Operation Research /Management

Science

Mr. Aayush Bhattarai

Assistant Professor
Pulchowk Campus, IOE
2075
 Operation Research
 Operation research is a scientific approach to decision making, which

seeks to determine how best to design and operate a system under

conditions requiring the allocations of scarce resource.

 Provides sets of algorithms that act as tools for effective problem solving

and decision making

 Extensive applications in engineering, business and public systems

 Used extensively by manufacturing and service industries in decision

making.
 Operation Research
 Origin during World War II when the british military asked scientist to

analyze the problem

 The application of mathematics and scientific methods to military

applications was called operation research

 Today it is called management science

 It is a scientific approach to decision making that seeks to determine how

best to operate a system under conditions of allocating scarce resource.

 Applications of Operation Research
 Constructing Mathematical, economic and statistical description or

models of decisions and control problems to treat situations of complexity

and uncertainty.

 Analyzing the relationship that determine the probable future

consequences of decision choices, and devising appropriate measures of

effectiveness in order to evaluate the relative merit of alternative actions.

 Modeling approach to Decision
Making
 Mental Model

 Moving into a new dormitory.

 Visual Models

 Sets of blueprints of house

 Physical or Scale Models

 Aeronautics/Aero dynamics

 Mathematical Model

 Mathematical Representation of Models.

 Characteristics and Benefits of
Modelling
 First, model is a simplified representation of reality, the model is useful until its
valid.

 Secondly, it is often less expensive to analyze decision problem using model.

 The analysis of model can help avoid costly mistakes that might result from poor
decision making.
 Brock candy company example

 Third, Models often deliver needed information on a more timely basis

 Fourth, models are frequently helpful in examining things that would be

impossible to do in reality

 Finally, models allow us to gain insight and understanding about the object or
decision problem under investigation. Ultimate goal is to improve decision
making
 Mathematical Models

 We will be studying mathematical models

 The model will use mathematics to describe decision problem

 Fourth, models are frequently helpful in examining things that would be

 Mathematical Models

 For example

 Lets consider simple example of Mathematical Mode

PROFIT = REVENUE − EXPENSES (1.1)

Equation 1.1 describes a simple relationship between revenue, expenses, and

profit

In another language, It is a mathematical relationship that describes the operation

of determining profit—or a mathematical model of profit

Functional
PROFIT = f(REVENUE, EXPENSES) (1.2)
Relationship
 Mathematical Models

 For example

PROFIT = f(REVENUE, EXPENSES) Functional (1.2)

Relationship
So, we can see that profit depends upon revenue and expense. Thus, PROFIT is
dependent variable and REVENUE and EXPENSES are Independent.

So, Let Y be Profit, X1 and X2 be Revenue and Expense respectively then, this can
be again written as

Y = f(X1, X2 ) (1.3)

Writing it in general form,

Y = f(X1, X2, . . . , Xk) (1.4)

f(.) or Y is the function (possibly quite complex) that specifies or describes the
relationship between the dependent and independent variables.
 Mathematical Models
 Consider another example ( Lets use a spreadsheet model this time)

 Contains One Input cell and one output shell

 Input Cells are Independent Variables such as X1, X2, . . . , Xk, the result of
various mathematical operations result in Output Cells.

.
Categories of Mathematical Models
.
 The Problem Solving Process
 To become an effective modeler, it is important to understand how modeling
fits into the entire problem-solving process.

 First Step Identifying the problem, need to identify correct problem

 But identifying a problem to solve is not often so easy.

 The end result of the problem-identification step is a well-defined statement of

the problem.

 Formulate the model

 The best model is the simplest model that accurately reflects the relevant
characteristic or essence of the problem being studied
 The Problem Solving Process
 Don’t have strong preference on your favorite modeling technique, this won’t
help.

 Sometimes, the values of the independent variables affecting a problem are

under the manager’s control; sometimes they are not.

 Sometimes, the form of the functional relationship f(.) relating the dependent
and independent variables is well-defined, and sometimes it is not.

 Your goal at the model-formulation stage is to select a modeling technique that

fits your problem.

 After you select an appropriate representation or formulation of your problem,

the next step is to implement this formulation as a spreadsheet model.

 After you verify that your spreadsheet model has been implemented
accurately, the next step in the problem-solving process is to use the model to
analyze the problem it represents
 The Problem Solving Process
 The main focus of this step is to generate and evaluate alternatives that might
lead to a solution

 Testing should be done to check the feasibility and quality of the alternative
before implementing it.

 The last step of the problem-solving process, implementation, is often the most
difficult.

 By their very nature, solutions to problems involve people and change. For
better or for worse, most people resist change

If we do not identify the correct problem, the best we can hope for from our
modeling effort is

“the right answer to the wrong question”

ANCHORING AND FRAMING EFFECTS
 Anchoring effects arise when a seemingly trivial factor serves as a starting point
(or anchor) for estimations in a decision-making problem.

 Framing effects refer to how a decision maker views or perceives the

alternatives in a decision problem—often involving a win/loss perspective.

GOOD DECISION VS GOOD OUTCOMES

 Weather example
End of Chapter 1

Thank You !