Spring / February 2012 Master of Business Administration

Master of Business Administration-MBA Semester II
MB0048 – Operations Research

(Book ID: B1301)


Submitted by: Kusumlata Ahuja Roll No: 52115243

MB0048 – Operations Research - 4 Credits (Book ID: B1301)
Set - 1
Q1. A toy company manufactures two types of dolls, a basic version doll-A and a deluxe version doll-B. Each doll of type B takes twice as long to produce as one of type A, and the company would have time to make maximum of 1000 per day. The supply of plastic is sufficient to produce 1000 dolls per day (both A & B combined). The deluxe version requires a fancy dress of which there are only 500 per day available. If the company makes a profit of Rs 3.00 and Rs 5.. per doll, respectively on doll A and B, then how many of each doll should be produced per day in order to maximize the total profit. Formulate this problem. Answer: Formulation: Let X1 and X2 be the number of dolls produced per day of type A and B, respectively. Let the A require t hrs. So that the doll B require 2t hrs. So the total time to manufacture X1 and X2 dolls should not exceed 2000t hrs. Therefore, tX1 + 2tX2 ≤ 2000t Other constraints are simple. Then the linear programming problem becomes: Maximize p = 3 X1 + 5 X2 Subject to restrictions, X1 + 2X2 ≤ 2000 (Time constraint) X1 + X2 ≤ 1500 (Plastic constraint) X2 ≤ 600 (Dress constraint) And non-negatively restrictions X1, X2 ≥ 0 Q2. What are the advantages of Linear programming techniques? Answer: Advantages of Linear Programming techniques 1. The linear programming technique helps to make the best possible use of available productive resources (such as time, labor, machines etc.) 2. It improves the quality of decisions. The individual who makes use of linear programming methods becomes more objective than subjective. 3. It also helps in providing better tools for adjustment to meet changing conditions. 4. In a production process, bottle necks may occur. For example, in a factory some machines may be in great demand while others may lie idle for some time. A significant advantage of linear programming is highlighting of such bottle necks. 5. Most business problems involve constraints like raw materials availability, market demand etc. which must be taken into consideration. Just we can produce so many units of product does not mean that they can be sold. Linear programming can handle such situation also. Q3. Solve the following Assignment Problem Operations M1 M2 M3 O1 10 15 12 O2 9 10 9 O3 15 16 16

M4 11 12 17

Solution: Since the number of rows are less than number of columns, adding a dummy row and applying Hungarian method,

Operations O1 O2 O3 O4

M1 10 9 15 0

M2 15 10 16 0

Row reduction matrix M3 M4 12 11 9 12 16 17 0 0

Operations O1 O2 O3 O4

M1 [0] X 1 X

Optimum assignment solution M2 M3 M4 5 2 1 1 [0] 3 [0] X x x X [0]

Hungarian Method leads to multiple solutions. Selecting (03, M2) arbitrarily. O1 – M1 10 O2 – M3 09 O3 – M2 16 O4 – M4 00 ------------------------TOTAL 35 Therefore, the optimum assignment schedule is O1 – M1, O2 – M3, O3 – M2 AND O4 – M4. Q4. What is integer programming? Answer: If the unknown variables are all required to be integers, then the problem is called an integer progrmming (IP) or integer linear programming (ILP) problem. In contrast to linear programming, which can be solved efficiently in the worst case, integer programming problems are in many practical situations (those with bounded variables) NP-hard (non deterministic polynomial-time hard), in computational complexity theory, is a class of problems that are, informally, "at least as hard as the hardest problems in NP"). 0-1 integer programming or binary integer programming (BIP) is the special case of integer programming where variables are required to be 0 or 1 (rather than arbitrary integers). This problem is also classified as NP-hard, and in fact the decision version was one of Karp’s 21 NP-complete problems. If only some of the unknown variables are required to be integers, then the problem is called a mixed integer programming (MIP) problem. These are generally also NP-hard. There are however some important subclasses of IP and MIP problems that are efficiently solvable, most notably problems where the constraint matrix is totally uni-modular and the right-hand sides of the constraints are integers. Advanced algorithms for solving integer linear programs include: • Cutting –plane method • Branch and bound • Branch and cut • Branch and price • if the problem has some extra structure, it may be possible to apply delayed column generation. Such integer-programming algorithms are discussed by Padberg and in Beasley. Q5. Explain the different steps involved in simulation methodologies? Answer: The methodology developed for simulation process consists of the following seven steps: Step 1: Identify and clearly define the problem. Step 2: List the statement of objectives of the problem. Step 3: Formulate the variables that influence the situation and an extract or probabilistic

