3The simplex
The Artificial Variable Technique: mixed constraint and
algorithm
minimization problems
Special cases (Degeneracy, ties for entering variable, ties for
leaving variable, unbounded solution, infeasible solution)
Duality theory and the relationship between the dual and the
primal
Duality Properties (complementary solution, basic solution
1.4
Advanced
and slackness)
topics in LP
Selected Applications: Interpretation of the simplex method,
economic interpretation of dual variables
Model assumptions revisited
Post Optimality analysis: Framework
1.5Post optimality Changes in Objective Function coefficients
analysis
Changes in RHS of a constraint
Introduction of new variables/new constraints
Finding new solution after changes
Duality
CHAPTER TWO: TRANSPORTATION & ASSIGNMENT PROBLEMS
The transportation and the assignment models are special linear programming models. The problems
treated in these models can be formulated as linear programs and can be solved using the simplex method.
But, their special structure allows us to solve these models using more efficient methods. Applications of
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the transportation and assignment problems tend to require a very large number of constraints and
variables, so a straightforward application of the simplex method may demand heavily on computational
effort. Fortunately, a key characteristic of these problems is that most of the coefficients associated with
the variables in the constraints are zeros, and the relatively few nonzero coefficients appear in a
distinctive pattern. As a result, it has been possible to develop special algorithms that achieve dramatic
computational savings by exploiting this special structure of the problems. Therefore, it is important to
become sufficiently familiar with these special types of problems that you can recognize them when they
arise and apply the proper computational procedure. This chapter introduces the two models and their
solution techniques. In the first section, we will discuss the transportation problem and investigate
alternative techniques for finding initial basic feasible solutions and optimal solutions. Various areas of
applications of the transportation model are also to be covered. Special situations that are commonly
encountered in the application of the model will also be discussed. The second section provides a review
of the assignment model including a discussion on the nature of the model, the Hungarian method of
solving assignment problems as well as special cases in the assignment model.
At the end of this chapter, you should be able to

Understand the nature of the transportation and assignment problems

Formulate the transportation and assignment problems as linear programs
Understand the basic assumptions and properties of the transportation and the assignment models
Use the transportation algorithm to solve transportation problems
Use the Hungarian method of solving the assignment problem
Table 2: Plan of Chapter Two The transportation and the assignment problems
Sections
Contents
The mathematical structure of the problem
Properties and assumptions of the model
Obtaining initial basic feasible solutions: The NWCM, LCM & VAM.
2.1.The
Optimality test & solution: SSM and the MDM
Transportation
Additional Topics: Degeneracy, Prohibited routes, Unbalanced problems and
Problem/ Model
Maximization problems, Transshipment
Transshipment problems
Nature and The mathematical structure of the problem
2.2. The assignment Properties and assumptions of the model
The Hungarian method of solving the assignment problem
problem /model
Special Cases: Maximization, Unbalanced problems, Prohibited assignment
CHAPTER THREE: NETWORK FLOW (OPTIMIZATION) MODELS
Networks are chapter of everyday experience. Examples of networks are transport networks,
communication networks, electrical networks; distribution networks (supply chain networks). Network
models can be used to model a range of problems that at first glance seem to have no resemblance to
networks. Production and inventory planning, financial planning, assignment and transportation, and
other problems are modeled as networks. Network models are increasingly sophisticated and their
application becoming diverse. This chapter offers an introduction to the vast topic of network flow
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models. Three major types of network optimization problems will be the foci of the discussion in this
chapter: the shortest path problem, the spanning tree problem and the maximal flow problem. Algorithms
to solve the problems will be illustrated. At the end of this chapter you should be able to

