OPERATIONS RESEARCH: INTRODUCTION

The formal study of operations research could be traced back during the Second World War
when England appointed services of scientists, mathematicians and engineers for the optimum
utilization of war resources. Because of its genesis, most of the early definitions are inclined
towards war. Later, the techniques were used for civilian activities and eventually in almost
every discipline including management.

Definitions:

1. The art of winning war without actually fighting. [D‟ Clarke]

2. The art of giving bad answers to the problems where otherwise worst answers are given.
[T.L Sastry]
3. OR is the application of scientific methods, techniques and tools to problems involving
operations of a system so as to provide those in control of the system with optimum
solution to the problem. [Acoff, Annoff and Churchmann]
4. OR is a scientific knowledge through interdisciplinary team effort for the purpose of
determining the best utilization of limited resources. [Hamdy A. Taha]

These definitions could be combined into one, “Operations Research is an interdisciplinary and
system approach using scientific methods to reach solutions pertaining to optimum utilization of
scarce and limited resources.”

OR and Managerial Decision Making: Due changing business environment, business

perspectives and evolving business models, managerial decision making is required at every step.
Think over following:

1. Optimum Utilization of resources which are limited e.g. capital.

2. Optimum Utilization of manpower.
3. Optimum Utilization of machinery to ensure uninterrupted production and supply.
4. Deciding the location for establishing a new production plant, warehouse.
5. Decisions related to supply chain ensuring minimum logistics and timely supply.
6. Decisions related to purchase of raw materials (time, quantity and vendor).

Decision Making Approaches

Ad hoc (should be avoided/limited use) Informed/Intelligent (always preferred)

Traditional: We use to do it in this way Use of scientific and mathematical approach to
Heuristic: it should be/ it seems to me arrive at logical and optimal solution.
Guess work: it would be fine
Experience: personal experience
Consequences of wrong decisions are many including wastage of precious resources which could
have been used otherwise. For efficient decision making we depend on mathematical modeling.
Model: Models are scaled portray or a blueprint representing an actual system. It is a tool for
thinking and understanding the actual feature of any problem/system before taking an action. In
OR we mainly deal with mathematical models which is a function of input variable(s) to
optimize a process or outcome variable. It is represented as:

Where,

Z = the thing to be optimized

Xi = the acting variable(s)

Element of Models

Objective: the goal that we want to achieve (minimizes or maximize Z).

Variables: the inputs (Xi) in our model. Variables are two types. Decision Variables which could
be controlled and our objective is to decide these values in our model in order to optimize the
objective. Environmental Variables are those which are beyond our control.

Constraints: constraints are those set of conditions which need to be satisfied while solving the
problem for optimization.

Classification of OR models

1. Based on Structure
A. Physical Models: Used to represent the physical appearance of real object under study.
They are either scaled up or reduced in size. Used in designing problems such as aircraft,
buildings etc. They are not useful for quantification or prediction, e.g. capital budgeting
or sales forecast. Physical models are of two types, Iconic models and Analogue models.
Iconic model is a scaled (small or big in size) version of the system which retains some
or all of the characteristics of the system they represent. Examples includes blueprint of
homes, bridges, maps, globes etc. Analogue models do not physically resemble the
system they represent, but retain a set of characteristics of the system. They are more
general and could be manipulated. For example dipstick of your motorbike, maps in
different colour represent different things (water, hill, deserts or green lands).
B. Symbolic Models: Represented by algebraic symbols (numbers and letters) and functions
to represent the relationship within them to describe the properties of the system. Such
models are precise and accurate and could be used for analysis with the help of
mathematical manipulations. Symbolic models are of two types Verbal and
Mathematical. Verbal Models describe the properties of the system verbally or in written
texts. For example written sentences describing the relationship within a system.
 Mathematical Models are more precise and use mathematical symbols (+, -, ÷, ×, ±) and
numbers to represent the relationship in the form of an equation or function.
2. Based on Function: The function or purpose of the model leads to three level
classification i.e. Descriptive, Predictive and Normative. Descriptive Models are used
investigate and describe the system using alternative course of actions. Evaluating
consequences in different and varying conditions, optimality of the model is not
guaranteed. Predictive Models are used to represent a relationship between input and
output variables and hence measures the „cause and effect‟ with the change in input
variables. representing an equation for a straight line may be a form for
predictive modeling. Normative Models provides best or optimal solution to the problem
using an appropriate course of action (strategy) subject to given constraints or limitations.
3. Based on Degree of Certainty: Deterministic and Probabilistic models are the two basic
classifications in this category. Deterministic Models are those where exact solution is
possible in different experimental manipulations. If all parameters are assumed to be
known and constant, we will get same result. For example capital returns on given
investment and fixed rate of interest over a fixed tenure. Probabilistic Models are those
in which one or more parameter or decision variable is random. Insurance risk calculation
for example probability of catching fire, accidents, death or sickness.
4. Based on Method of Solution: Heuristic, analytical and Simulation are the three level
classification based on the solution or quantification. Heuristic Models are based on
individual perception and opinion and does not follow any mathematical ground. When
optimal solution could not be reached this model is usually brought in practice.
Analytical Models have specific mathematical equation and thus could be solved and
logically explained. Every optimization model is an analytical model. Simulation Models
though have mathematical structure, cannot be solved manually using mathematical
techniques. It is computer based experimentation on a problem in order to describe and
evaluate its behavior under certain conditions over a period of time.

Advantages of OR

1. Structured approach to problem solving

2. Critical approach
3. Technically appropriate
4. Reliable
5. Economically viable
6. Behaviorally appropriate
Applications of OR

1. Dividend policies, investment and portfolio management, capita budgeting, break-even

analysis and cost allocation.
2. Selection of product mix, advertising, packaging, sales effort allocation, launch of a new
product.
3. Optimal buying decision (vendor, time and quantity), reorder point, transportation,
replacement policies.
4. Location of plant and warehouse, its size logistics, transportation
5. Production planning, assembly lines, purchasing and inventory
6. Decision support system, MIS, forecasting and planning

Methodology of OR (STEPS)

1. Define objective
2. Formulating a mathematical model
3. Solving the model
4. Validating the model
5. Implementing the model