description of their possible values or states. Step 4: Obtain a consistent set of values (or states) for the variables, i.e., a sample of probabilistic variables, random sampling technique maybe used. Step 5: Use the sample obtained in step 2 to calculate the values of the decision criterion, by actually following the relationships among the variables for each of the alternative decisions. Step 6: Repeat steps 2 and 3 until a sufficient number of samples are available. Step 7: Tabulate the various values of the decision criterion and choose the best policy. Q6. Write down the basic difference between PERT & CPM. Answer: Though there are no essential differences between PERT and CPM as both of them share in common the determination of a critical path. Both are based on the network representation of activities and their scheduling that determines the most critical activities to be controlled so as to meet the completion date of the project. PERT (Program Evaluation and CPM (Critical Path Method) Review Technique) 1)PERT is a probabilistic tool used 1)CPM is a deterministic tool, with with three only single Estimating the duration for completion of estimate of duration activities. 2)This tool is basically a tool for 2) CPM also allows and explicit planning estimate of and control of time. costs in addition to time, therefore CPM can control both time and cost. 3)PERT is more suitable for R&D 3)CPM is best suited for routine and related those projects where the project is performed for projects where time and cost estimates can the first time and the estimate of duration be accurately calculated are uncertain. 4)The probability factor i major in 4) The deterministic factor is more PERT so values or so outcomes may not be exact. outcomes are generally accurate and realistic.

MB0048 – Operations Research - 4 Credits (Book ID: B1138)
Set - 2
Q1. What is a model in OR? Discuss different models available in OR. Answer: A model is an idealized representation or abstraction of a real-life system. The objective of a model is to identify significant factors that affect the real-life system and their interrelationships. A model aids the decision-making process as it provides a simplified description of complexities and uncertainties of a problem in a logical structure. The most significant advantage of a model is that it does not interfere with the real-life system. A broad classification of OR models You can broadly classify OR models into the following types: a. Physical Models include all form of diagrams, graphs and charts. They are designed to tackle specific problems. They bring out significant factors and interrelationships in pictorial form to facilitate analysis. There are two types of physical models: a) Iconic models b) Analog models Iconic models are primarily images of objects or systems, represented on a smaller scale. These models can simulate the actual performance of a product. Analog models are small physical systems having characteristics similar to the objects they represent, such as toys. b. Mathematical or Symbolic Models employ a set of mathematical symbols to represent the decision variable of the system. The variables are related by mathematical systems. Some examples of mathematical models are allocation, sequencing, and replacement models. c. By nature of Environment: Models can be further classified as follows: a) Deterministic model in which everything is defined and the results are certain, such as an EOQ model. b) Probabilistic Models in which the input and output variables follow a defined probability distribution, such as the Games Theory. d. By the extent of Generality Models can be further classified as follows: a) General Models are the models which you can apply in general to any problem. For example: Linear programming. b) Specific Models on the other hand are models that you can apply only under specific conditions. For example: You can use the sales response curve or equation as a function of only in the marketing function. Q2. Write dual of Max Z = 4X1 + 5X2 Subject to: 3X1 + X2 ≤ 15 X1 + 2X2 ≤ 10 5X1 + 2X2 ≤ 20 X1, X2 ≥ 0 Solution: Min W = 15Y1 + 10Y2 + 20Y3 Subject to 3Y1 + Y2 + 5Y3 ≥ 4 Y1 + 2Y2 + 2Y3 ≥ 5 Y1, Y2, Y3 ≥ 0

