INTRODUCTION TO

MANAGEMENT SCIENCE
CHAPTER 1
 LEARNING OBJECTIVES
After completing this chapter, students will be able to:

• DEFINE MANAGEMENT SCIENCE, IDENTIFY ITS SPECIAL CHARACTERISTICS,

TRACE THE DEVELOPMENT OF MANAGEMENT SCIENCE, ILLUSTRATE ITS
MAJOR LIMITATIONS AND ENUMERATE AREAS OF APPLICATION.
• IDENTIFY FEATURES OF MANAGEMENT SCIENCE, TOOLS OF MANAGEMENT
SCIENCE AND ILLUSTRATE FEASIBLE OR INFEASIBLE, OPTIMAL OR NON-
OPTIMAL, AND UNIQUE OR MULTIPLE SOLUTIONS.
 WHAT IS MANAGEMENT?

• MANAGEMENT IS A PROCESS USED TO

ACHIEVE CERTAIN GOALS THROUGH THE
UTILIZATION OF RESOURCES (PEOPLE,
MONEY, ENERGY, MATERIALS, SPACE,
TIME).
 MANAGEMENT SCIENCE DEFINED

• MANAGEMENT SCIENCE (MS), AN APPROACH TO

MANAGERIAL DECISION MAKING BASED ON THE SCIENTIFIC
METHOD, MAKES EXTENSIVE USE OF QUANTITATIVE
ANALYSIS.

• THE ALTERNATIVE NAME FOR QUANTITATIVE APPROACHES TO

DECISION MAKING IS OPERATIONS RESEARCH (OR).
 MANAGEMENT SCIENCE – DEFINITION
AND CHARACTERISTICS
• TWO CLASSICAL DEFINITIONS OF MANAGEMENT SCIENCE
(OPERATIONS RESEARCH), ACCORDING TO TURBAN AND
MEREDITH ARE:
1. MS/OR IS THE APPLICATION OF SCIENTIFIC METHODS, TECHNIQUES AND
TOOLS TO PROBLEMS INVOLVING THE OPERATIONS OF SYSTEMS SO AS TO
PROVIDE THOSE IN CONTROL OF THE OPERATIONS WITH OPTIMUM
SOLUTIONS TO THE PROBLEMS.
2. MS/OR IS THE APPLICATION OF THE SCIENTIFIC METHOD TO THE STUDY OF
THE OPERATIONS OF LARGE, COMPLEX ORGANIZATIONS OR ACTIVITIES.
MANAGEMENT SCIENCE CAN BE BRIEFLY DEFINED AS:
THE APPLICATION OF THE SCIENTIFIC METHOD TO THE ANALYSIS AND SOLUTION OF
MANAGERIAL DECISION PROBLEMS.
THE MAJOR CHARACTERISTICS OF MANAGEMENT SCIENCE ARE:
1. A PRIMARY FOCUS ON MANAGERIAL DECISION MAKING.
2. THE APPLICATION OF THE SCIENTIFIC APPROACH TO THE DECISION MAKING
PROCESS.
3. THE EXAMINATION OF THE DECISION SITUATION FROM A BROAD PERSPECTIVE; I.E.
THE APPLICATION OF A SYSTEM APPROACH.
4. THE USE OF METHODS AND KNOWLEDGE FROM SEVERAL DISCIPLINES.
5. A RELIANCE ON FORMAL MATHEMATICAL MODELS.
6. THE EXTENSIVE USE OF COMPUTERS.
 DECISION MAKING

DECISION MAKING IS A PROCESS OF CHOOSING BETWEEN TWO OR MORE

AVAILABLE ALTERNATIVE COURSES OF ACTION FOR THE PURPOSE OF ATTAINING A
SPECIFIC GOAL. THE CONCLUSION OF THE PROCESS IS A DECISION. DECISION
MAKING IS A SYSTEMATIC PROCESS AND CAN BE SIMPLY DESCRIBED BY THE
FOLLOWING STEPS:
a) DEFINING THE PROBLEM.
b) SEARCHING FOR ALTERNATIVE COURSES OF ACTION.
c) EVALUATING THE ALTERNATIVES.
d) SELECTING ONE ALTERNATIVE.
 SYSTEMATIC APPROACH

