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Topics
Quantitative Approach to Decision Making
History of Operation research
Overview of Operation Research
Definition of OR
OR Models
Application of OR
Advantages and Limitations of OR
Problem Solving and Decision Making
Problem solving can be defined as the process of identifying a
difference between the actual and the desired state of affairs and
then taking action to resolve the difference. Problem solving process
consist of seven steps.
1. Identify and define the problem.
2. Determine the set of alternative solutions.
3. Determine the criterion or criteria that will be used to evaluate the alternatives.
4. Evaluate the alternatives.
5. Choose an alternative.
6. Implement the selected alternative.
7. Evaluate the results to determine whether a satisfactory solution has been obtained.
Decision Making
Decision making is the term generally associated with
the first five steps of the problem solving process.
1. Identify and define the problem.
2. Determine the set of alternative solutions.
3. Determine the criterion or criteria that will be used to evaluate
the alternatives.
4. Evaluate the alternatives.
5. Choose an alternative.
Example
You would like a position that will lead to a
satisfying career. Suppose that your job search has
resulted in offers from companies in IBM, TCS, Exide
and Facebook
1. Identify and define the problem.
2. Determine the set of alternative solutions.
Step 3: Determine the criteria that will be used to evaluate the alternatives.
The problem is especially important (e.g., a great deal of money is involved), and
the manager desires a thorough analysis before attempting to make a decision.
The problem is repetitive, and the manager saves time and effort by relying on
quantitative procedures to make routine decision recommendations.
History of Operation Research
Operation research origins in World War II for military
services
Urgent need to allocate resources at efficient manner.
British and US called large number of scientists from discipline
were asked to do research on military operation.
Developed effective method to locate radar (Britain Air
Battle). Developed a better method to manage convoy and
antisubmarine operation(North Atlantic). Developed a method
to utilize resources efficiently( resource cost reduced one half).
Development of operation Research
Success of OR in the war spurred interest in outside
the military (business, industry and government)
Two factors played a major for rapid growth of OR
Continuous contribution by scientist's to improve the
techniques of OR
Computer Revolution
Overview of Operation Research
Define the problem and gather the data
Formulate a mathematical model to represent the
problem
Derive a solutions from the model
Validate the model
Implement
Define the problem
How to define the problem?
Study the relevant system (business, industry etc) and
develop a well defined statement of problem to be
considered.
It helps to determine objectives (Ex: Minimize cost of
operation, maximize the profit of company, maintain high
level of safety) , constraints (limited resources),
interrelationship, possible alternatives, time limits for making
decision and so on.
Model
Models are representations of real objects or situations and
can be presented in various forms. The purpose of any
model is that it enables us to make inferences about the real
situation by studying and analyzing the model
Iconic model : Physical replica of real objects (airplane, toy truck)
Mathematical model: Representations of a problem by a system
of symbols and mathematical relationships.
For example, the total profit from the sale of a product can be
determined by multiplying the profit per unit by the quantity sold.
P= 10X
Problem
How many bowls and mugs should be produced to
maximize profits given labor and materials constraints?
Product resource requirements and unit profit:
Total labor hours available is 40 hours and total clay is
120 lb.
Mathematical model
Maximize Z = 40X1 + 50X2
subject to:
1X1 + 2X2 ≤40
4X1 + 3X2 ≤ 120
X1, X2 ≥ 0
Derive a solution from the model
Numerous algorithms are available to solve the problem
(ex: simplex algorithm)
A common theme in OR is search for an optimal or best
solution .
It also helps to conduct post optimality analysis (what if
analysis: what would happen to optimal solution if different
assumptions are made about future conditions)
It also helps to identify sensitive parameters of model
(sensitivity analysis)
Validate the model
Model may contains many flaws (missed out some
valuable information while defining the model). So
it won‟t give correct result.
One way of validating the model is to use a
retrospective test. (Reconstruct the past using
historical data and find shortcomings and require
modifications)
Implementation
Model developer or OR consultant explains about new
system to be adopted (For Ex: Developed a
computerized system for optimally scheduling and
deploying workforce)
Take frequent feedback and modify the model if
require.
Document the methodology clearly and accurately
enough so that work is reproducible.
Definition of OR
“Scientific approach to decision making that involves the operations
for organized systems. O.R. is concerned with optimal decision
making in and modelling of deterministic and probabilistic systems
that originate from real life,” – Hillier & Lieberman, Introduction to
Operations Research, 8th Ed., Holden- Day, 2005.
Credit scoring: deciding which customers offer the best prospects for credit
companies.