Management Science 123

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BUMA 2010 3 Yapan et. al - BUMA
Bachelor of Science in Accountancy (Polytechnic University of the Philippines)
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MANAGEMENT SCIENCE
BUMA 20103
Dante V. Alumno
Azur, Florianne Mae

Cabanos, Abegail
Del Rosario, Jewelle Kim
Din, Mathew Gabriel
Ferrolino, Jade Marie
Francisco, Maria Cristina Cassandra
Gamboa, Lawrence
Perez, Ann Connie
Sugui, Adrianne Christine
Torrente, Kenneth
Yapan, Queen Angela
BSMA 2-1

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Chapter 1: Introduction to Management Science
1. Look for a small or a large business that applies various management science
modelling techniques then identify the usage and benefits within the business.
A Japanese restaurant in Cavite started their business last year and uses
management science to manage their business efficiently and effectively. They
make organizational chart and flow chart to distinguish the segregation of duties
among the crews. This helped the restaurant to efficiently function. Efficiency in the
core areas of business boosts the productivity of the crews, industrial peace and
enhance the restaurant’s ability to specialize its products and services.
2. What is a management science? Define in your own words.
Management science is any application of science to the study of

management. It can be defined as a concept that is “concerned with developing
and applying models and concepts that help to illuminate issues and solve
managerial problems”. It is synonymous to operations research designating a
distinct field in which operations research affords analytical data, statistics, and
methods to increase the efficiency of management systems, management science
applies these tools in such fields as data mining, engineering, economic
forecasting, and logistics. It uses scientific concepts and methods in order to solve
management-related issues.

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Chapter 2: Linear Programming: Model Formulation and

Graphical Solution
1. Differentiate the components and characteristics of maximization and

minimization model.
Linear programming is a mathematical technique for solving constrained

maximization and minimization problems when there are many constraints and the
objective function to be optimized, as well as the constraints faced, are linear (i.e.,
can be represented by straight lines). Linear programming was developed by the
Russian mathematician L. V. Kantorovich in 1939 and extended by the American
mathematician G. B. Dantzig in 1947. Its acceptance and usefulness have been
greatly enhanced by the advent of powerful computers, since the technique often
requires vast calculations.
Formulation of the Profit Maximization Linear Programming Problem
Most firms produce more than one product, and a crucial question to which
they seek an answer is how much of each product (the decision variables) the firm
should produce in order to maximize profits. Usually, firms also face many
constraints on the availability of the inputs they use in their production activities.
The problem is then to determine the output mix that maximizes the firm’s total
profit subject to the input constraints it faces.
Simplex Method for Standard Maximization Problem
To solve a standard maximization problem using the simplex method, we

take the following steps:
Step 1. Convert to a system of equations by introducing slack variables to

turn the constraints into equations, and rewriting the objective function in standard
form.
Step 2. Write down the initial tableau.
Step 3. Select the pivot column: Choose the negative number with the
largest magnitude in the bottom row (excluding the rightmost entry). Its column is
the pivot column. (If there are two candidates, choose either one.) If all the numbers

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in the bottom row are zero or positive (excluding the rightmost entry), then you
are done: the basic solution maximizes the objective function (see below for the
basic solution).
Step 4. Select the pivot in the pivot column: The pivot must always be a
positive number. For each positive entry b in the pivot column, compute the ratio
a/b, where a is the number in the Answer column in that row. Of these test ratios,
choose the smallest one. The corresponding number b is the pivot.
Step 5. Use the pivot to clear the column in the normal manner (taking care
to follow the exact prescription for formulating the row operations described in
the tutorial on the Gauss Jordan method,) and then relabel the pivot row with the
label from the pivot column. The variable originally labeling the pivot row is the
departing or exiting variable and the variable labeling the column is the entering
variable.
Step 6. Go to Step 3.
Formulation of the Cost Minimization Linear Programming Problem
Most firms usually use more than one input to produce a product or service,
and a crucial choice they face is how much of each input (the decision variables) to
use in order to minimize the costs of production. Usually firms also face a number
of constraints in the form of some minimum requirement that they or the product
or service that they produce must meet. The problem is then to determine the
input mix that minimizes costs subject to the constraints that the firm faces.
Steps to solve for Minimization Problems

1. Choose variables to represent the quantities involved.
2. Write an expression for the objective function using the variables.
3. Write constraints in terms of inequalities using the variables.
4. Graph the feasible region using the constraint statements.
5. Identify the corner points of the feasible region.
6. Find and compare the values at the corner points to determine the
solution.

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2. Give examples of application of Linear Programming used in various industries.
Linear programming is used to obtain optimal solutions for operations

research. Using linear programming allows researchers to find the best, most
economical solution to a problem within all of its limitations, or constraints. Many
fields use linear programming techniques to make their processes more efficient.
These include food and agriculture, engineering, transportation, manufacturing
and energy.
Farmers apply linear programming techniques to their work. By determining

what crops they should grow, the quantity of it and how to use it efficiently, farmers
can increase their revenue. In nutrition, linear programming provides a powerful
tool to aid in planning for dietary needs. In order to provide healthy, low-cost food
baskets for needy families, nutritionists can use linear programming. Constraints
may include dietary guidelines, nutrient guidance,and cultural acceptability.Linear
programming also allows time variations for the frequency of making such food
baskets.
Engineers also use linear programming to help solve design and

manufacturing problems. For example, in airfoil meshes,engineers seek
aerodynamic shape optimization. This allows for the reduction of the drag
coefficient of the airfoil. Constraints may include lift coefficient, relative maximum
thickness, nose radius and trailing edge angle. Shape optimization seeks to make
a shock-free airfoil with a feasible shape. Linear programming therefore provides
engineers with an essential tool in shape organization.
Manufacturing requires transforming raw materials into products that

maximize company revenue. Each step of the manufacturing process must work
efficiently to reach that goal. For example, raw materials must pass through various
machines for set amounts of time in an assembly line. To maximize profit, an
organization can use a linear expression of how much raw materials to use.
Constraints include the time spent on each machine. Any machines creating
bottlenecks must be addressed. The amount of products made may be affected, in
order to maximize profit based on the raw materials and the time needed.
Transportation systems rely upon linear programming for cost and time
efficiency. Bus and train routes must factor in scheduling, travel time and
passengers. Airlines use linear programming to optimize their profits according to
different seat prices and customer demand. Airlines also use linear programming

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for pilot scheduling and routes. Optimization via linear programming increases
airlines’ efficiency and decreases expenses.
Modern energy grid systems incorporate not only traditional electrical

systems, but also renewables such as wind and solar photovoltaics. In order to
optimize the electric load requirements, generators, transmission and distribution
lines, and storage must be taken into account. At the same time, costs must remain
sustainable for profits. Linear programming provides a method to optimize the
electric power system design. It allows for matching the electric load in the shortest
total distance between generation of the electricity and its demand over time.
Linear programming can be used to optimize load-matching or to optimize cost,
providing a valuable tool to the energy industry.

