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01 Introduction To Management Science

The document provides an introduction to management science. It discusses that management science takes a scientific approach to solving management problems through logical and quantitative models. The management science process involves observing a problem, defining it, constructing a model, solving the model, and implementing the solution. An example is provided of constructing a model to determine the optimal production level given costs, revenues, and resource constraints. Break-even analysis is also introduced as a technique to determine the production volume needed for total revenue to equal total costs.

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16 views

01 Introduction To Management Science

The document provides an introduction to management science. It discusses that management science takes a scientific approach to solving management problems through logical and quantitative models. The management science process involves observing a problem, defining it, constructing a model, solving the model, and implementing the solution. An example is provided of constructing a model to determine the optimal production level given costs, revenues, and resource constraints. Break-even analysis is also introduced as a technique to determine the production volume needed for total revenue to equal total costs.

Uploaded by

walsondev
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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INTRODUCTION

TO MANAGEMENT
SCIENCE
LEARNING OUTCOMES
▹ Apply the scientific and quantitative
approach in making management
decisions. 2

▹ Generate quantitative models to aid


creating solutions for management
problems.
▹ Create solutions for simple
management problems.
What comes to your
mind when you hear the
phrase management
science?
THE MANAGEMENT SCIENCE
APPROACH

▹ Management science is a scientific approach to solving


management problems.
▹ It is used in a variety of organizations to solve many
4
different types of problems.
▹ It encompasses a logical mathematical approach to
problem solving.
▹ Management science, also known as operations
research, quantitative methods, business analytics, etc.,
involves a philosophy of problem solving in a logical
manner.
THE
MANAGEMENT
SCIENCE
PROCESS 5
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 6
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.
MODEL CONSTRUCTION EXAMPLE
Information and Data:
▹ Business firm makes and sells a steel product
▹ Product costs $5 to produce
7
▹ 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.
MODEL CONSTRUCTION EXAMPLE
Variables: x = # units to produce (decision variable)
Z = total profit (in $)
Model: Z = $20x − $5x (objective function)
8
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
MODEL CONSTRUCTION EXAMPLE

9
MANAGEMENT SCIENCE AND
BUSINESS ANALYTICS

▹ Business analytics uses large amounts of data with


management science techniques to help managers
make decisions
10
▹ Brings together information technology, statistics,
management science, computer science, engineering,
and data science
▹ Big data
MODEL BUILDING:
BREAK-EVEN
ANALYSIS
BREAK-EVEN ANALYSIS
▹ Used to determine the number of units of a product to
sell or produce that will equate total revenue with total
cost.
12
▹ The volume at which total revenue equals total cost is
called the break-even point.
▹ Profit at break-even point is zero.
BREAK-EVEN ANALYSIS
Model Components
▹ Fixed Cost (cf) - costs that are independent of the
number of units produced and remain constant. 13
▹ Variable Cost (cv) - unit production cost of product.
▹ Volume (v) - the number of units produced or sold
▹ Total variable cost (vcv) - function of volume (v) and
unit variable cost.
BREAK-EVEN ANALYSIS
▹ Total Cost (TC) - total fixed cost plus total variable
cost.

TC  cf  vc v 14

▹ Profit (Z) - difference between total revenue vp (p =


unit price) and total cost, i.e.

Z  vp  c f  vc v 
 vp  c f  vc v
BREAK-EVEN ANALYSIS
Computing the Break-Even Point
The break-even point is the volume at which total revenue
equals total cost and profit is zero: 15
vp  c f  vc v  0
v  p  cv   cf

The break-even point


cf
v
p  cv
BREAK-EVEN ANALYSIS
Example: Western Clothing Company

16

The break-even point is


cf
v
p  cv
$10,000
v
$23 / pair  $8 / pair
v  666.7pairs of jeans
BREAK-EVEN ANALYSIS

17
MANAGEMENT
SCIENCE
TECHNIQUES
MANAGEMENT SCIENCE
TECHNIQUES

▹ Linear Mathematical Programming - clear objective;


restrictions on resources and requirements; parameters known
with certainty.
▹ Probabilistic Techniques - results contain uncertainty. 19

▹ Network Techniques - model often formulated as diagram;


deterministic or probabilistic.
▹ Other Techniques - variety of deterministic and probabilistic
methods for specific types of problems including forecasting,
inventory, simulation, multicriteria, A H P (analytic hierarchy
process), etc.
MANAGEMENT SCIENCE
TECHNIQUES

▹ Some application areas:


– Project Planning
– Capital Budgeting 20

– Inventory Analysis
– Production Planning
– Scheduling, and many others
▹ Interfaces - Applications journal published by
Institute for Operations Research and Management
Sciences (I N F O R M S)

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