Q3. Write a note on Monte-Carlo simulation. Answer: The Monte-Carlo method is a simulation technique in which statistical distribution functions are created by using a series of random numbers. This approach has the ability to develop many months or years of data in a matter of few minutes on a digital computer. The method is generally used to solve the problems which cannot be adequately represented by mathematical models, or, where solution of the mode, is not possible by analytical method. The Monte-Carlo simulation procedure can be summarized in the following steps: Step 1: Define the problem: a) Identify the objectives of the problem, and b) Identify the main factors which have the greatest effects on the objectives of the problem Step 2: Construct an appropriate model: a) Specify the variables and parameters of the model. b) Formulate the appropriate decision rules, i.e., state the conditions under which the experiment is to be performed. c) Identify the type of distribution that will be used – Models use either theoretical distributions or empirical distributions to state the patterns the occurrence associated with the variables. d) Specify the manner in which time will change. e) Define the relationship between the variables and parameters. Step 3: Prepare the model for experimentation: a) Define the starting conditions for the simulation, and b) Specify the number of runs of simulation to be made. Step 4: Using step 1 to 3, experiment with the model: a) Define a coding system that will correlate the factors defined in step 1 with the random numbers to be generated for the simulation. b) Select a random number generator and create the random numbers to be used in the simulation. c) Associate the generated random numbers with the factors identified in step 1 and coded in step 4 (a). Step 5: Summarize and examine the results obtained in step 4. Step 6: Evaluate the results of the simulation. Step 7: Formulate proposals for advice to management on the course of action to be adopted and modify the model, if necessary. Q4. Explain PERT Answer: Program (Project) Evaluation and Review Technique (PERT) is a project management tool used to schedule, organize, and coordinate tasks within a project. It is basically a method to analyze the tasks involved in completing a given project, especially the time needed to complete each task, and to identify the minimum time needed to complete the total project. Some key points about PERT are as follows: 1. PERT was developed in connection with an R&D work. Therefore, it had to cope with the uncertainties that are associated with R&D activities. In PERT, the total project duration is regarded as a random variable. Therefore, associated probabilities are calculated so as to characterize it. 2. It is an event-oriented network because in the analysis of a network, emphasis is given on the important stages of completion of a task rather than the activities required to be performed to reach a particular event or task. 3. PERT is normally used for projects involving activities of non-repetitive nature in which time estimates are uncertain. 4. It helps in pinpointing critical areas in a project so that necessary adjustment can be made to meet the scheduled completion date of the project. PERT planning involves the following steps: • Identify the specific activities and milestones. • Determine the proper sequence of the activities. • Construct a network diagram.

• • •

Estimate the time required for each activity. Determine the critical path. Update the PERT chart as the project progresses.

Q5. Explain Maximini - minimax principle Answer: Solving a two-person zero-sum game: Player A and player B are to play a game without knowing the other player’s strategy. However, player A would like to maximize his profit and player B would like to minimize his loss. Also each player would expect his opponent to be calculative. Suppose player A plays A1. Then, his gain would be a11, a12, ... , a1n, accordingly B’s choice would be B1,B2, … , Bn. Let α1 = min { a11, a12, … , a1n. Then, α1 is the minimum gain of A when he plays A1 (α1 is the minimum pay-off in the first row.) Similarly, if A plays A2, then his minimum gain is α2, the least pay-off in the second row. You will find corresponding to A’s play A1, A2, … , Am, the minimum gains are the row minimums α1, α2, … , αm. Suppose A chooses the course of action where αi is maximum. Then the maximum of the row minimum in the pay-off matrix is called maximin. The maximin is α = max I { min j (aij) } Similarly, when B plays, he would minimise his maximum loss. The maximum loss to B is when Bj is βj = max i ( aij ). This is the maximum pay-off in the j th column. The minimum of the column maximums in the pay-off matrix is called minimax. The minimax is β = min j { max I (aij) } If α = β = v (say), the maximin and the minimax are equal and the game is said to have saddle point. If α < β, then the game does not have a saddle point. Saddle point: In a two-person zero-sum game, if the maximin and the minimax are equal, the game has saddle point. Saddle point is the position where the maximin (maximum of the row minimums) and minimax (minimum of the column maximums) coincide. If the maximin occurs in the rth row and if the minimax occurs in the sth column, the position (r, s) is the saddle point. Here, v = ars is the common value of the maximin and the minimax. It is called the value of the game. The value of a game is the expected gain of player A, when both the players adopt optimal strategy. Note: If a game has saddle point, (r, s), the player’s strategy is pure strategy. Solution to a game with saddle point Consider a two-person zero-sum game with players A and B. Let A1, A2, … ,Am be the courses of action for player A. Let B1, B2, … ,Bn be the courses of action for player B. The saddle point of the game is as follows: 1. The minimum pay-off in each row of the pay-off matrix is encircled. 2. The maximum pay-off in each column is written within a box. 3. If any pay-off is circled as well as boxed, that pay-off is the value of the game. The corresponding position is the saddle point. Let (r, s) be the saddle point. Then, the suggested pure strategy for player A is Ar. The suggested pure strategy for player B is Bs. The value of the game is ars. Note: However, if none of the pay-offs is circled or boxed, the game does not have a saddle point. Hence, the suggested solution for the players is mixed strategy. Q6. Write short notes on the following: a. Linear Programming