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Chapter 3: Linear Programming: Computer Solution and

Sensitivity Analysis
1. Define the missing term in the statement:
Sensitivity analysis is the analysis of the effect of __parameter__ changes on

the __optimal solution.
2. Identify. True or False.
If we change the constraint quantity to a value outside the sensitivity range

for that constraint quantity, the shadow price will change. TRUE

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Chapter 4: Linear Programming: Modeling Examples
1. Kindly differentiate the five model formulation in linear programming. How do

these model formulations differ from one another?
Product Mix
To meet the demands of its customers, a company manufactures its
products in its own factories (inside production) or buys them from other
companies (outside production). Inside production is subject to some resource
constraints: each product consumes a certain amount of each resource. In contrast,
outside production is theoretically unlimited. The problem is to determine how
much of each product should be produced inside the company and how much
outside, while minimizing the overall production cost, meeting the demand, and
not exceeding the resource constraints. For each product, we need to know the
inside and outside production costs, and for each resource we need to know the
available capacity of that resource. Also, we need to know the consumption of
resources by the different products.
Investment
It is a usual situation for an enterprise to have a fixed amount of available

capital to invest in capital goods. In such situation, management injects the new
resources towards those sections and or products that, subjectively or by intuition,
are felt to contribute most to the expansion of productive capacity as well as giving
the best return for the before mentioned investment. A development of an
application of linear programming to the problem of the distribution of a certain
investment is needed for which it is restricted to a fixed amount among the various
productive processes or departments of an enterprise, so as to obtain a maximum
profit improvement. The goal is to allocate the capital over available investments
to maximize your final wealth.
Marketing
A market allocation decision is related to the choice of media effectiveness,

media budget etc. especially when advertising is required in a market. Usually in

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real decision making problems related to advertising, the goals, the constraints and
the outcomes of actions are uncertain. LP can be used to help marketing managers
allocate a fixed budget to various advertising media. The objective is to maximize
reach, frequency, and quality of exposure. Restrictions on the allowable allocation
usually arise during consideration of company policy, contract requirements and
media availability.
Transportation
One of the most important and successful applications of quantitative

analysis to solving business problems has been in the physical distribution of
products, commonly referred to as transportation problems. Basically, the purpose
is to minimize the cost of shipping goods from one location to another so that the
needs of each arrival area are met and every shipping location operates within its
capacity.
Blending
The potential value of blending depends largely on the variability of quality

attributes and operations. It stands to reason that higher variability in quality
attributes would result in greater blending opportunities and, depending on
premiums and discounts , higher net revenues for handlers. Similarly, end-users
can employ blending to reduce acquisition cost. By buying lower quality resources
at a discount and blending it with high quality resources, they may be able to meet
quality specifications.
These five models differ from the decision variables each of them have. Also
each models have diverse objective function. Although some of the models have
the same objective, which is to reduce the cost and maximize profit, they have
different aim or intention as to their purpose. Furthermore, the five model have
assorted constraints base on their function. To simply put, these five models differs
basically in their steps of defining each of their linear programming application.

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Chapter 5: Integer Programming
1. How integer programming differs from linear programming?
Integer Programming (IP) is a subset of the broad field of Linear

Programming (LP). Linear programming is an attempt to find a maximum or
minimum solution to a function with given certain constraints, while integer
programming has all the characteristics of linear programming except the solution
to the linear programming must be restricted to integers.
2. Describe the difference between the three types of integer programming models.
The three types of integer programming models are total integer model,
0-1 integer model, and mixed integer model. The difference between the three
lies on the decision variables. All decision variables in total integer model is
required to have integer solution values, while in 0-1 integer model, all decision
variables is required to have zero or one values. On the other hand, the mixed
integer model, from the word mixed, some of decision variables but not all is
required to have integer values.

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Chapter 6: Transportation, Transshipment & Assigned

Problems
1. Differentiate the three special types of linear programming model formulations.
Transportation Model has the following characteristics:

 A product is transported from a number of sources to a number of
destinations at the minimum possible cost.
 Each source is able to supply a fixed number of units of the product, and
each destination has a fixed demand for the product.
 The linear programming model has constraints for supply at each source
and demand at each destination.
 All constraints are equalities in a balanced transportation model where
supply equals demand.
 Constraints contain inequalities in unbalanced models where supply does
not equal demand
In general, a transportation problem is specified by the following

information:
a. A set of ‘m’ supply points from which a good is shipped. Supply point ‘i’ can
supply at most ‘si’ units.
b. A set of ‘n’ demand points to which the good is shipped. Demand point j
must receive at least ‘dj’ units of the shipped good.
c. Each unit produced at supply point ‘i’ and shipped to demand point ‘j’ incurs
a variable cost of ‘cij’.
d. Let ‘xij’ number of units shipped from supply point ‘i’ to demand point ‘j.’
Transshipment Model has the following characteristics:
Intermediate transshipment points are added between the sources and destinations.
Items may be transported from:
 Sources through transshipment points to destinations

 One source to another
 One transshipment point to another

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 One destination to another

 Directly from sources to destinations
 Some combination of these
Transshipment problem is a special transportation problem in which, some

points are not a simple supply point or a simple demand point, but several units
will be shipped in them and from them. Transshipment is like the child of the
transportation but in transshipment we have some areas (like warehouses) which
the goods from supply points were shipped to these points which are in the middle
of the demand and supply points and then they were shipped from these points
to the demand points. Sometimes the transshipment points are also supply points
in this case we should put their capacity as supplies which is the rows in the table.
Assignment Model has the following characteristics:
 Special form of linear programming model similar to the transportation model.

 Supply at each source and demand at each destination limited to one unit.
 In a balanced model supply equals demand.
 In an unbalanced model supply does not equal demand
Assignment model is actually like the child of transportation but the

difference is that in assignment problem all the capacities in each column or row
(like supplies row and Demand column) is 1. All si=1 and dj=1 therefore xij=0 or 1.
In the tables for transportation in those small boxes most of the time we have cost
of transportation but in assignment problem those boxes most of the time
indicates the time; however, it can be cost or distance or etc.

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2. Give an example of each three linear programming models (transportation,

transshipment and assignment model).
Transportation Model
Transshipment Model

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Assignment Model

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Chapter 7: Network Flow Models
1. Briefly describe how to solve the following network flow problems.
a. Shortest Route Problem
The shortest route problem is to determine the shortest distance between

an originating point and several destination points. For example, the LBC
Shipping Company transports parcels by eight mini vans from Sta. Mesa to
eight cities in the North Luzon. The different routes between Sta. Mesa and the
destination cities and the length of time, in hours, required by a mini van to
travel each route is considered.
 Determine the initial shortest route from the origin (node ①) to the closest
node ③.
 Determine all nodes directly connected to the permanent set.

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 Redefine the permanent set.