SYSTEMS APPROACH INVOLVES FINDING AND

DEFINING ALL OF THE MENTIONED ELEMENTS AND
RELATIONS BETWEEN THEM IN THE REAL WORLD. THIS
APPROACH IS THE NECESSARY ASSUMPTION FOR USING
MANAGEMENT SCIENCE TECHNIQUES, AS THEY REQUIRE
THE EXACT DESCRIPTION OF A PROBLEM. ONLY SYSTEM
APPROACH ENABLES THE FORMULATION OF THE
PROBLEM IN THE MATHEMATICAL WAY.
 SYSTEMS
THE STRUCTURE OF SYSTEMS CONSISTS OF THREE RELATED PARTS:
INPUTS, PROCESSES AND OUTPUTS.
• INPUTS ENTER THE SYSTEM (PEOPLE, RAW MATERIALS, MONEY).
• PROCESSES CONVERT THE INPUTS INTO OUTPUTS (PROCESSES
MAY USE ENERGY, OPERATING PROCEDURES, EMPLOYEES,
MACHINES).
• OUTPUTS LEAVE THE SYSTEM (PRODUCTS, SERVED CUSTOMERS).
MODELING PROCESS
 MANAGEMENT SCIENCE TECHNIQUES

• INVENTORY CONTROL.
• FACILITY DESIGN.
• PRODUCT-MIX DETERMINATION.
• PORTFOLIO ANALYSIS.
• SCHEDULING AND SEQUENCING.
• MERGER-GROWTH ANALYSIS. X TRANSPORTATION PLANNING.
 MANAGEMENT SCIENCE TECHNIQUES
CONT..
• DESIGN OF INFORMATION SYSTEMS.
• ALLOCATION OF SCARCE RESOURCES.
• INVESTMENT DECISIONS (NEW PLANTS, ETC.).
• PROJECT MANAGEMENT – PLANNING AND CONTROL.
• NEW PRODUCT DECISIONS.
• SALES FORCE DECISIONS.
 MANAGEMENT SCIENCE TECHNIQUES
CONT..
• MARKET RESEARCH DECISIONS.
• RESEARCH AND DEVELOPMENT DECISIONS.
• OIL AND GAS EXPLORATION DECISIONS.
• PRICING DECISIONS.
• COMPETITIVE BIDDING DECISIONS.
• QUALITY CONTROL DECISIONS.
 MANAGEMENT SCIENCE TECHNIQUES
CONT..
• MACHINE SETUP PROBLEMS IN PRODUCTION.
• DISTRIBUTION DECISIONS.
• MANPOWER PLANNING AND CONTROL DECISIONS.
• CREDIT POLICY ANALYSIS.
• RESEARCH AND DEVELOPMENT EFFECTIVENESS
 FOR SOLVING ABOVE AND MANY OTHER
PROBLEMS THE FOLLOWING TECHNIQUES
CAN BE USED:
• LINEAR PROGRAMMING IT IS ONE OF THE BEST-KNOWN TOOLS OF MANAGEMENT
SCIENCE. THIS APPROACH MOSTLY DEFINES THE PROBLEM AS THE MAXIMIZING
(MINIMIZING) A LINEAR FUNCTION, RESPECTING THE SET OF LINEAR CONSTRAINTS.
• INTEGER LINEAR PROGRAMMING FURTHER REQUIREMENTS FOR THE VALUES OF
VARIABLES ARE ADDED TO THE ORIGINAL LINEAR MODEL (I.E. THE MODEL WITH THE
LINEAR FUNCTION AND LINEAR CONSTRAINTS).
• GOAL PROGRAMMING WHEN SEVERAL COMPETING OBJECTIVES HAVE TO BE
CONSIDERED SIMULTANEOUSLY, MORE POWERFUL TOOL IS NEEDED. GOAL
PROGRAMMING IS A SPECIAL TECHNIQUE FOR DEALING WITH SUCH CASES, USUALLY
WITHIN THE FRAMEWORK OF LINEAR PROGRAMMING.
 FOR SOLVING ABOVE AND MANY OTHER
PROBLEMS THE FOLLOWING TECHNIQUES
CAN BE USED:
• DISTRIBUTION MODELS A DISTRIBUTION PROBLEM IS A SPECIAL TYPE OF
