# Chapter 1: Introduction to Management Science

JQP2023

Management Science

1

The Management Science Approach
Management science uses a scientific approach to solving management problems. It is used in a variety of organizations to solve many different types of problems. It encompasses a logical mathematical approach to problem solving. Management Science, also known as Operations Research, Decision Sciences, etc., involves a philosophy of problem solving in a logical manner.

JQP2023 Management Science

2

The Management Science Process

Figure 1.1 The Management Science Process
JQP2023 Management Science 3

1

Model Implementation . JQP2023 Management Science 4 Example of Model Construction (1 of 3) Information and Data: Business firm makes and sells a steel product Product costs \$5 to produce Product sells for \$20 Product requires 4 pounds of steel to make Firm has 100 pounds of steel Business Problem: Determine the number of units to produce to make the most profit.problem must be clearly and consistently defined. Model Construction .Identification of a problem that exists (or may occur soon) in a system or organization.\$5X (objective function) 4X = 100 lb of steel (resource constraint) \$20. showing its boundaries and interactions with the objectives of the organization. JQP2023 Management Science 5 Example of Model Construction (2 of 3) Variables: X = number of units to produce (decision variable) Z = total profit (in \$) Model: Z = \$20X . given the limited amount of steel available. Model Solution . 4 lbs.Actual use of the model or its solution.Development of the functional mathematical relationships that describe the decision variables. 100 lbs (known values) Parameters: Formal Specification of Model: maximize Z = \$20X . objective function and constraints of the problem.Steps in the Management Science Process Observation . Definition of the Problem . \$5.\$5X subject to 4X = 100 JQP2023 Management Science 6 2 .Models solved using management science techniques.

i. Profit (Z) .difference between total revenue vp (p = unit price) and total cost.unit production cost of product. volume) that will equate total revenue with total cost.\$5x = (20)(25) – (5)(25) = \$375 (Produce 25 units. JQP2023 Management Science 8 Model Building: Break-Even Analysis (2 of 8) Model Components Fixed Costs (cf) .e.costs that remain constant regardless of number of units produced. Variable Cost (cv) . Profit at break-even point is zero. to yield a profit of \$375) JQP2023 Management Science 7 Model Building: Break-Even Analysis (1 of 8) Used to determine the number of units of a product to sell or produce (i.function of volume (v) and unit variable cost. Total Cost (TC) . The volume at which total revenue equals total cost is called the break-even point.vcv JQP2023 Management Science 9 3 .cf . Total variable cost (vcv) .Example of Model Construction (3 of 3) Model Solution Consider the constraint equation: 4x = 100 or x = 25 units Substitute this value into the profit function: Z = \$20x . Z = vp .total fixed cost plus total variable cost.e.

2 Break-Even Model JQP2023 Management Science 12 4 .000)/(23 -8) = 666.cv) (Break-Even Point) JQP2023 Management Science 10 Model Building: Break-Even Analysis (4 of 8) Example: Western Clothing Company Fixed Costs: cf = \$10000 Variable Costs: cv = \$8 per pair Price : p = \$23 per pair The Break-Even Point is: v = (10.Model Building: Break-Even Analysis (3 of 8) Computing the Break-Even Point The break-even point is that volume at which total revenue equals total cost and profit is zero: vp .7 pairs JQP2023 Management Science 11 Model Building: Break-Even Analysis (5 of 8) Figure 1.cf – vcv = 0 or v = cf/(p .

Break-even Model with a Change in Price JQP2023 Management Science 13 Model Building: Break-Even Analysis (7 of 8) Figure 1.5 Sensitivity Analysis .Break-Even Model with a Change in Fixed Cost JQP2023 Management Science 15 5 .3 Sensitivity Analysis .Break-Even Model with a Change in Variable Cost JQP2023 Management Science 14 Model Building: Break-Even Analysis (8 of 8) Figure 1.4 Sensitivity Analysis .Model Building: Break-Even Analysis (6 of 8) Figure 1.

Break-Even Analysis: Excel Solution JQP2023 Management Science 16 Break-Even Analysis: Excel QM Solution JQP2023 Management Science 17 Break-Even Analysis: QM Solution JQP2023 Management Science 18 6 .

Break-Even Analysis: QM Solution (5 of 5) JQP2023 Management Science 19 Classification of Management Science Techniques JQP2023 Management Science 20 7 .