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The Shortest Route Problem Solution Method Summary

1. Select the node with the shortest direct route from the origin.
2. Establish a permanent set with the origin node and the node that was
selected in step 1.
3. Determine all nodes directly connected to the permanent set nodes.
4. Select the node with the shortest route from the group of nodes directly
connected to the permanent set nodes.
5. Repeat steps 3 & 4 until all nodes have joined the permanent set.
b. Minimal Spanning Tree Problem
A minimum spanning tree is a special kind of tree that minimizes the lengths
(or “weights”) of the edges of the tree. An example is a cable company wanting

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to lay line to multiple neighborhoods; by minimizing the amount of cable laid,

the cable company will save money. A tree has one path joins any two vertices.
A spanning tree of a graph is a tree that:

• Contains all the original graph’s vertices.
• Reaches out to (spans) all vertices.
• Is acyclic. In other words, the graph doesn’t have any nodes which loop back
to itself.
Larger graphs have more nodes and many more possibilities for subgraphs.
The number of subgraphs can quickly reach into the millions, or billions, making
it very difficult (and sometimes impossible) to find the minimum spanning tree.
Additionally, the lengths usually have different weights; one 5m long edge
might be given a weight of 5, another of the same length might be given a
weight of 7. A few popular algorithms for finding this minimum distance
include: Kruskal’s algorithm, Prim’s algorithm and Boruvka’s algorithm. These
work for simple spanning trees.
Kruskal’s Algorithm
Kruskal’s Algorithm builds the spanning tree by adding edges one by one into
a growing spanning tree. Kruskal's algorithm follows greedy approach as in
each iteration it finds an edge which has least weight and add it to the growing
spanning tree. Algorithm Steps:
• Sort the graph edges with respect to their weights.
• Start adding edges to the MST from the edge with the smallest weight until
the edge of the largest weight.
• Only add edges which doesn't form a cycle, edges which connect only
disconnected components.
A DFS may be used to check whether 2 vertices are connected through

checking whether the second vertex is visited starting from the first vertex. But
DFS will make time complexity large as it has an order of O(V+E) where V is the
number of vertices, E is the number of edges. So the best solution is "Disjoint
Sets" whose intersection is the empty set so it means that they don't have any
element in common. In Kruskal’s algorithm, most time consuming operation is
sorting because the total complexity of the Disjoint-Set operations will be O
(ElogV), which is the overall Time Complexity of the algorithm.

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Prim's Algorithm
Prim’s Algorithm also use Greedy approach to find the minimum spanning
tree. In Prim’s Algorithm we grow the spanning tree from a starting position.
Unlike an edge in Kruskal's, we add vertex to the growing spanning tree in
Prim's.
The algorithm steps includes:

• Maintaining two disjoint sets of vertices. One containing vertices that are in
the growing spanning tree and other that are not in the growing spanning
tree.
• Selecting the cheapest vertex that is connected to the growing spanning
tree and is not in the growing spanning tree and add it into the growing
spanning tree. This can be done using Priority Queues. Insert the vertices
that are connected to growing spanning tree, into the Priority Queue.
• Checking for cycles. To do that, mark the nodes which have been already
selected and insert only those nodes in the Priority Queue that are not
marked.
In Prim’s Algorithm, implementation starts with an arbitrary node (it doesn’t

matter which one) and mark it. In each iteration a new vertex will be market that
is adjacent to the one that have been already marked. As a greedy algorithm,
Prim’s algorithm selects the cheapest edge and marks the vertex. So, it simply
choose the edge with weight 1. In the next iteration there are three options,
edges with weight 2, 3 and 4. So, the edge with weight 2 will be selected and
marked the vertex. Now again, there will be three options, edges with weight 3,
4 and 5. But edge with weight 3 could not be chosen as it is creating a cycle.
Instead, the edge with weight 4 will be selected and the implementation will
end up with the minimum spanning tree of total cost 7 ( = 1 + 2 +4).
c. Maximal Flow Problem
The maximum flow problem seeks the maximum possible flow in a

capacitated network from a specified source node s to a specified sink node t
without exceeding the capacity of any arc. A closely related problem is the
minimum cut problem, which is to find a set of arcs with the smallest total
capacity whose removal separates node s and node t. The maximum flow and

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minimum cut problems arise in a variety of application settings as diverse as

manufacturing, communication systems, distribution planning, matrix
rounding, and scheduling. These problems also arise as sub-problems in the
solution of more difficult network optimization problems.
A possible solution approach to resolve maximal flow problem is to
arbitrarily choose any path through the network from origin to destination and
ship as much as possible. Second, Re-compute branch flow in both directions.
Next, select other feasible paths arbitrarily and determine maximum flow along
the paths until flow is no longer possible. Lastly, add the maximal flow along
the path to the flow in the opposite direction at each node. Aside from this, a
possible solution for network flow problems is by using different approaches
such as Formal Algorithm and Finding Flow Augmenting Paths.
Alternatively, a network flow problem can be easily formulated as a Linear
Optimization Problem (LP). Therefore, one can use the simplex method to solve
a maximum network flow problem. The traditional way to solve the maximum
flow problem is with the flow augmenting algorithm developed by Ford and
Fulkerson. The algorithm begins with a feasible set of arc flows obtaining some
value, v0 , for the flow out of the source and into the sink. A search is then made
in the network for a path from source to sink that can deliver an increased flow.
This is called a flow augmenting path. The flow is increased along that path as
much as possible. The process continues until no such path can be found, at
which time the algorithm terminates.
Before stating the algorithm formally, we illustrate the general idea with the
example. In the presentation, let x k be the flow on arc k. For an initial flow
solution we assign 0 flows to all arcs and v0 = 0.
Flow may be increased in an arc when the current flow is less than capacity (x k
< uk ). Flow can be decreased in arc when the current flow is greater than zero
(x k > 0). As we will see, a flow augmenting path traverses an arc in the forward
direction when the arc flow is to be increased and in the reverse direction when
the arc flow is to be decreased. For the initial solution there are a number of
flow augmenting paths. We choose the path P1 = (1, 4, 8), identified by the list
of arcs in the path, and note that the flow may be increased by 5 to obtain the
solution.