LINEAR PROGRAMMING PROBLEM. THERE ARE TWO MAIN TYPES OF
DISTRIBUTION PROBLEMS: THE TRANSPORTATION PROBLEM AND THE
ASSIGNMENT PROBLEM.
1. THE TRANSPORTATION PROBLEM DEALS WITH SHIPMENTS FROM A
NUMBER OF SOURCES TO A NUMBER OF DESTINATIONS, WHEREAS
2. THE ASSIGNMENT PROBLEM DEALS WITH FINDING THE BEST ONE-TO-
ONE MATCH FOR EACH OF A GIVEN NUMBER OF POSSIBLE “CANDIDATES”
TO A NUMBER OF PROPOSED “POSITIONS”.
 FOR SOLVING ABOVE AND MANY OTHER
PROBLEMS THE FOLLOWING TECHNIQUES
CAN BE USED:
• NONLINEAR PROGRAMMING MODELS USED IN THIS AREA OF
MANAGEMENT SCIENCE ARE SIMILAR TO THE MODELS OF LINEAR
PROGRAMMING; HOWEVER THERE IS AN IMPORTANT DIFFERENCE BETWEEN
THEM: NONLINEAR MODELS CONTAIN NONLINEAR OBJECTIVE FUNCTION
AND/OR SOME NONLINEAR CONSTRAINTS. METHODS USED FOR SOLVING
TASKS FROM THIS AREA OF MANAGEMENT SCIENCE ARE, OF COURSE,
RATHER DIFFERENT FROM THE LINEAR PROGRAMMING METHODS.
 FOR SOLVING ABOVE AND MANY OTHER
PROBLEMS THE FOLLOWING TECHNIQUES
CAN BE USED:
• NETWORK MODELS SOME PROBLEMS CAN BE DESCRIBED GRAPHICALLY AS A NETWORK (THE
SET OF NODES AND ARCS). TYPICAL SITUATION IS A TRANSPORTATION NETWORK: CITIES
(NODES) ARE CONNECTED TO EACH OTHER BY ROADS (ARCS). IF WE EVALUATE THE NETWORK
(IN THIS CASE WE ARE INTERESTED E.G. IN DISTANCES BETWEEN ALL THE CITIES), THE TASK IS
OFTEN TO FIND THE MINIMAL DISTANCE FROM ONE CITY TO ALL OTHER CITIES.
• PROJECT MANAGEMENT IN MANY SITUATIONS THE MANAGERS ARE RESPONSIBLE FOR
PLANNING, SCHEDULING AND CONTROLLING PROJECTS THAT CONSIST OF MANY SEPARATE JOBS
OR TASKS PERFORMED BY A VARIETY OF DEPARTMENTS OR INDIVIDUALS. AN EXECUTION OF
EACH JOB TAKES SPECIFIC TIME. THERE ARE TWO BASIC METHODS FOR SOLVING THOSE
PROBLEMS: CPM (CRITICAL PATH METHOD) AND PERT (PROGRAM EVALUATION REVIEW
TECHNIQUE).
 FOR SOLVING ABOVE AND MANY OTHER
PROBLEMS THE FOLLOWING TECHNIQUES
CAN BE USED:
• INVENTORY MODELS INVENTORY CONTROL IS ONE OF THE MOST POPULAR TECHNIQUES,
WHICH HELPS MANAGERS TO DETERMINE WHEN AND HOW MUCH TO ORDER. THE MAIN
GOAL IS USUALLY TO FIND A PROPER BALANCE BETWEEN THE INVENTORY HOLDING COST
AND THE COST OF EXECUTING AN ORDER. THERE ARE MANY VARIOUS INVENTORY MODELS
BECAUSE OF MANY VARIOUS REAL INVENTORY SYSTEMS. WE CONSIDER TWO SEPARATED
CLASSES OF MODELS:
DETERMINISTIC AND PROBABILISTIC.
IN DETERMINISTIC MODELS THE RATE OF DEMAND IS CONSTANT THROUGH THE TIME,
WHEREAS IN PROBABILISTIC INVENTORY MODELS THE DEMAND FLUCTUATES THROUGH
THE TIME AND CAN BE EXPRESSED ONLY IN PROBABILISTIC TERMS.
 FOR SOLVING ABOVE AND MANY OTHER
