Operation Research - it is a scientific study that involves statistics and mathematics to solve

business problems. The scope of operations research is very high in the present business
landscape. Operations research consultants or analysts review company problems, processes,
loopholes and perform pattern, trend analysis to develop models which will help dial down and
provide insights to fix problems. The methods of operations research are commonly used to
solve problems associated with work breakdown, project planning, supply chain management,
operations management, scheduling and logistics, etc.

Uses/Scope of O.R. - Operations research is a problem-solving and decision-making analytical

technique. Organizations may develop more successful systems using operations management
by carefully forecasting outcomes, evaluating all feasible options, and employing decision tools
and processes. The importance of operations research cannot be denied due to the following
reasons.
● Increases business productivity
● Improves decision-making
● Establishes seamless control
● Improves coordination of departments
● Minimizes uncertainty
● Analyses in detail

Applications of Operations Research

Risk analysis - Risk analysis is an operation research application that allows businesses to
detect and handle potential problems that could undermine their projects or initiatives.

Inventory analysis- Inventory analysis assists businesses in determining the appropriate quantity
of goods to have in-hand, to meet customer demands while avoiding excessive inventory storage
costs.

Strategic planning - The process involves determining the order in which those objectives
should be carried out so that the organization may achieve its stated vision. Strategic planning is
often used to reflect mid-to long-term goals with a life duration of three to five years; which can
be extended.

Marketing research -Marketing research is a strategy or collection of practices used by

businesses to acquire information in order to comprehend their target market in a better way.
Marketing research is usually performed to find out what people desire and how they react to
items or features.
Revenue management- Revenue management is a systematic analytics method used to forecast
customer behavior at the micro-level, with the goal of optimizing product availability and price
while increasing revenue growth.

Auctioning- To sell assets and properties to prospective purchasers, an auction is arranged.

Auctioning is an open purchasing and selling mechanism in which buyers are asked to bid on
specific assets and are held by owners and businesses.

Forecasting- It is a strategy that uses previous data as inputs to create educated predictions about
the trajectory of upcoming trends. Forecasting is used by businesses to understand how to
allocate budgets or plan for anticipated costs in the future.

Optimisation- Optimisation is a process that ensures the effective and efficient performance of
business operations. It helps to reduce current expenditures while increasing operational
capabilities. Business operations should thus be optimized regularly to ensure that they are
functioning at an ideal level over the years.

Decision Making -
i- Decision-making under certainty: In this environment, all relevant information is known,
and the outcomes of various decisions are predictable with complete confidence. Decision
analysis techniques are used to optimize choices without ambiguity or risk. Operations research
techniques, like linear programming, can find optimal solutions under certainty

ii- Decision-making under uncertainty: In this scenario, the outcomes of decisions are
unknown due to incomplete information or unpredictable factors. Decision-makers rely on
probability theory and heuristics to estimate potential outcomes and make choices based on
subjective judgments. scenario analysis and simulation to account for various possibilities and
identify robust solutions.

iii- Decision-making under risk: This context involves known probabilities of different
outcomes, allowing decision-makers to assess the likelihood of various scenarios. Techniques
such as expected value analysis and decision trees are employed to select the best course of
action considering the probabilities and potential payoffs,

Decision Tree- In operations research, a decision tree is a visual, tree-like model that depicts a
sequence of decisions and their associated probabilistic outcomes. It helps analyze situations
with risk and uncertainty, where the exact future is unknown but probabilities can be assigned.

OR
A decision tree is a support tool with a tree-like structure that models probable outcomes, cost of
resources, utilities, and possible consequences. Decision trees provide a way to present
algorithms with conditional control statements. They include branches that represent
decision-making steps that can lead to a favorable result.

Types of Decisions
There are two main types of decision trees that are based on the target variable, i.e., categorical
variable decision trees and continuous variable decision trees.

1. Categorical variable decision tree -A categorical variable decision tree includes categorical
target variables that are divided into categories. For example, the categories can be yes or no.
The categories mean that every stage of the decision process falls into one category, and there are
no in-betweens.

2. Continuous variable decision tree - A continuous variable decision tree is a decision tree
with a continuous target variable. For example, the income of an individual whose income is
unknown can be predicted based on available information such as their occupation, age, and
other continuous variables.

Applications of Decision Trees

1. Assessing prospective growth opportunities- One of the applications of decision trees

involves evaluating prospective growth opportunities for businesses based on historical data.
Historical data on sales can be used in decision trees that may lead to making radical changes in
the strategy of a business to help aid expansion and growth.

2. Using demographic data to find prospective clients- Another application of decision trees
is in the use of demographic data to find prospective clients. They can help streamline a
marketing budget and make informed decisions on the target market that the business is focused
on. In the absence of decision trees, the business may spend its marketing market without a
specific demographic in mind, which will affect its overall revenues.

3. Serving as a support tool in several fields - Lenders also use decision trees to predict the
probability of a customer defaulting on a loan by applying predictive model generation using the
client’s past data. The use of a decision tree support tool can help lenders evaluate a customer’s
creditworthiness to prevent losses.