OPERATIONS RESEARCH 1

The Key Managerial Responsibility

• Managers make decisions. That’s what they are trained to

do; that’s why they are hired, and that’s what they get paid
for doing. Some of these decisions are made largely on
the basis of intuition or “feel”.
• Deciding to raise your price during an involved negotiation
with a very large customer is more likely the result of an
intuitive analysis of his behavior than it is a detailed
analysis of large amounts of data.
• On the other hand, deciding which combination of
machines, jobs to be done, and available employees
generates the lowest total manufacturing cost for a large
plant is a decision which can benefit from some of the
quantitative techniques such as operations research.
Successful managers use quantitative approaches to
decision making when:

• The problem is complex.

• The problem involves many variables.
• There are data which describe the decision environment.
• There are data which describe the value or utility of the different
possible alternatives.
• The goals of the decision maker or her organization can be described in
quantitative term.
• Workable models are available for these situations
Applications of Operations Research

• Accounting

• Finance
• Marketing
• Production/Operation
Quantitative methods

• Probability Concepts - are reviewed as a background for OR.

Methods are indicated for computing and using probabilities.
• Forecasting – is an unavoidable responsibility of management.
• Decision theory – is concerned with making sensible decision
both under conditions of complete uncertainty about future
outcomes and under conditions such that you make some
probability statements about what you think will happen in the
future.
• Inventory models – make decisions that minimize total inventory cost; these approaches
can successfully reduce the total cost of purchasing inventory, carrying inventory, being out of
inventory.
• Linear programming – is of value when a choice must be made from alternatives too
numerous to evaluate with conventional methods.
• Special-purpose algorithms – are linear programming techniques useful when working with
certain specially structured problems. We illustrate the transportation method and the
assignment methods, two approaches that are useful when management is confronted with
problems concerning the best distribution alternative or the optimal methods of assigning
operators to machines, accountants to audit teams, and even students to schools.
• Integer programming, the branch and bound method, dynamic programming, and goal
programming – are methods for choosing among alternative when answers may have to
be found in whole numbers, when the decision confronting management involves many
consecutive stages, or when organizational objectives have to be stated in more than
simple numerical terms.
• Heuristic – are sometimes described as “rules of thumb which work”.
• Simulation – is a procedure that studies a problem by creating a model of the process
involved in that problem and them, through a series of organized trial and error solutions
attempts to determine the best solution to the problem.
 • Queuing theory – studies random arrivals at a servicing or processing facility
of limited capacity.
• Network scheduling – enables managers to cope with complexities involved in
large projects; the use of this technique has significantly reduced the time
necessary to plan and produce complex products.

• Markov analysis – permits one to predict changes over time when information
about the behavior of a system is known.