PROBLEMS THE FOLLOWING TECHNIQUES
CAN BE USED:
• WAITING LINE MODELS THIS AREA OF MANAGEMENT SCIENCE TECHNIQUES DEALS WITH THE
SITUATIONS WHERE UNITS (E.G. CUSTOMERS) NEED TO BE SERVED BY A NUMBER OF CHANNELS
(E.G. VENDORS). AS THE NUMBER OF VENDORS IS LIMITED, SOME OF THE UNITS HAVE TO WAIT
FOR THE SERVICE IN A QUEUE. HENCE THE ALTERNATIVE NAME FOR THE WAITING LINE MODELS:
QUEUING MODELS. IN REAL SITUATIONS BOTH THE PROCESS OF UNITS’ ARRIVALS AND THE
SERVICE TIMES ARE RANDOM AND THE PROBABILISTIC APPROACH IS NECESSARY. SIMPLE WAITING
LINE MODELS CAN BE SOLVED ANALYTICALLY (EXACT SOLUTION USING DERIVATIVE FORMULAS),
WHEREAS FOR COMPLEX QUEUING SYSTEMS THE TECHNIQUE OF SIMULATION IS REQUIRED. THE
MAIN MANAGERIAL GOAL IN WAITING LINE MODELS IS THE DECISION ABOUT THE NUMBER OF
SERVICE LINES (FINDING A PROPER BALANCE BETWEEN SIZE OF THE QUEUE AND THE TOTAL
SERVICE COST).
 FOR SOLVING ABOVE AND MANY OTHER
PROBLEMS THE FOLLOWING TECHNIQUES
CAN BE USED:
• SIMULATION WHEN MANAGERIAL PROBLEMS BECOME MORE COMPLEX, THEY ARE OFTEN IMPOSSIBLE
(OR NON-EFFECTIVE BECAUSE OF SPENT TIME AND COST) TO BE SOLVED USING STANDARD TECHNIQUES.
FOR THIS PURPOSE, SIMULATION APPROACH IS ADVANTAGEOUS AND IN MANY CASES IT IS THE ONLY WAY
HOW TO MANAGE THE PROBLEM. SIMULATION IS A COMPUTER EXPERIMENTATION WITH A SIMULATION
MODEL AIMED AT DESCRIBING AND EVALUATING THE REAL SYSTEM’S BEHAVIOR - THE COMPUTER
PROGRAM SIMULATES THE REAL SYSTEM. THE TYPICAL SITUATIONS FOR SUCCESSFUL USE OF
SIMULATION ARE COMPLEX WAITING LINE MODELS AND INVENTORY MODELS.
• DECISION ANALYSIS THESE TECHNIQUES CAN BE USED TO SELECT OPTIMAL STRATEGIES OUT OF
SEVERAL DECISION ALTERNATIVES. MANAGERIAL PROBLEMS AND APPROPRIATE TOOLS ARE DIVIDED,
ACCORDING TO THE KIND OF MANAGER’S INFORMATION, INTO THREE CLASSES: DECISIONS UNDER
CERTAINTY (DETERMINISTIC), DECISION UNDER RISK (PROBABILISTIC) AND DECISIONS UNDER
UNCERTAINTY. WE CONSIDER SPECIAL TOOLS FOR THIS PURPOSE: DECISION TABLES AND TREES
 FOR SOLVING ABOVE AND MANY OTHER
PROBLEMS THE FOLLOWING TECHNIQUES
CAN BE USED:
• THEORY OF GAMES THIS AREA IS AN EXTENSION OF DECISION ANALYSIS TO THE SITUATIONS WITH
TWO OR MORE DECISION MAKERS. SIMULTANEOUS DECISIONS (SELECTED STRATEGIES) OF ALL
MANAGERS INITIATE AN ACTION THAT AFFECTS ALL DECISION MAKERS (PLAYERS), I.E. THEIR PROFIT,
COST, ETC. IN SOME CONFLICTS, THERE IS A POSSIBILITY FOR TWO OR MORE DECISION MAKERS TO
COOPERATE, WHILE COMPETING WITH THE OTHERS.