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By observation, it could be discovered that another flow augmenting path

in P2 = (2, 5, 7). Augmenting the flow on this path by 5 the solution will be
obtained.
A flow augmenting path of a different nature than the two previously

described has been discovered. Searching from A it can be found that flow can
be increased in arcs 2 and 6, but that further progress is blocked in arc 8. The
flow from node E to B can however be increased by decreasing the flow in arc
4 since its flow is greater than zero. Finally flow can be increased in arcs 3 and
7 because the flows in these arcs are less than arc capacities. The path
describing this sequence of flow changes is P3 = (2, 6, – 4, 3, 7), where the
positive numbers show arcs in which flow is to be increased and negative
numbers show arcs in which flow is to be decreased. The flow can be increased
by 5 along this path to obtain the results.
Review of this solution reveals no additional flow augmenting paths so the

maximum flow has been obtained. To find the minimal cut, a set of nodes must
be identified, called it S, such that one or more paths exist from the source node
to the nodes in S on which additional flow can be delivered. The source node
is necessarily in S. The set of arcs leaving S comprises the minimal cut. For
example, starting at node A, only node C can be reached through an arc that
has additional capacity. Thus, the node set S = {A, C} have additional flow that
could be advanced. The remaining nodes define the set S – = {B, D, E, F}. The
minimal cut consists of all the arcs that pass from S to S – , arcs C = {1, 5, 6} in
the example. The flows in the arcs in the minimal cut are at their respective arc
capacities because the cut is the bottleneck for the total flow. Alternatively, the
flows in arcs that pass from S – to S are at zero.
Lastly, a faster algorithm called Dinic's Algorithm made by Y. A. Dinitz may

also be used to calculating maximum flow over the networks and hence, resolve
maximal flow problem. It includes construction of level graphs and residual
graphs and finding of augmenting paths along with blocking flow. Level graph
is one where value of each node is its shortest distance from source. Blocking
flow includes finding the new path from the bottleneck node.

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Pseudocode for Dinic's algorithm is as follows:
Function: DinicMaxFlow(Graph G,Node S,Node T):

Initialize flow in all edges to 0, F = 0
Construct level graph while (there exists an augmenting path in
level graph):
Find blocking flow f in level graph
F=F+f
Update level graph
Return F
Inputs required are network graph G, source node S and sink node T. Update
of level graph includes removal of edges with full capacity. Removal of nodes
that are not sink and are dead ends. A demonstration of working of Dinic's
algorithm is shown below with the help of diagrams.

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Chapter 8: Project Management Module
1. What is project management? Define in your own words.
Project management is the manner in which an individual organizes and

manages resources required to complete a project. Individuals who oversee
projects are referred to as Project Managers. A project is a set of activities that have
to be done to obtain a particular result. Also, a project can be defined as a
collection of inputs and outputs necessary to achieve a particular objective.
2. Why is project management important?
The reason why it is important are as follows:

 It ensures what is being delivered, is right, and will deliver real value against
the business opportunity.
 It brings leadership and direction to projects.
 It ensures there’s a proper plan for executing on strategic goals.
 It ensures proper expectations are set around what can be delivered, by
when, and for how much.
 It ensures the quality of whatever is being delivered, consistently hits the
mark.
 It ensures risks are properly managed and mitigated against to avoid
becoming issues.
 It ensures the right people do the right things, at the right time – it ensures
proper project process is followed throughout the project lifecycle.
 It ensures a project’s progress is tracked and reported properly.
 Someone needs to be able to understand if everyone’s doing what they
should.
 It learns from the successes and failures of the past.

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Chapter 10: Multicriteria Decision Making
1. Discuss the techniques that can be used to solve problems when they have multiple
objectives: goal programming, the analytical hierarchy process, and scoring models.
Goal Programming
It is an optimization technique to solve problems with multiplicity of objectives,

which are generally incommensurable and they often conflict each other in a decision-
making horizon.
The first step here is to identify the goals and constraints based on the availability
of resources that may restrict achievement of goals. Followed by determining the level
of priority to be associated with each goal. Is it the priority 1 or the last priority? Third,
define decision variables, formulate the constraints just the same as Linear Programming
Model. Then, following each constraint, develop equation by adding d1- or d1+, which
indicates the possible deviations below or above target value. Lastly, write the objective
function in terms of minimizing a prioritized function of the deviational variables.
The objective function in a goal programming model seeks to minimize the

deviation from goals in order of the goal priorities. Moreover, terms are not summed in
the objective function because the deviational variables often have different units of
measure so each goal constraints include all deviational variables. There are two types
of deviational variables - a positive deviational variable is the amount by which a goal
level is exceeded while a negative deviational variable is the amount by which a goal
level is underachieved. At least one or both deviational variables in a goal constraint
must equal zero.
Goal programming can be illustrate through a mathematical solution or graphical

solution. Between the two, graphical solution is more evident in illustrating the goal
programming solution logic which is seeking to achieve goals by minimizing deviation
in order of their priority and remember that one goal is never achieved at the expense
of another higher-priority level. Lastly, keep in mind that goal programming solutions
do not always achieve all goals and they are not optimal; they achieve the best or most
satisfactory solution possible.

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Analytical Hierarchy Process (AHP)
Analytical Hierarchy Process is a method for ranking decision alternatives and

selecting the best one when the decision maker has multiple objectives, or criteria, on
which to base the decision. Thus, it answers the question which one?
The following is the summary of the mathematical steps used to arrive at the
AHP-recommended decision: First, develop a pairwise comparison matrix for each
decision alternative (site) for each criterion. Second, synthesization process- determining
which site is the most preferred, the second most preferred, the third most preferred
and so on for each of the criteria. Third, develop a pairwise comparison matrix for the
criteria. Fourth, compute the normalize matrix by dividing each value in each column of
the matrix by the corresponding column sum. Next, develop the preference vector by
computing the row averages for the normalized matrix. Then, compute an overall score
for each decision alternative by multiplying the criteria preference vector by the criteria
matrix. Lastly, rank the decision alternatives, based on the magnitude of their overall
scores.
Although the AHP is one of the most advanced methods available in the field of
management science and operations research, the complexity involved in using this tool
makes it difficult to apply. However, software tools have been built which automate the
mathematics intensive part. The user has to follow a simple methodology of data
collection which is then fed into the tool to get the results.
Here is the procedure for doing the same:
Step 1: Define Alternatives

The AHP process begins by defining the alternatives that need to be evaluated.
These alternatives could be the different criteria that solutions must be evaluated
against. They could also be the different features of a product that need to be weighted
to better understand the customers’ perception. At the end of step 1, a comprehensive
list of all the available alternatives must be ready.
Step 2: Define the Problem and Criteria

The next step is to model the problem. According to AHP methodology, a
problem is a related set of sub problems. The AHP method therefore relies on breaking
the problem into a hierarchy of smaller problems. In the process of breaking down the
sub-problem, criteria to evaluate the solutions emerge. However, like root because
analysis, a person can go on and on to deeper levels within the problem. When to stop
breaking the problem into smaller sub problems is a subjective judgment.

