Introduction to

Management Science
Learning Objectives
Students will be able to:
1. Describe the Management Science
approach.
2. Understand the application of MS in a real
situation.
3. Describe the use of modeling in MS.
4. Use computers and spreadsheet models to
perform MS analysis.
5. Discuss possible problems in using
management science.
 Introduction
 Mathematical tools have been used for
thousands of years.
 MS can be applied to a wide variety of
problems.
 One must understand the specific
applicability of the technique, its
limitations, and its assumptions.
 Examples of Management Science
Analyses
 Taco Bell saved over $150 million using
forecasting and scheduling MS models.
 NBC increased revenues by over $200 million by
using MS to develop better sales plans.
 Continental Airlines saved over $40 million using
MS models to quickly recover from weather and
other disruptions.
 Overview of Quantitative Analysis
Management Science:
A scientific approach to managerial decision
making whereby raw data are processed and
manipulated resulting in meaningful information.

MS Meaningful
Raw Data
Analysis Information

Qualitative Factors:
Information that may be difficult to quantify but can affect the
decision-making process such as the weather, state, and
federal legislation.
The MS Approach:
Define
the problem

Develop
a model

Acquire
input data

Develop
a solution

Test
the solution

Analyze
the results

Implement
the results
 Define the Problem
Problem Definition:
A clear and concise statement that gives
direction and meaning to the subsequent analysis steps
and requires specific, measurable objectives.

THIS MAY BE THE MOST DIFFICULT STEP!

…because true problem causes must be identified and the
relationship of the problem to other organizational
processes must be considered.
 Develop the Model
Management Science Model:
A realistic, solvable, and understandable
mathematical statement showing the relationship
between variables.
revenues

sales

Models contain both controllable (decision variables) and

uncontrollable variables and parameters. Typically, parameters are
known quantities (salary of sales force) while variables are unknown
(sales quantity).
Acquire Data
Model Data:
Accurate input data that may come from a variety
of sources such as company reports, company
documents, interviews, on-site direct measurement,
or statistical sampling.

Garbage In Garbage Out

=
 Develop a Solution
Model Solution:
 The best model solution is found by manipulating
the model variables until a practical and
implemental solution is obtained.
 Manipulation can be done by solving the
equation(s), trying various approaches (trial and
error), trying all possible variables (complete
enumeration), and/or implementing an algorithm
(repeating a series of steps).
Test the Solution
Model Testing:
The collection of data from a different source to
validate the accuracy and completeness and
sensibility of both the model and model input
data ~ consistency of results is key!
Analyze the Results
Results Analysis:
Understanding actions implied by the
solution and their implications, as well
as conducting a sensitivity analysis (a
change to input values or the model) to
evaluate the impact of a change in model
parameters.

Sensitivity analyses allow the “what-

ifs” to be answered.
Implement the Results
Results Implementation:
The incorporation of the solution
into the company and the monitoring of
the results.
Modeling in the Real World
Real World Models can be:
 Complex,
 expensive, and
 difficult to sell.

BUT…
Real world models are used in the real
world by real organizations to solve
real problems!
Possible Pitfalls in Using Models
Prior to developing and implementing models,
managers should be aware of the potential pitfalls.
Define the Problem
 Conflicting viewpoints
 Departmental impacts
 Assumptions
Develop a Model
 Fitting the model
 Understanding the model
Acquire Input Data
 Availability of data
 Validity of data
Possible Pitfalls (Continued)

Develop a Solution
 Complex mathematics
 Solutions become quickly outdated
Test the Solution
 Identifying appropriate test procedures
Analyze the Results
 Holding all other conditions constant
 Identifying cause and effect
Implement the Solution
 Selling the solution to others
 Bagels R Us MS Model Example
Assume you are the new owner of Bagels R Us and you want to develop
a mathematical model for your daily profits and breakeven point. Your
fixed overhead is $100 per day and your variable costs are 0.50 per
bagel (these are GREAT bagels). You charge $1 per bagel.

Profits = Revenue - Expenses

(Price per Unit)  (Number Sold)

- Fixed Cost
- (Variable Cost/Unit)  (Number Sold)

Profits = $1Q - $100 - $.5Q

Bagels R Us MS Model Breakeven Example

Breakeven point occurs when

Revenue = Expenses
So, $1Q = $100 + $.5Q
Solve for Q
$1Q - .5Q = 100 => Q = 200

Where, Q = quantity of bagels sold

F = fixed cost per day of operation
V = variable cost/bagel
Breakeven Quantity = F/(P-V)
Conclusions
Models can help managers:
 Gain deeper insight into the nature of business
relationships.
 Find better ways to assess values in such relationships; and
 See a way of reducing, or at least understanding,
uncertainty that surrounds business plans and actions.
 Are less expensive and disruptive than experimenting with
real world systems, but may be expensive to develop and
test.
 Allow “What if” questions to be asked.
 Are built for management problems and encourage input,
but may be misunderstood due to the mathematical
complexity
Conclusions (continued)
Models:
 Enforce consistency in approach.
 Require specific constraints and goals, but tend to downplay
qualitative information.
 Help communicate problem solutions to others, but may
oversimplify assumptions and variables.
Models: The Up Side
Models:
 accurately represent reality.
 help a decision maker understand the
problem.
 save time and money in problem solving and
decision making.
 help communicate problems and solutions to
others.
 provide the only way to solve large or
complex problems in a timely fashion.
Models: The Down Side
Models:
 may be expensive and time-consuming to
develop and test.
 are often misused and misunderstood (and
feared) because of their mathematical
complexity.
 tend to downplay the role and value of
nonquantifiable information.
 often have assumptions that oversimplify the
variables of the real world.
QM for Windows
QM for Windows
Excel QM
Excel QM’s Main Menu of Models
 Excel QM’s Main Menu of Models (continued)

The highlighted area shows forecasting models