Bahir Dar University

College of Business & Economics

MBA Program
Management Science (MBA 5041) Course
guide book
Instructor Name: AmanAbdie (Dr.)

OVERVIEW
Effective use of scarce organizational resources is a
major determinant of the success of organizations,
business or non-business, small or large, local or
global. In the case of business enterprises, the
increasing competitive pressure makes the task of
management even more demanding. In Ethiopia,
there is an increasing number of business enterprises
engaged in various sectors in the economy. There is
some anecdotal evidence that inefficient use of
resources is a key factor that prevented the
competitiveness of many local enterprises. There is
an increasing demand for systematic approach to
manage these enterprises to enhance their efficiency

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and effectiveness. Increasing number and size of
local enterprises also means a greater need for more
effective ways of solving problems in these
organizations. In light of this, the new generation of
management/business professionals in the country
need to be better prepared with modeling techniques
that facilitate effective decision making in various
functional and strategic areas. Except some of their
peculiarities, the country’s not-for-profit and other
institutions also need the benefits of modern
management science techniques. The trend generally
is that managers conversant with the various
OR/Management science techniques are becoming
highly valued among business and non business
institutions around the globe. Management science
provides today’s managers with state-of-art
technology of modeling techniques that have passed
the test of time and have proven their value in a
variety of applications under a variety of decision
making environments. This course is designed with
the aim to equip you with the some of the commonly
used tools of management science/operations
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research that you will find useful in your future
career as practicing manager. This material sketches
the content and schedule of the course and provides
additional information that you will need to plan and
complete your study effectively.

CHAPTER ONE: LINEAR

OPTIMIZATION/LINEAR PROGRAMMING
Linear programming is one of success stories in
applied mathematics in general and management
science specifically during the 21st century. The
model has been applied in an impressive diversity of
areas of business. Typically, the model seeks to
determine the optimal combination of level of
activities given certain constraints. In this chapter of
the course, a deeper investigation of LP and its
various applications will be provided. The linear
programming model will be described and its nature,
assumptions, and areas of applications in business
and non business areas will be discussed. You will
also be exposed to illustrations and cases consisting
of verbal description of problems to be converted to
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 mathematical linear programming models. LP model
formulation involves definition of decision variables,
specification of an objective function and model
constraints. You will also be introduced to solution
techniques for LP models. The graphical technique
of solving simple two variable models will be
introduced first. Since real life problems are beyond
the scope of graphical techniques, the discussion on
the graphic technique will be brief and is mainly
intended to make the transition to more advanced
algebraic techniques easier. Of course, the larger
chapter of this chapter of the course will be devoted
to the most commonly used solution technique for
LP problems, the simplex algorithm.
At the end of this chapter, you should be able to
 Understand the nature of linear optimization.
 Identify the main components and properties of a
linear program model.
 Formulate mathematical LP models for several types
of business problems.

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 Solve simple two variable models using graphical
analysis
 Use the simplex method to solve linear program
problems
 Understand the importance and nature of duality
theory
 Conduct post optimality analysis to evaluate model
robustness

Table 1: Plan of Chapter One≈ Linear

Optimization/Linear Programming
Sections Contents
1.1.Model Definition and
Formulatio Assumptions/Properties Model
n formulation in LP
Selected applications of LP : The diet
problem, Product Mix, Investment,
Promotion mix, Inventory planning,
Transportation etc
Steps in using the graphic method
1.2. Feasible solutions, Feasible region,
Graphical corner points & CPF solutions
method Corner point solutions: Some Basic
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 Properties
Obtaining Optimal solution and
Conducting sensitivity analysis
Simplex algorithm: framework
Relationship with graphical
1.3 The technique
simplex The Artificial Variable Technique:
algorith mixed constraint and minimization
m problems
Special cases (Degeneracy, ties for
entering variable, ties for leaving
variable, unbounded solution,
infeasible solution)
Duality theory and the relationship
between the dual and the primal
Duality Properties (complementary
1.4 Advan solution, basic solution and
ced slackness)
topics in Selected Applications:
LP Interpretation of the simplex
method, economic interpretation of
dual variables
Model assumptions revisited
Post Optimality analysis:

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1.5 Post Framework
optimalit Changes in Objective Function
y coefficients
analysis Changes in RHS of a constraint
Introduction of new variables/new
constraints
Finding new solution after changes
Duality

CHAPTER TWO: TRANSPORTATION &

ASSIGNMENT PROBLEMS
The transportation and the assignment models are
special linear programming models. The problems
treated in these models can be formulated as linear
programs and can be solved using the simplex
method. But, their special structure allows us to
solve these models using more efficient methods.
Applications of the transportation and assignment
problems tend to require a very large number of
constraints and variables, so a straightforward
application of the simplex method may demand
heavily on computational effort. Fortunately, a key
characteristic of these problems is that most of the
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coefficients associated with the variables in the
constraints are zeros, and the relatively few nonzero
coefficients appear in a distinctive pattern. As a
result, it has been possible to develop special
algorithms that achieve dramatic computational
savings by exploiting this special structure of the
problems. Therefore, it is important to become
sufficiently familiar with these special types of
problems that you can recognize them when they
arise and apply the proper computational procedure.
This chapter introduces the two models and their
solution techniques. In the first section, we will
discuss the transportation problem and investigate
alternative techniques for finding initial basic
feasible solutions and optimal solutions. Various
areas of applications of the transportation model are
also to be covered. Special situations that are
commonly encountered in the application of the
model will also be discussed. The second section
provides a review of the assignment model including
a discussion on the nature of the model, the

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 Hungarian method of solving assignment problems
as well as special cases in the assignment model.

At the end of this chapter, you should be able to

 Understand the nature of the transportation and

assignment problems
 Formulate the transportation and assignment
problems as linear programs
 Understand the basic assumptions and properties of
the transportation and the assignment models
 Use the transportation algorithm to solve
transportation problems
 Use the Hungarian method of solving the assignment
problem

Table 2: Plan of Chapter Two ≈The transportation

and the assignment problems
Sections Contents
The mathematical structure of the
problem
Properties and assumptions of the

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2.1.The model
Transporta Obtaining initial basic feasible
tion solutions: The NWCM, LCM & VAM.
Problem/ Optimality test & solution: SSM and
the MDM
Model
Additional Topics: Degeneracy,
Prohibited routes, Unbalanced
problems and Maximization problems,
Transshipment
Transshipment problems
Nature and The mathematical structure
2.2. The of the problem
assignmen Properties and assumptions of the
t model
The Hungarian method of solving the
problem /
assignment problem
model Special Cases: Maximization,
Unbalanced problems, Prohibited
assignment

CHAPTER THREE: NETWORK FLOW

(OPTIMIZATION) MODELS
Networks are chapter of everyday experience.
Examples of networks are transport networks,

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 communication networks, electrical networks;
distribution networks (supply chain networks).
Network models can be used to model a range of
problems that at first glance seem to have no
resemblance to networks. Production and inventory
planning, financial planning, assignment and
transportation, and other problems are modeled as
networks. Network models are increasingly
sophisticated and their application becoming diverse.
This chapter offers an introduction to the vast topic
of network flow models. Three major types of
network optimization problems will be the foci of
the discussion in this chapter: the shortest path
problem, the spanning tree problem and the maximal
flow problem. Algorithms to solve the problems will
be illustrated. At the end of this chapter you should
be able to
 Appreciate the nature of network flow models and
basic terminologies in network optimization models
 Formulate selected problems as network flows and
solve them using the appropriate algorithms

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Table 3: Plan of Chapter Three ≈ Network Flow
(Optimization) Models
Sections Contents
3.1. Overview of Definition and basic terms
Networks and of network flow models
Graphs and Flows
flows
3.1.1. The Shortest NFM Components:
path problem Variables, Constraints,
Objective, Parameters
3.1.2. The minimal Nature of the problem
spanning tree problem The mathematical
structure of the problem
3.1.3. The maximal
Properties and
flow problem assumptions of the model
Algorithm and
Applications