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Step 3: Establish Priority amongst Criteria Using Pairwise Comparison

The AHP method uses pairwise comparison to create a matrix. For example, the
firm will be asked to weigh the relative importance of protection from downfall vs.
liquidity. Then in the next matrix, there will be a pairwise comparison between liquidity
and chance of appreciation and so on. The managers will be expected to fill this data as
per the expectations of the end consumer or the people who are going to use the
process.
Step 4: Check Consistency

This step is inbuilt in most software tools that help solve AHP problems.
Step 5: Get the Relative Weights

The software tool will run the mathematical calculation based on the data and
assign relative weights to the criteria. Once the equation is ready with weighted criteria,
one can evaluate the alternatives to get the best solution that matches their needs.
Scoring Models
Scoring models come in different shapes and sizes. Some generic, others very
specific. In short, you could describe a scoring model as follows; a model in which various
variables are weighted in varying ways and result in a score. This score subsequently
forms the basis for a conclusion, decision or advice.
In defining the possible outcomes organizations are not limited to numerical

values, whereas the score can be translated to any format. Therefore, scoring models
can relate to different decision situations and answer a wide variety of questions,
1. Gather your resources

You wouldn’t build a house without first purchasing the supplies would you? To
have a successful scoring model, you’ll first need to understand how your various assets
are impacting sales, so your sales team should be your first stop. Choose your most
dependable, savvy salesperson and ask them what types of content they find most
helpful when reaching out to prospects.
2. Make a list, check it twice

Chances are, you’ve already noticed a pattern. Some of your marketing assets
are making more of a difference than others, and that’s a good thing. Now make a list

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of all of these top performers, arranging from most effective to least effective. We’ll
come back to this later.
3. Decide your threshold score

A lot of companies wonder what the “right” threshold score should be, is it 100?
200? 500? The truth is, there is no “right” answer—it depends entirely on you. The
number itself does not matter, it is the meaning behind it that does. This threshold
signifies that your prospect has gotten sufficiently familiar with you and your product
and is now ready for more targeted, hands-on contact. For most companies a score of
100 is a happy, familiar signifier of success, so feel free to start there.
4. Assign Scores to Your Assets

Now let’s get back to that list of assets you made in Step 2. You have your
threshold score figured out, now, with that in mind, break down what each asset is
“worth” accordingly. For example, if you are using a threshold of 100, your top
performing asset may be worth 50 points, while further down the list you might go down
to 25, then 10, then 5. If your prospects are hitting those most valuable assets, they’ll get
sales ready quicker and now your score will reflect that.
5. Design your flow

You’ve made it this far and your prospects will be steadily increasing their score
with each engagement. Now what? That’s up to you to decide. What happens when
they reach that Threshold score? Will they get a call from your sales team? Will they get
an email with a special promotional offer? Create a clear and consistent plan for your
most highly engaged prospects and watch them pass that finish line with pride.

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Chapter 11 & 12: Nonlinear Programming
1. What is nonlinear programming?
A nonlinear programming is the mathematical method of finding the optimized

solution by considering constraints or objective functions that are nonlinear. It involves
minimizing or maximizing a nonlinear objective function subject to bound constraints,
linear constraints, nonlinear constraints, etc. These constraints can be inequalities or
equalities. In addition, nonlinear programming helps in analyzing design tradeoffs,
selecting optimal designs, computing optimal trajectories and portfolio optimization
and model calibration in computation finance. In simple words, non-linear programming
helps to find the best solution from a set of parameters or requirements that have a
nonlinear relationship. However, the problem with nonlinear models are inherently
much more difficult to optimize. The reasons are stated below:
a. It’s hard to distinguish a local optimum for global optimum.
Formally, a local optimumx* is a feasible point that has a better value than any
other feasible point in a small neighborhood around it. The global optimum, on
the other hand, is the point with the best value of the objective function anywhere
in the feasible region.
b. Optima are not restricted to extreme points. An optimum (local or global) could
be anywhere: at an extreme point, along an edge of the feasible region, or in the
interior of the feasible region.
c. There may be multiple disconnected feasible regions. Because of the way in which
nonlinear constraints can twist and curve, there may be multiple different feasible
regions.
d. Different starting points may lead to different final solutions. The difficulty is
compounded worse when the problem is constrained: not only are there multiple
local optima, but these may be discontinuous feasible regions.
e. It may be difficult to find a feasible starting point.

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f. It is difficult to satisfy equity constraints (and to keep them satisfied). Finding a

solution that satisfies curving and twisting equations is difficult in and of itself, but
even a solution is found at some point, the equality may again be violated when
algorithm tries to move to another point that has a better value of the objective
function.
g. There is no definite determination of outcome. Things are much less certain for
NLP. The solver may report optimum, but at best it can check certain conditions
to guarantee that the point is a local optimum. It may also continue improving
the value of objective function for a long time, but will not be able to say whether
the model is unbounded.
h. There is a huge body of very complex mathematical theory and numerous
solution algorithms.
i. It is difficult to determine whether the conditions to apply a particular solver are
met.
j. Different algorithms and solvers arrive at different solutions and outcomes for the
same formulation.
k. Using the available nonlinear solvers can be complex.
2. Discuss the basic structure of nonlinear programming.
A nonlinear program structure is similar to the linear program structure in that it

is composed of an objective function, general constraints, and variable bounds.
Nonlinear program structure is just different in a way that it includes at least one
nonlinear function, which could be the objective function, or some or all of the
constraints. Many real systems are inherently nonlinear (example: modeling the drop in
signal power with distance from a transmitting antenna), so, it is important that
optimization algorithms be able to handle them. As mentioned above, the only problem
is that nonlinear models are inherently much more difficult to optimize.
A Nonlinear Program (NLP) is a problem that can be put into the form
minimize F(x)
subject to: gi (x) = 0 for i=1,...,m1 where m1 >= 0

hj (x) >= 0 for j=m1+1,...,m where m >= m1
Nonlinear programming models comprise of an objective function and the

constraints on that specific function. A linear and nonlinear programming model takes
the following structure form:

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Let: x1, x2, x3,,,,,,xn = decision variables

Z = objective function or linear function
Requirement: Maximization of the linear function Z.
Z = c1x1 + c2x2 + c3x3 + ………+cnxn
subject to the following constraints:
(eq1) a11x1 + a12x2 + …..+ a1nxn ≤ b1
a21x1 + a22x2 + …..+ a2nxn ≤ b2
(eq2) am1x1+ am2x2 + …..+ amnxn ≤ bn

+ all xj ≥ 0
where aij, bi, and cj are given constants.
In this structure of nonlinear equations, Z is the objective function value that is

being optimized, xi are the decision variables whose optimal values are to be found, and
ai, bij, and ci are constants resulting from the particulars of the problem.
A general optimization problem is to select n decision variables x1, x2, . . . , xn

from a given feasible region in such a way as to optimize (minimize or maximize) a given
objective function
f (x1, x2, . . . , xn)
of the decision variables. The problem is called a nonlinear programming

problem (NLP) if the objective function is nonlinear and/or thefeasible region is
determined by nonlinear constraints. Thus, in maximization form, the general
nonlinear program is stated as:
Maximize f (x1, x2, . . . , xn),

subject to: g1(x1, x2, . . . , xn) ≤ b1, . . . . . .
gm(x1, x2, . . . , xn) ≤ bm,
where each of the constraint functions g1 through gm is given. A special case is thelinear
program that has been treated previously. The obvious association for this case is:
f (x1, x2, . . . , xn) = Xn j=1 c j x j,
and gi(x1, x2, . . . , xn) = Xn j=1 ai j x j
(i = 1, 2, . . . , m).
Note that nonnegativity restrictions on variables can be included simply by

appending the additional constraints:
gm+i(x1, x2, . . . , xn) = −xi ≤ 0 (i = 1, 2, . . . , n).

