Introduction to Management Science

Thirteenth Edition

Chapter 1
Management Science

Copyright © 2019, 2016, 2013 Pearson Education, Inc. All Rights Reserved
Learning Objectives

1.1 The Management Science Approach to Problem

Solving
1.2 Model Building
1.3 Management Science Modeling Techniques

Copyright © 2019, 2016, 2013 Pearson Education, Inc. All Rights Reserved
The Management Science Approach

data
Business
data
insights
data

1- Management science (also referred to as operations research, decision

making, and business analytics) is the application of scientific approach
to solving management problems to help managers make better decisions.

2- Use of tools and techniques to turn data into meaningful business

insights

Copyright © 2019, 2016, 2013 Pearson Education, Inc. All Rights Reserved
 The Management Science Approach (Types
de analytics)
Prescriptive
Analytics
data
Descriptive Predictive Business
data Analytics Analytics insights
data

Copyright © 2019, 2016, 2013 Pearson Education, Inc. All Rights Reserved
Types de analytics
data
Descriptive Business
data Analytics insights
data

Data Visualization

Descriptive Statistics

Copyright © 2019, 2016, 2013 Pearson Education, Inc. All Rights Reserved
Types de analytics
data
Predictive Business
data Analytics insights
data

Copyright © 2019, 2016, 2013 Pearson Education, Inc. All Rights Reserved
Types de analytics
Prescriptive
Analytics
data
Business
data
insights
data

Copyright © 2019, 2016, 2013 Pearson Education, Inc. All Rights Reserved
Descriptive, Predictive, and Prescriptive
Analytics

• Descriptive analytics: the use of data to understand

past and current business performance and make
informed decisions
• Predictive analytics: predict the future by examining
historical data, detecting patterns or relationships in these
data, and then extrapolating these relationships forward
in time.
• Prescriptive analytics: identify the best alternatives to
minimize or maximize some objective

Copyright © 2019, 2016, 2013 Pearson Education, Inc. All Rights Reserved
Types of Business Decisions
Strategic (long-term, high-impact decisions),
Tactical (medium-term, implementing strategies), and
Operational (short-term, day-to-day decisions).

Strategic

Tactical

Operational

Copyright © 2019, 2016, 2013 Pearson Education, Inc. All Rights Reserved
Types of Business Decisions
Type Example Descriptive Predictive Prescriptive

Forecast demand in
Entering a new Market size, trend and new markets based on Optimize location and
market competitor analysis historical data and investment levels
Strategic market research.

Launching a Analyze past product Predict customer Optimize production

new product sales demand quantities
Forecast workforce
Assess current staffing
Workforce needs based on Optimize workforce
Tactical levels and historical
planning seasonal trends and allocation
workloads.
future projects.
Optimize delivery
Operational Delivery routing Assess order volumes Predict delivery delays
routes

Strategic

Tactical

Operational
Copyright © 2019, 2016, 2013 Pearson Education, Inc. All Rights Reserved
Examples of Applications
• Location
– finding the best location for bank branches and ATMs, or where
to service industrial equipment
• Supply Chain Design
– determining the best sourcing and transportation options and
finding the best delivery routes
• Staffing
– ensuring appropriate staffing levels and capabilities, and hiring
the right people
• Health care
– scheduling operating rooms to improve utilization, improving
patient flow and waiting times, purchasing supplies

Copyright © 2019, 2016, 2013 Pearson Education, Inc. All Rights Reserved
Developing Analytical Career Skills

• Critical thinking – purposeful and goal-oriented problem

definition and solution (modeling)
• Collaborating – necessary in a project team-based
environment
• Information Technology & Computing – reliance on
computer software
• Data Literacy – ability to access, interpret, manipulate,
communicate and summarize data

Copyright © 2019, 2016, 2013 Pearson Education, Inc. All Rights Reserved
 Steps in the Management Science Process
• Observation - Identification of a
problem that exists (or may occur soon)
in a system or organization.
• Problem Definition - The problem must
be clearly and consistently defined,
showing its boundaries and interactions
with the objectives of the organization.
• Model Construction - Development of
the functional mathematical
relationships that describe the decision
variables, objective function and
constraints of the problem.
• Model Solution - The model is solved
using management science techniques.
• Model Implementation - Actual use of
the model or its solution.
Copyright © 2019, 2016, 2013 Pearson Education, Inc. All Rights Reserved
Example of Model Construction (1 of 3)

Information and Data:

• Business firm makes and sells a steel product
• Product costs $5 to produce
• Product sells for $20
• Product requires 4 pounds of steel to make
• Firm has 100 pounds of steel
Business Problem:
• Determine the number of units to produce to make the
most profit, given the limited amount of steel available.
Copyright © 2019, 2016, 2013 Pearson Education, Inc. All Rights Reserved
Example of Model Construction (2 of 3)

Variables: x = # units to produce (decision variable)

Z = total profit (in $)
Model: Z = $20x − $5x (objective function)
4x = 100 lb of steel (resource constraint)
Parameters: $20, $5, 4 lbs, 100 lbs (known values)
Formal Specification of Model:
maximize Z = $20x − $5x
subject to 4x <= 100

Copyright © 2019, 2016, 2013 Pearson Education, Inc. All Rights Reserved
Example of Model Construction (3 of 3)
Model Solution:
Solve the constraint equation:
4 x = 100
( 4 x ) = (100 )
4 4
x = 25 units

Substitute this value into the profit function:

Z = $20 x − $5 x
= ( 20 )( 25 ) − ( 5 )( 25 )
= $375
(Produce 25 units, to yield a profit of $375)
Copyright © 2019, 2016, 2013 Pearson Education, Inc. All Rights Reserved
Example 2
A company has a budget of $100,000 and must decide which
projects to fund to maximize ROI. Here are the options:"

Project Cost ($) Expected ROI (%)

A 30,000 15%
B 50,000 30%
C 40,000 25%
D 20,000 10%

• “Which projects should the company choose to maximize

ROI while staying within budget?”
• Justify the decision

Copyright © 2019, 2016, 2013 Pearson Education, Inc. All Rights Reserved