• FORECASTING. FORECASTING METHODS SUPPORT THE MANAGER’S PREDICTION OF FUTURE ASPECTS
OF A BUSINESS OPERATION. STATISTICS AND ECONOMETRICS OFFER MANY TECHNIQUES BASED ON
TIME-SERIES AND REGRESSION ANALYSIS. THE MAIN MANAGERIAL GOAL IS TO PROJECT FUTURE
TRENDS FOLLOWING THE PREVIOUS BEHAVIOR OF THE SYSTEM. THE WELL KNOWN ARE THE METHODS
OF MOVING AVERAGES, LEAST SQUARES, EXPONENTIAL SMOOTHING, ETC. SINCE THE STATISTICAL
SIGNIFICANCE IS VERY IMPORTANT FOR THESE MODELS, THE MANAGER’S EXPERIENCE WITH
HYPOTHESES VALIDATION AND STATISTICAL TESTS IS NECESSARY.
 FOR SOLVING ABOVE AND MANY OTHER
PROBLEMS THE FOLLOWING TECHNIQUES
CAN BE USED:
• MULTICRITERIA DECISION MAKING IN MANY MANAGERIAL PROBLEMS THE
DECISION MAKER NEEDS TO CONSIDER MULTIPLE CRITERIA. IF WE FIND A
SOLUTION IMPROVING ONE CRITERION, IT MOSTLY WORSENS SOME OF
OTHER CRITERIA. IT IS USUALLY IMPOSSIBLE TO OPTIMIZE SIMULTANEOUSLY
ALL THE CRITERIA. THE REASONABLE OPPORTUNITY FOR THE MANAGEMENT
IS TO FIND A SUITABLE COMPROMISE. IF THE COUNT OF ALTERNATIVES IS
LIMITED, WE USE METHODS OF ALTERNATIVES EVALUATION. SOME PROBLEMS
ARE DESCRIBED WITH THE SET OF CONSTRAINTS AND THE SET OF OBJECTIVE
FUNCTIONS. IN THIS CASE THE SOLUTION IS PROVIDED BY MULTIOBJECTIVE
PROGRAMMING TECHNIQUES. THE SPECIAL CATEGORY OF THIS
MANAGEMENT SCIENCE TECHNIQUE IS GOAL PROGRAMMING.
 FOR SOLVING ABOVE AND MANY OTHER
PROBLEMS THE FOLLOWING TECHNIQUES
CAN BE USED:
• MARKOV ANALYSIS THIS TECHNIQUE CAN BE USED TO DESCRIBE THE
BEHAVIOR OF A SYSTEM IN A DYNAMIC SITUATION (EVOLUTION OF THE
SYSTEM THROUGHOUT THE TIME). IF - AT A GIVEN TIME POINT - THE SYSTEM
IS IN ONE OF POSSIBLE STATES, AT FOLLOWING TIME POINT THE SYSTEM CAN
REMAIN IN CURRENT STATE OR CAN MOVE INTO ANY OTHER STATE.
REMAINING IN CURRENT STATE OR MOVEMENT TO ANOTHER STATE ARE SET
BY TRANSITION PROBABILITIES. THE MANAGER CAN BE INTERESTED IN THE
PROBABILITY WITH WHICH THE SYSTEM WILL BE IN THE SPECIFIC STATE AT
THE SPECIFIC TIME. MARKOV ANALYSIS IS A VERY POWERFUL TOOL OF
MANAGEMENT SCIENCE WITH MANY REAL APPLICATIONS.
 FOR SOLVING ABOVE AND MANY OTHER
PROBLEMS THE FOLLOWING TECHNIQUES
CAN BE USED:
• DYNAMIC PROGRAMMING MANAGEMENT MUST FREQUENTLY CONSIDER A
SEQUENCE OF DECISIONS WHERE EACH DECISION SIGNIFICANTLY AFFECTS
FUTURE DECISIONS. DYNAMIC PROGRAMMING HELPS MANAGERS TO SOLVE
CERTAIN TYPES OF SUCH SEQUENTIAL DECISION PROBLEMS. THERE IS NO
SINGLE MODEL FOR SOLVING DYNAMIC PROGRAMMING PROBLEMS AND THE
PROBLEMS ARE THEREFORE CLASSIFIED INTO MANY GROUPS.