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Sometimes these constraints will be treated explicitly, just like any other problem
constraints. At other times, it will be convenient to consider them implicitly in the same
way that nonnegativity constraints are handled implicitly in the simplex method.
For notational convenience, we usually let x denote the vector of n decision

variables x1, x2, . . . , xn — that is, x = (x1, x2, . . . , xn) — and write the problem more
concisely as:
Maximize f (x),
subject to: gi(x) ≤ bi (i = 1, 2, . . . , m).
In addition, nonlinear programming involves minimizing or maximizing a

nonlinear objective function subject to bound constraints, linear constraints, or nonlinear
constraints, where the constraints can be inequalities or equalities. It can be written in
the form g,(x) 2 0 for i = 1, ..., m.
Unconstrained nonlinear programming is the mathematical problem of finding a

vector x that is a local minimum to the nonlinear scalar function f(x). Unconstrained
means that there are no restrictions placed on the range of
The following algorithms are commonly used for unconstrained nonlinear

programming:
o Quasi-Newton: uses a mixed quadratic and cubic line search procedure and
the Broyden-Fletcher-Goldfarb-Shanno (BFGS) formula for updating the
approximation of the Hessian matrix
o Nelder-Mead: uses a direct-search algorithm that uses only function values
(does not require derivatives) and handles nonsmooth objective functions
o Trust-region: used for unconstrained nonlinear optimization problems and is
especially useful for large-scale problems where sparsity or structure can be
exploited
Constrained nonlinear programming is the mathematical problem of finding a

vector x that minimizes a nonlinear function f(x) subject to one or more constraints.
Algorithms for solving constrained nonlinear programming problems include:
o Interior-point: is especially useful for large-scale nonlinear optimization

problems that have sparsity or structure.

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o Sequential quadratic programming (SQP): solves general nonlinear problems

and honors bounds at all iterations.
o Trust-region reflective: solves bound constrained nonlinear optimization
problems or linear equalities only.

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Chapter 13: Probability and Statistics
1. What is Probability and Statistics when applied in Management Science?
As we all know, management science uses systematic techniques in order to come

up with sound decision that would result to the best outcome possible. These Probability
and Statistics are one of those logical approach that would help the decision makers on
achieving desirable outcome, but the question is how?
a. Probability is simply how likely something is to happen and the analysis of events
governed by it is called statistics. Statistics is a discipline that focuses on collection
of data, summarize the information collected to aid understanding, drawing
conclusions from it, and estimating the present or predicting the future that would
help people to make right decision with the best outcome among alternative
courses of action. So basically, probability and statistics is a systematic approach
that would help the decision makers on making sound decisions.
b. Statistics and probability removes uncertainty in the situation. Statistics does not
deal with the question of what is but of what could be or what probably is. At a
time when assertions are made it's not possible to tell surely of what is going to
be the truth. This means that there is an element of uncertainty. This is answered
with the help of statistical probability tools.
c. One of the great importance of the practice of statistics and probability is

estimation. In situations where one would like to know about all the data in large
data sets but it is impractical to work with all the data, decision makers can use
techniques to estimate what the larger data set looks like. The estimates are
formed by looking closely at a subset of the larger data set.
d. Statistics helps managers to make sense to numerical information. It provides

managers with more confidence in dealing with uncertainty despite of the flood
of available data. It also enables managers make smarter decisions quickly and
provide more stable leadership to staff relying on them. Also, through statistics,
the managers were able to point out relationships.
e. Statistics and probability also helps in hypothesis development. Once the decision
maker identifies the important variables in a situation and establishes the

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relationship among them through logical reasoning in the theoretical framework

the decision maker is in a better position to test whether the relationship that has
been theorized does in fact hold true. By testing these relationships scientifically
through appropriate statistical analysis or through negative case analysis in
qualitative research we are able to obtain reliable information on what kind of
relationships exist among the variables operating in the problem situation. The
results of these tests offer the decision maker some clues as to what could be
changed in the situation to solve the problem. Formulating such testable
statements is called hypothesis development.
Statistics and Probability really helps in the practice of management science in

many ways we could imagine. Together it creates a harmonious relationship that greatly
aids decision makers around the world to perform efficiently. It also helps managers to
deal with numbers and formulas to be able to decide the best course of solution to take
to fulfill their role of adding value to the organization.
2. Define and construct a normal curve.
The normal distribution or a normal curve is a probability function that describes

how the values of a variable are distributed. It is a symmetric distribution where most of
the observations cluster around the central peak and the probabilities for values further
away from the mean taper off equally in both directions. Extreme values in both tails of
the distribution are similarly unlikely.
A normal curve (bell curve), also known as normal distribution, is a distribution

that occurs naturally in many situations like the GRE and SAT. The normal curve is
symmetrical in which half of the data will fall to the left of the mean while half will fall to
the right. It describes how the values of a variable are distributed. It is the most important
probability distribution in statistics because it fits many natural phenomena and the
reason why it’s widely used in business, government bodies and statistics.

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Illustrations:

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Chapter 14: Decision Analysis
1. What does decision analysis mean?
Decision analysis (DA) is a systematic, quantitative, and visual approach to

addressing and evaluating the important choices that businesses sometimes face.
It is used by large and small corporations alike when making various types of
decisions, including management, operations, marketing, capital investments, or
strategic choices.
Decision analysis uses a variety of tools to evaluate all relevant information

to aid in the decision-making process and incorporates aspects of psychology,
management techniques, training, and economics. It is often used to assess
decisions that are made in the context of multiple variables and that have many
possible outcomes or objectives. The process can be used by individuals or groups
attempting to make a decision related to risk management, capital investments,
and strategic business decisions.
Decision analysis focuses on aspects fundamental to all decision problems, namely
1. A perceived need to accomplish some objectives,
2. Several alternatives, one of which must be selected,
3. The consequences associated with alternatives are different,
4. Uncertainty usually about the consequences of each alternative,
5. The possible consequences are not all equally valued.
The decision problem is decomposed into parts, which are separately

analyzed and integrated with the logic of the decision analysis axioms to suggest
which alternative should be chosen. This "divide and conquer" orientation is almost
essential for addressing interdisciplinary problems. The methodology of decision
analysis provides a framework to combine traditional techniques of operations
research, management science, and systems analysis with professional judgments
and values in a unified analysis to support decision-making. With the procedures
of decision analysis, models (e.g., economic, scientific, operations research),
available data, information from samples and tests, and the knowledge of experts
are used to quantify the likelihoods of various consequences of alternatives in