b. transportation Answer: a. Linear Programming: Linear programming focuses on obtaining the best possible output (or a set of outputs) from a given set of limited resources. The LPP is a class of mathematical programming where the functions representing the objectives and the constraints are linear. Optimization refers to the maximization or minimization of the objective functions. You can define the general linear programming model as follows: Maximize or Minimize: Z = c1X1 + c2X2 + --- +cnXn Subject to the constraints, a11X1 + a12X2 + --- + a1nXn ~ b1 a21X1 + a22X2 + --- + a2nXn ~ b2 am1X1 + am2xX2 + --- + amnXn ~ bm and X1, X2, ……………….., Xn ≥ 0 Where, cj, bi and aij (i = 1, 2, 3, ….. m, j = 1, 2, 3 ------- n) are constants determined from the technology of the problem and Xj (j = 1, 2, 3 ---- n) are the decision variables. Here ~ is either ≤ (less than), ≥ (greater than) or = (equal). Note that, in terms of the above formulation the coefficients cj, bi and aij are interpreted physically as follows. If bi is the available amount of resources i, where aij is the amount of resource i that must be allocated to each unit of activity j, the “worth” per unit of activity is equal to cj. b. Transportation: Transportation model is an important class of linear programs. For a given supply at each source and a given demand at each destination, the model studies the minimization of the cost of transporting a commodity from a number of sources to several destinations. The transportation problem involves m sources, each of which has available ai (i = 1, 2… m) units of homogeneous product and n destinations, each of which requires bj (j = 1, 2…., n) units of products. Here ai and bj are positive integers. The cost cij of transporting one unit of the product from the ith source to the jth destination is given for each i and j. The objective is to develop an integral transportation schedule that meets all demands from the inventory at a minimum total transportation cost. It is assumed that the total supply and the total demand are equal. m ∑i=1 ai = n∑j=1 bj (1) The condition (1) is guaranteed by creating either a fictitious destination with a demand equal to the surplus if total demand is less than the total supply or a (dummy) source with a supply equal to the shortage if total demand exceeds total supply. The cost of transportation from the fictitious destination to all sources and from all destinations to the fictitious sources are assumed to be zero so that total cost of transportation will remain the same. The standard mathematical model for the transportation problem is as follows. Let Xij be number of units of the homogenous product to be transported from source i to the destination j. Then objective is to Minimize Z = m∑i=1 n∑j=1 CIJ Xij Subject to m∑i=1 ai, i = 1, 2, 3, -------------, m and n∑j=1 bj, j = 1, 2, 3, -------------, n (2) With all XIJ ≥ 0 A necessary and sufficient condition for the existence of a feasible solution to the transportation m problem (2) is: ∑i=1 ai = n∑j=1 bj

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