Appreciate the nature of network flow models and basic terminologies in network optimization models
Formulate selected problems as network flows and solve them using the appropriate algorithms
Table 3: Plan of Chapter Three Network Flow (Optimization) Models
Sections
Contents
3.1. Overview of Networks and flows
Definition and basic terms of network flow models
Graphs and Flows
3.1.1. The Shortest path problem
NFMComponents:Variables,Constraints,Objective,
Parameters
3.1.2. The minimal spanning tree problem
Nature of the problem
3.1.3. The maximal flow problem
The mathematical structure of the problem
Properties and assumptions of the model
Algorithm and Applications
CHAPTER FOUR: PROJECT PLANNING AND SCHEDULING TECHNIQUES
One of the most challenging jobs that any manager can take on is the management of a large-scale project
that requires coordinating numerous activities throughout the organization. A myriad of details must be
considered in planning how to coordinate all these activities, in developing a realistic schedule, and then
in monitoring the progress of the project. Project management is complicated by the novelty of the
problems encountered in project management and the time pressure for completion of the project without
much additional costs. Risks are also there in various forms. This chapter doesnt provide an exhaustive
and comprehensive discussion on all the variety of project management problems. Rather, our focus will
be on major OR techniques that have passed the test of time in their usefulness in the effective planning
and scheduling of projects. Two major techniques, known as the Critical Path Method and the Program
Evaluation and Review Techniques, will be the main focus of the chapter. The use of network diagrams
to illustrate the sequence of activities, precedence relationships among activities and the flow of tasks
over time will also be discussed. The tradeoff between cost and time will be briefly addressed in the final
section.

After completing this chapter, you should be able to

Identify the main elements of project management
Identify the main project planning and scheduling techniques and their relevance under different contexts
Develop network diagrams showing the flow of project activities and precedence relationships
Differentiate between critical and non critical project activities and understand the importance of focusing
on critical activities as chapter of effective project management
Apply the Three-time-estimates PERT technique to scheduling projects under uncertain activity times
Evaluate the costs and benefits of crashing project activities to decide on optimal crashing level

Table 4: Plan of Chapter Four Project planning and scheduling Techniques

Sections
Contents
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4.1. Introduction

4.2. Project Scheduling

Nature of projects
Project Management: Review of Major Functions
Project scheduling components
The project network diagram
PERT/CPM techniques
Scheduling individual activities
Handling uncertainty in project scheduling: PERT

Crashing: The determination of Optimal Cost & Time Tradeoff

4.3. Cost-Time tradeoff

Optimal Crashing: Using Marginal analysis

Crashing as a Linear Optimization Problem
Further Issues in Project management

CHAPTER FIVE: DECISION THEORY

In applying many mathematical models such as linear programming the assumption is that the
consequences of alternatives are known with reasonable certainty. However, decisions often must be
made in environments that are much more fraught with uncertainty. Decision analysis provides a
framework and methodology for rational decision making when the outcomes are uncertain. This chapter
deals with main concepts and techniques that are useful for decision making under uncertain and risky
environments. The main difference between decision making under uncertainty and certainty will be
compared and contrasted. The main components of decision theory will be covered. Several probability
and non probability decision criteria will be illustrated. The valuation of experimentation/additional
information and the use of conditional and posterior probabilities in this process are all to be discussed in
this chapter.
At the end of the chapter, you should be able to

Differentiate between decision making under uncertainty and certainty

Identify main components of decision theory/analysis
Use various probabilistic and non probabilistic criterion to make decisions under different contexts
(hypothetical)
Evaluate the value of additional information and experimentation before making decisions
Table 5: Plan of Chapter Five Decision Analysis
Sections
Contents
Decision Theory in Management Science: Basics
Decision Analysis as a Framework For decision making under Uncertainty
5.1. Introduction
Components of Decision Analysis
5.2.Decision
Laplaces Criterion, Huruiczs Criterion Minmax/Maxmin Vs Minmin/Maxmax,
Criteria
Minimax regret criterion and others.
Expected Monetary value, Expected opportunity loss & maximum likelihood
5.3. Decision
criteria
Posterior and Conditional Probabilities
Making with
Experimentation/sampling and the value of additional information
Probability
Decision Trees, Sequential Decision Making & Related Topics
Game theory
References :

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Hillier, Frederick S., Gerald J. Lieberman, 2001. Introduction to Operations Research. McGrawHill: New York.
William J. Stevenson, Introduction to management science
Taha, Hamdy A, 2007 (8th ed), Operations Research: an introduction. Pearson Education, Inc.
New Jersey.
Kaufman, A; R Faure. (1968), Introduction to Operations Research. (Volume 47) (Richard
Bellman Ed., Henry C Sneyd, Trans) New York.
Taha, Hamdy A (2007) Operations Research: an introduction. (8th ed). New Jersey: Pearson
Education, Inc:
Taylor III, Bernard W. (1996), Introduction to Management Science. (5th ed) New Jersey:
Prentice Hall:
Evaluation:
Article review (10%), Term Paper (20%), Mid exam (25%), Final exam (45%)
Grading system
As per the scale of the college

Prepared by _________________________________
Course
chair _________________________________

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