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terms of probabilities. Utility theory is used to quantify the values of decision

makers for these consequences.
Methodology of Decision Analysis
The methodology of decision analysis will be decomposed into four steps:
1. Structure the decision problem
Structuring the decision problem includes the generation of alternatives

and the specification of objectives. The creativity required for these tasks is
promoted by the systematic thought processes of decision analysis.
Decision analysis captures the dynamic nature of decision processes by

prescribing a decision strategy that indicates what action should be chosen
initially and what further actions should be selected for each subsequent event
that could occur. For instance, a decision strategy might suggest an initial test
market for a new product and then, based on the results, either cancel the
product, initiate further testing, or begin a full scale marketing and sales effort.
Thus, in describing the alternatives, one must simultaneously specify the
decision points, events that may occur between them, and the information that
can be learned in the process.
2. Assess possible impacts of each alternative,
In this step of decision analysis, we wish to determine the impact of each

alternative. If it were possible to precisely forecast impact, we could associate
one consequence with each alternative. Then the evaluation of alternatives
would boil down to a choice of the best consequence. Unfortunately, the
problem is usually not so simple because of uncertainties about the eventual
consequences. Therefore, for each possible alternative, it is desirable to
determine the set of possible consequences and the probabilities of each
occurring.
3. Determine preferences (values) of decision makers, and
It is probably impossible to achieve the best level with respect to each

objective in a decision problem. The question is, "How much should be given

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up with regard to one objective to achieve a specified improvement in

another?" The issue is one of value tradeoffs. For decision problems with either
single or multiple objectives, it is rarely the case (except in simple problems)
that one alternative is guaranteed to yield the best available consequence.
There are usually circumstances that could lead to undesirable consequences
with any given alternative. The question is, "Are the potential benefits of having
things go right worth the risks if things go wrong?" This issue is about risk
attitudes. Both value tradeoffs and risk attitudes are particularly complicated
because there are no right or wrong values. Basically, what is needed is an
objective function which aggregates all the individual objectives and an attitude
toward risk. In decision analysis, such an objective function is referred to as a
utility function, symbolically written u. Then u(x), the utility of the consequence
x, indicates the desirability of x relative to all other consequences.
This step, unique to decision analysis, involves the creation of a model

of values to evaluate the alternatives. This is done in a structured discussion
between a decision analyst and the decision makers to quantify value
judgments about possible consequences in the problem. The procedure
systematically elicits relevant information about value tradeoffs, equity
concerns, and risk attitudes with provision for consistency checks.
4. Evaluate and compare alternatives.
Once a decision problem is structured, the magnitude and the associated

likelihoods of consequences determined, and the preference structure established,
the information must be synthesized in a logical manner to evaluate the
alternatives.
There are countless perspectives and tactics to effective decision-making.

However, there are a few key points in decision-making theory that are central to
understanding how different styles may impact organizational trajectories.
Decision-making styles can be divided into three broad categories:
1. Psychological: Decisions derived from the desires, preferences, needs,

and/or values of the individual making the decision. It is centered on the individual
deciding.
2. Cognitive: This is an integrated feedback system between the

individual/organization making a decision, and the broader environment’s

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reactions to those decisions. This type of decision-making process involves

iterative cycles and constant assessment of the reactions and impacts of the
decision.
3. Normative: It is a type of decision based on communicative rationality. This

is to say that decisions are derived based on the ability to communicate and share
logic, using firm’s premises and conclusions to drive behavior.
Practice of Decision Analysis
The ultimate purpose of decision analysis is to help decision makers make

better decisions. The foundations, provided by the axioms, do not "assume the
problem away." Even though the theory and procedures are straightforward, a
price is paid for attempting to address the complexities of a decision problem
explicitly. The implementation phase, that is putting the methodology into practice,
is more involved compared to other forms of analysis. A significantly greater
portion of the overall effort in decision analysis is spent generating alternatives,
specifying objectives, eliciting professional and value judgments, and interpreting
implications of the analysis. Each of these requires interaction between the decision
analyst and the decision makers or individuals knowledgeable about the problem
substance. Structured creative thinking is demanded and sensitive information is
elicited.
2. Describe how decision-making criterion applies.
There are different criteria that must be looked at in decision making.
For example, suppose Geoffrey Ramsbottom is faced with the following pay-
offtable. He has to choose how many salads to make in advance each day before
he knows the actual demand.
 His choice is between 40, 50, 60 and 70 salads.

 The actual demand can also vary between 40, 50, 60 and 70 with the
probabilities as shown in the table - e.g. P(demand = 40) is 0.1.
 The table then shows the profit or loss - for example, if he chooses to make
70 but demand is only 50, then he will make a loss of $60.

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Maximax Criterion
The maximax rule involves selecting the alternative that maximises the
maximum payoff available.
This approach would be suitable for an optimist, or 'risk-seeking' investor,

who seeks to achieve the best results if the best happens. The manager who
employs the maximax criterion is assuming that whatever action is taken, the best
will happen; he/she is a risk-taker.
Looking at the payoff table, the highest maximum possible pay-off is $140.
This happens if we make 70 salads and demand is also 70. Geoffrey should
therefore decide to supply 70 salads every day.
Maximin Criterion
The maximin rule involves selecting the alternative that maximises the
minimum pay-off achievable. The investor would look at the worst possible
outcome at each supply level, then selects the highest one of these. The decision
maker therefore chooses the outcome which is guaranteed to minimise his losses.
In the process, he loses out on the opportunity of making big profits.
This approach would be appropriate for a pessimist who seeks to achieve

the best results if the worst happens.
Looking at the payoff table,
• If we decide to supply 40 salads, the minimum pay-off is $80.
• If we decide to supply 50 salads, the minimum pay-off is $0.
• If we decide to supply 60 salads, the minimum pay-off is ($80).
• If we decide to supply 70 salads, the minimum pay-off is ($160).
The highest minimum payoff arises from supplying 40 salads. This ensures that the
worst possible scenario still results in a gain of at least $80.

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Minimax regret
The minimax regret strategy is the one that minimises the maximum regret.
It is useful for a risk-neutral decision maker. Essentially, this is the technique for a
'sore loser' who does not wish to make the wrong decision.
'Regret' in this context is defined as the opportunity loss through having

made the wrong decision.
To solve this a table showing the size of the regret needs to be constructed.
This means we need to find the biggest pay-off for each demand row, then subtract
all other numbers in this row from the largest number.
For example, if the demand is 40 salads, we will make a maximum profit of

$80 if they all sell. If we had decided to supply 50 salads, we would achieve a nil
profit. The difference or 'regret' between that nil profit and the maximum of $80
achievable for that row is $80.