CHAPTER FOUR: PROJECT PLANNING AND

SCHEDULING TECHNIQUES

One of the most challenging jobs that any manager

can take on is the management of a large-scale
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project that requires coordinating numerous
activities throughout the organization. A myriad of
details must be considered in planning how to
coordinate all these activities, in developing a
realistic schedule, and then in monitoring the
progress of the project. Project management is
complicated by the novelty of the problems
encountered in project management and the time
pressure for completion of the project without much
additional costs. Risks are also there in various
forms. This chapter doesn’t provide an exhaustive
and comprehensive discussion on all the variety of
project management problems. Rather, our focus
will be on major OR techniques that have passed the
test of time in their usefulness in the effective
planning and scheduling of projects. Two major
techniques, known as the Critical Path Method and
the Program Evaluation and Review Techniques,
will be the main focus of the chapter. The use of
network diagrams to illustrate the sequence of
activities, precedence relationships among activities
and the flow of tasks over time will also be
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 discussed. The tradeoff between cost and time will
be briefly addressed in the final section.

After completing this chapter, you should be able to

 Identify the main elements of project management
 Identify the main project planning and scheduling
techniques and their relevance under different
contexts
 Develop network diagrams showing the flow of
project activities and precedence relationships
 Differentiate between critical and non-critical
project activities and understand the importance of
focusing on critical activities as chapter of effective
project management
 Apply the Three-time-estimates PERT technique to
scheduling projects under uncertain activity times
 Evaluate the costs and benefits of crashing project
activities to decide on optimal crashing level

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Table 4: Plan of Chapter Four≈ Project planning
and scheduling Techniques
Sections Contents
4.1. Nature of projects
Introduction Project Management: Review
of Major Functions
Project scheduling components
The project network diagram
4.2. Project PERT/CPM techniques
Scheduling Scheduling individual activities
Handling uncertainty in project
scheduling: PERT
Crashing: The determination of
4.3. Cost-Time Optimal Cost & Time Tradeoff
tradeoff Optimal Crashing: Using
Marginal analysis
Crashing as a Linear
Optimization Problem
Further Issues in Project
management
CHAPTER FIVE: DECISION THEORY
In applying many mathematical models such as
linear programming the assumption is that the
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 consequences of alternatives are known with
reasonable certainty. However, decisions often must
be made in environments that are much more fraught
with uncertainty. Decision analysis provides a
framework and methodologyfor rational decision
making when the outcomes are uncertain. This
chapter deals with main concepts and techniques that
are useful for decision making under uncertain and
risky environments. The main difference between
decision making under uncertainty and certainty will
be compared and contrasted. The main components
of decision theory will be covered. Several
probability and non-probability decision criteria will
be illustrated. The valuation of
experimentation/additional information and the use
of conditional and posterior probabilities in this
process are all to be discussed in this chapter.
At the end of the chapter, you should be able to
 Differentiate between decision making under
uncertainty and certainty
 Identify main components of decision
theory/analysis
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 Use various probabilistic and non-probabilistic
criterion to make decisions under different contexts
(hypothetical)
 Evaluate the value of additional information and
experimentation before making decisions
Table 5: Plan of Chapter Five ≈ Decision Analysis
Sections Contents
 Decision Theory in Management Science: Basics
5.1. Introduction  Decision Analysis as a Framework For decision making under Uncertainty
 Components of Decision Analysis
5.2.Decision  Laplace’s Criterion, Huruicz’s CriterionMinmax/MaxminVsMinmin/Maxmax,
Criteria Minimax regret criterion and others.
 Expected Monetary value, Expected opportunity loss & maximum likelihood
5.3. Decision criteria
Making with  Posterior and Conditional Probabilities
Probability  Experimentation/sampling and the value of additional information
 Decision Trees, Sequential Decision Making & Related Topics

References :
Hillier, Frederick S., Gerald J. Lieberman, 2001. Introduction to Operations Research. McGraw-
Hill: New York.
William J. Stevenson, Introduction to management science
Taha, Hamdy A, 2007 (8thed), Operations Research: an introduction. Pearson Education, Inc.
New Jersey.
Kaufman, A; R Faure. (1968), Introduction to Operations Research. (Volume 47) (Richard
Bellman Ed., Henry C Sneyd, Trans) New York.
Taha, Hamdy A (2007) Operations Research: an introduction. (8th ed). New Jersey: Pearson
Education, Inc:
Taylor III, Bernard W. (1996), Introduction to Management Science. (5thed) New Jersey:
Prentice Hall:

Evaluation:
 Article review (10%), Term Paper (25%), Mid exam (25%), Final exam (40%)

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