ASSIGNMENT OPERATION

RERSEARCH
BY
NAME - DEEKSHA THAKUR
CLASS - BCOM 3 SEM 6
ROLL NO. - 10747

QUESTION 1 - DEFINE OPRERATIONS RESEARCH

ANSWER

OPERATIONS RESEARCH – It may simply be viewed as systematic and analytical approach to

decision making and problem solving. It is typically concerned with determining the maximum
profit, sale, output, crop yield and efficiency and minimum losses, risk, cost, time of some
objective function.

In India OR society was founded in 1959. It also became a member of International Federation of
OR Societies in 1959. There is too much impact of OR in all aspects – economics, management,
engineering, and other behavior sciences. Industries are also becoming aware of importance of
OR and many of them have well trained OR teams.

“Operation research is a scientific approach to problem solving for executive management.”

H.M. Wagner

FEATURES OF OR

1. SYSTEM ORIENTATION –
OR studies a problem as a whole. The optimum result of one part of a system may or
may not be optimum for other part, thus to evaluate any decision we have to determine
its impact on the organization as a whole.
2. INTER-DISCIPLINARY TEAM APPROACH –
OR is interdisciplinary in nature. Managerial problems have economical, physical,
psychological, biological, sociological and engineering aspect. no single person can
collect all useful, scientific information from all managerial areas, so OR team brings the
latest scientific know how to analyze the problem and helps in providing better result.
3. SCIENTIFIC APPROACH –
OR is a formalized process of reasoning under OR the problem is to be analyzed and
defined clearly. Observations are made under different situations and measurements
are recorded. Finally, results are studied and hypothesis is accepted or rejected.
4. DECISION MAKING –
OR diagnose the problem, determine, evaluate and selects the best alternative course of
action. Thus, OR is a science which helps in decision making.
5. QUANTITATIVE SOLUTION –
 OR provides manager with quantitative basis for decision making. OR attempts to
provide a systematic and rational approach for quantitative solutions to various
managerial problem

OUESTION 2 – EXPLAIN UNCERTAINTY. HOW CAN YOU AVOID IT?

ANSWER

UNCERTAINTY - The aim of decision theory is to guide decision maker in choosing best
course of action. Uncertainty is a type of decision model. Decision theory is a calculus
for decision-making under uncertainty. It tells you what decisions to make in complex
situations, based on your primitive preferences.

Decision making under uncertainty

Maximax criterion –
this decision criterion is applied by the most optimist decision maker when he thinks
optimistically about the happening of events affecting decision. If this philosophy is
followed, the manager will choose that alternative under which it is possible to
receive the most favorable pay-off.
Maximin criterion-
this criterion is adopted by the most pessimistic decision maker. The manager
believes that worst possible may take place.  This pessimism causes the selection of
that alternative which maximizes the least favorable payoff.
Minimax criterion-
minimax criterion leads to the minimization of regret. The managerial regret is
defined as the payoff for each alternative under state of nature of competitive action
subtracted from the most favorable payoff which is possible with the happening of
the particular event. When manager chooses an alternative and when a state of
nature takes place which does not result in the most favorable payoff, regret takes
place.
Insufficient reason criterion-
this proceeding decision criteria assume that without any experience, it is not
possible or worthwhile to allocate any probability to the state of situation. In this case
also, probability can allocate through there is no criterion for allocating the
probability. The situation is referred to as insufficient reason criterion or la place
criterion.
Hurwitz criterion-
the criterion makes compromise between Maximax and maximin i.e. an optimistic
and pessimistic decision criterion. We first locate the minimum outcome within every
alternative then pick the alternative with maximum number. Since this decision
locates the alternative having least possible loss, it has been called a pessimistic
decision criterion.
QUESTION 3 – EXPLAIN APPLICATIONS OF OPERATION RESEARCH IN
BUSINESS AND MANAGEMENT
ANSWER
OPERATION RESEARCH - It may simply be viewed as systematic and analytical approach to
decision making and problem solving. It is typically concerned with determining the maximum
profit, sale, output, crop yield and efficiency and minimum losses, risk, cost, time of some
objective function.
“Operation research is a scientific approach to problem solving for executive management.”
H.M. Wagner

APPLICATION OF OR

1. Finance budgeting and investments OR is used in Cash flow analysis, long-range capital
requirements, investment portfolios, dividend policies, etc.
2. Purchasing procurement and exploration-
a. Determining the quantity and timing of purchase of raw materials, machinery etc.
b. Rules tor buying and supplies under varying price
c. Bidding policies and Equipment replacement policies.
d. Determination of quantities and timings of purchases
e. Strategies tor exploration and exploitation of new material sources.
3. Production management
Project Planning:
Location and size of warehouses, distribution centers, retail outlets, etc. and Distribution
policy.
Manufacturing and Facility Planning:
(a) Production scheduling and sequencing
(b) Project scheduling and allocation of resources.
(c) Selection and location of factories, warehouses and their sizes.
(d) Determining the optimal production mix.
(e) Maintenance policies and preventive maintenance.
(f) Maintenance crew sizes.
(g) Scheduling arid sequencing the production run by proper allocation of machines.
4. Marketing management
(a) Product selection, timing competitive actions.
(b) Advertising strategy and choice of different media of advertising
(c) Number of salesmen, frequency or calling or accounts, etc.
(d) Effectiveness of market research.
(e) Size of the stock to meet the future demand.
5. Personnel management
(a) Recruitment policies and assignment of jobs.
(b) Selection of suitable personnel with due consideration for age and skills, etc.
 (c) Establishing equitable bonus systems.

QUESTION 4 - WHAT IS DECISION MAKING UNDER RISK? HOW ARE

DECISIONS MADE UNDER RISKY SITUATIONS?
ANSWER

DECISION MAKING UNDER RISK

Here the decision maker faces many states of nature. As such he is supposed to believe
authentic information, knowledge, past experience or happenings to enable him to allot
probability values to the likelihood of occurrence of each state of nature. Sometimes
with reference to past records, experience or information, probabilities to future events
could be allotted. On the basis of probability distribution of the states of nature, one
may select the best course of action having the highest expected pay-off value.

The expected value (or expected monetary value i.e. EMV) is widely used to evaluate
the alternative course of action (or act). The expected value is calculated by the
following formula for one row only.

∑ P jO ij=P 1O ij+ P 2O i2 …+ P n O∈¿

j=1

where Pi to P, indicate the probabilities of states of nature (or events) and O the pay-
offs of the outcomes due to combination of each event and act.

STEPS FOR CALCULATING EXPECTED VALUE

1. Construct the pay-off table listing the different course of action and state
of nature
2. List the pay-off thus obtained with the corresponding probability of each
state of nature.
3. Multiply the pay-off with the associated probabilities and add up these
values for each course of action which gives the expected value.
4. On the basis of these expected values determine the best course of action
or strategy.
OUESTION 5 - DIFFERENTIATE BETWEEN SLACK VARIABLE AND
SURPLUS VARIABLE.
ANSWER
BASIS SLACK VARIABLE SURPLUS
VARIABLE
1. MEANING It depicts is the It depicts the
unused resources excess amount of
or idle resources. resources utilized.
2. TYPE OF ≤ inequality ≥ inequality
CONSTRAINT
3. COEFFICENT +1 -1
IN
CONSTRAINT
4. COEFFICIENT 0 0
IN OBJECTIVE
FUNCTION
5. USE IN It is used as staring It cannot be used
SIMPLEX point. since unit matrix
TABLE condition is not
satisfied.
6. PRESENCE IN It helps to interpret -
FINAL TABLE idle and key
resources.