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Chapter 15: Queuing Analysis
1. Define “queue discipline” and why this is important?
The queue discipline shows the sequence in which queue’s members are
being selected for the service. Queue discipline may handle things in order of their
receipt or may categorize the things in order of their importance.
There are different types of queue discipline:

a. FIFO (First in, first out) – the customers are served on a “first-come,
first-served” basis. That is, the first person in line at the check-out
counter is served first. This is the most common type of queue
discipline.
b. LIFO (Last-in, first-out) - a machine operator might stack in-process
parts beside a machine so that the last part is on top of the stack and
will be selected first.
c. Random - the machine operator might simply reach into a box full of
parts and select one at random.
d. Priority Queue – customers are often scheduled for service according
to a predetermined appointment, such as patients at a doctor’s or
dentist’s office or diners at a restaurant where reservations are
required. They receive priority in service over others even if they
arrive late.
e. Alphabetically - this is the order according to their last names, usually
used at school registration or at job interviews.
2. What is the importance of understanding the psychology of waiting in designing

and managing queuing systems in practical business situations?
With understanding the psychology of waiting in designing and managing

queuing systems in practical business situations, there will be a boost in
operational efficiency of customer service.
Organized queues enhance the customer experience and minimize any
frustration that staff members experience. This means that understanding the

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managing queuing systems will help improve staff productivity. Also,

understanding your online customer’s mindset is important to driving sales,
fostering loyalty and providing a high-quality customer experience. If the staff
knows some specific concerns a customer will have while waiting in line and how
to address those concerns, it will enable the business to flow smoother in high-
traffic times.
The customer, in turn, benefits from your employees being ready to serve
them with everything needed for the meeting, rather than wasting time on basic
discovery. Overall, this means fewer peaks and valleys in workloads and more
productive employees.
One of the major advantages of queuing systems is that you can drill down
into the data and understand trends at the individual customer and business-wide
level. Powerful reporting modules should give you deep insight into top-level
metrics like average bookings over a set timeframe, customer feedback, and
deeper metrics into who your top customers are by frequency of appointment and
basket size.
Queue management systems tend to give people a more positive
experience by eliminating the stifling feeling of being in a crowded line with other
frustrated people. When customers can use their mobile devices to reserve their
place in line and receive notifications when they are about to be served, they will
not feel as though they wasted their time just standing around.
3. What is the essence of use of waiting line models to make managerial decisions?
Waiting line models are important to a company because they directly affect
customer service perception and the costs of providing a service.
Several functional areas are affected by waiting line models in making
managerial decisions and some of these are the following:
 Accounting is concerned with the cost of the waiting line system used. If system
average utilization is low, that suggests the waiting line design is inefficient and
too expensive. Poor system design can result in over staffing or unnecessary
capital acquisitions in an effort to improve customer service.

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 Marketing is concerned about response time for customers—how long

customers must wait in line before being served and how long it takes to be
served. Quick service or response can be a competitive advantage. Long waits
suggest a lack of concern by the organization or can be linked to a perception
of poor service quality. Purchasing must be sure to buy capital equipment
capable of achieving the proposed service rate.
 Operations uses waiting line theory to estimate queues or waiting times at

different processing points, to allow for a better estimate of lead time and
improve due date delivery promising. Operations is also affected by the system
design. When single-phase systems are used, operators must have greater
skills. The organization needs to hire employees with higher skill levels or
provide training to upgrade the workforce.

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Chapter 16: Simulation
1. What is Simulation?
Simulation is visual and animated, allowing one to easily see what is

happening in a process as time progresses. It is the process of designing a model
of a real system and conducting experiments with the model for the purpose either
of understanding the behavior of the system or of evaluating various strategies
(within the limits imposed by a criterion or set of criteria) for the operation of the
system. It mimics the operation of an existing or proposed system, like the day-to-
day operation of a bank, running an assembly line, or assigning staff in a hospital
or call center.
It is also interactive which can quickly be adapted in any way that one might
consider in changing the real process.
2. What is the importance of simulation in an organization's efficiency and

profitability?
Simulation offers a powerful, evidence-based approach to decision making

by using a virtual representation to test the impact of process changes and 'what
if' scenarios. By using simulation, an organization can find an approach that delivers
the best results. As simulation can run through time much quicker than real life, it
could be used to simulate days, weeks or years of a process in seconds. This enables
organizations to evaluate the long-term consequences of any changes and
decisions they make.
Additionally, simulation is an excellent tool that analyzes alternative actions
as well as their impact in rationalizing the spending of resources. In fact, it has been
widely used in last decades to analyze the impact of different scenarios in several
areas like, for instance, health, military, business, and many others. It helps
organizations in allowing system designers to study a problem at several different
levels of abstraction. By approaching a system at a higher level of abstraction, the
designer is better able to understand the behaviors and interactions of all the high
level components within the system and is therefore better equipped to counteract
the complexity of the overall system. Thus, simulation shows the behavior and
relationship of all the simulated system's components which thereby provides the
users a meaningful understanding of the system's nature that will be used in
decision making processes.

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BUMA 2010 3 Yapan et. al - BUMA

Bachelor of Science in Accountancy (Polytechnic University of the Philippines)

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Azur, Florianne Mae

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Chapter 1: Introduction to Management Science

2. What is a management science? Define in your own words.

Management science is any application of science to the study of

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Chapter 2: Linear Programming: Model Formulation and

1. Differentiate the components and characteristics of maximization and

Linear programming is a mathematical technique for solving constrained

Formulation of the Profit Maximization Linear Programming Problem

Simplex Method for Standard Maximization Problem

To solve a standard maximization problem using the simplex method, we

Step 1. Convert to a system of equations by introducing slack variables to

Step 2. Write down the initial tableau.

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Formulation of the Cost Minimization Linear Programming Problem

Steps to solve for Minimization Problems

2. Write an expression for the objective function using the variables.

3. Write constraints in terms of inequalities using the variables.

4. Graph the feasible region using the constraint statements.

5. Identify the corner points of the feasible region.

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2. Give examples of application of Linear Programming used in various industries.

Linear programming is used to obtain optimal solutions for operations

Farmers apply linear programming techniques to their work. By determining

Engineers also use linear programming to help solve design and

Manufacturing requires transforming raw materials into products that

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Modern energy grid systems incorporate not only traditional electrical

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Chapter 3: Linear Programming: Computer Solution and

1. Define the missing term in the statement:

Sensitivity analysis is the analysis of the effect of __parameter__ changes on

2. Identify. True or False.

If we change the constraint quantity to a value outside the sensitivity range

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Chapter 4: Linear Programming: Modeling Examples

1. Kindly differentiate the five model formulation in linear programming. How do

It is a usual situation for an enterprise to have a fixed amount of available

A market allocation decision is related to the choice of media effectiveness,

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One of the most important and successful applications of quantitative

The potential value of blending depends largely on the variability of quality

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Chapter 5: Integer Programming

1. How integer programming differs from linear programming?

Integer Programming (IP) is a subset of the broad field of Linear

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Chapter 6: Transportation, Transshipment & Assigned

1. Differentiate the three special types of linear programming model formulations.

Transportation Model has the following characteristics:

In general, a transportation problem is specified by the following

Transshipment Model has the following characteristics:

Items may be transported from:

 Sources through transshipment points to destinations

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 One destination to another

Transshipment problem is a special transportation problem in which, some

Assignment Model has the following characteristics:

Sensitivity analysis is the analysis of the effect of parameter changes on