MB0048 –Operation Research (Set-1 up to No-4)

Q1. a. Explain how and why Operation Research methods have been valuable in aiding executive
decisions.

b. Discuss the usefulness of Operation Research in decision making process and the role of
computers in this field.

Ans.

Churchman, Aackoff and Aruoff defined Operations Research as: “the application of scientific methods,
techniques and tools to operation of a system with optimum solutions to the problems”, where ‘optimum’ refers
to the best possible alternative.

The objective of Operations Research is to provide a scientific basis to the decision-makers for solving
problems involving interaction of various components of the organisation. You can achieve this by employing
a team of scientists from different disciplines, to work together for finding the best possible solution in the
interest of the organisation as a whole. The solution thus obtained is known as an optimal decision.

You can also define Operations Research as “The use of scientific methods to provide criteria for decisions
regarding man, machine, and systems involving repetitive operations”.OR “Operation Techniques is a bunch
of mathematical techniques.”

b. “Operation Research is an aid for the executive in making his decisions based on scientific
methods analysis”. Discuss the above statement in brief.

Ans.

“Operation Research is an aid for the executive in making his decisions based on scientific methods analysis”.

Discussion:-

Any problem, simple or complicated, can use OR techniques to find the best possible solution. This section will
explain the scope of OR by seeing its application in various fields of everyday life.

i) In Defense Operations: In modern warfare, the defense operations are carried out by three major
independent components namely Air Force, Army and Navy. The activities in each of these components can be
further divided in four sub-components namely: administration, intelligence, operations and training and
supply. The applications of modern warfare techniques in each of the components of military organisations
require expertise knowledge in respective fields. Furthermore, each component works to drive maximum gains
from its operations and there is always a possibility that the strategy beneficial to one component may be
unfeasible for another component. Thus in

defense operations, there is a requirement to co-ordinate the activities of various components, which gives
maximum benefit to the organisation as a whole, having maximum use of the individual components. A team of
scientists from various disciplines come together to study the strategies of different components. After
appropriate analysis of the various courses of actions, the team selects the best course of action, known as the
‘optimum strategy’.
ii) In Industry: The system of modern industries is so complex that the optimum point of operation in its
various components cannot be intuitively judged by an individual. The business environment is always changing
and any decision useful at one time may not be so good some time later. There is always a need to check the
validity of decisions continuously against the situations. The industrial revolution with increased division of
labour and introduction of management responsibilities has made each component an independent unit having
their own goals. For example: production department minimises the cost of production but maximise output.
Marketing department maximises the output, but minimises cost of unit sales. Finance department tries to
optimise the capital investment and personnel department appoints good people at minimum cost. Thus each
department plans its own objectives and all these objectives of various department or components come to
conflict with one another and may not agree to the overall objectives of the organisation. The application of OR
techniques helps in overcoming this difficulty by integrating the diversified activities of various components to
serve the interest of the organisation as a whole efficiently. OR methods in industry can be applied in the fields
of production, inventory controls and marketing, purchasing, transportation and competitive strategies.

iii) Planning: In modern times, it has become necessary for every government to have careful planning, for
economic development of the country. OR techniques can be fruitfully applied to maximise the per capita
income, with minimum sacrifice and time. A government can thus use OR for framing future economic and
social policies.

iv) Agriculture: With increase in population, there is a need to increase agriculture output. But this cannot be
done arbitrarily. There are several restrictions. Hence the need to determine a course of action serving the best
under the given restrictions. You can solve this problem by applying OR techniques.

v) In Hospitals: OR methods can solve waiting problems in out-patient department of big hospitals and
administrative problems of the hospital organisations.

vi) In Transport: You can apply different OR methods to regulate the arrival of trains and processing times
minimise the passengers waiting time and reduce congestion, formulate suitable transportation policy, thereby
reducing the costs and time of trans-shipment.

vii) Research and Development: You can apply OR methodologies in the field of R&D for several purposes,
such as to control and plan product introductions.

Q2. Explain how the linear programming technique can be helpful in decision-making in the
areas of Marketing and Finance.

Ans.

Linear programming problems are a special class of mathematical programming problems for which the
objective function and all constraints are linear. A classic example of the application of linear programming is
the maximization of profits given various production or cost constraints.

Linear programming can be applied to a variety of business problems, such as marketing mix determination,
financial decision making, production scheduling, workforce assignment, and resource blending. Such problems
are generally solved using the “simplex method.”

MEDIA SELECTION PROBLEM.

The local Chamber of Commerce periodically sponsors public service seminars and programs. Promotional
plans are under way for this year’s program. Advertising alternatives include television, radio, and newspaper.
Audience estimates, costs, and maximum media usage limitations are shown in Exhibit 1.
If the promotional budget is limited to $18,200, how many commercial messages should be run on each medium
to maximize total audience contact? Linear programming can find the answer.

Q3. a. How do you recognise optimality in the simplex method?

b. Write the role of pivot element in simplex table?

Ans. Simplex method is used for solving Linear programming problem especially when more than two variables
are involved
SIMPLEX METHOD

1. Set up the problem.

That is, write the objective function and the constraints.

2. Convert the inequalities into equations.

This is done by adding one slack variable for each inequality.

3. Construct the initial simplex tableau.

Write the objective function as the bottom row.

4. The most negative entry in the bottom row  identifies a column.

5. Calculate the quotients.  The smallest quotient identifies a row.  The element in the
intersection of the column identified in step 4 and the row identified in this step is identified as
the pivot element.

The quotients are computed by dividing the far right column by the identified column in step 4.   A quotient that
is a zero, or a negative number, or that has a zero in the denominator, is ignored.

6. Perform pivoting  to make all other entries in this column zero.

This is done the same way as we did with the Gauss-Jordan method.

7. When there are no more negative entries in the bottom row, we are finished; otherwise, we
start again from step 4.

8. Read off your answers.

Get the variables using the columns with 1 and 0s.  All other variables are zero.  The maximum value you are
looking for appears in the bottom right hand corner.

Example
Niki holds two part-time jobs, Job I and Job II.  She never wants to work more than a total of 12 hours a week. 
She

has determined that for every hour she works at Job I, she needs 2 hours of preparation time, and for every hour

she works at Job II, she needs one hour of preparation time, and she cannot spend more than 16 hours for

preparation.  If she makes $40 an hour at Job I, and $30 an hour at Job II, how many hours should she work per

week at each job to maximize her income?

Solution: In solving this problem, we will  follow the algorithm listed above.

1.Set up the problem. That is, write the objective function and the constraints.

Since the simplex method is used for problems that consist of many variables, it is not practical to use the
variables x, y, z etc.  We use the symbols x1, x2, x3, and so on.

Let x1 = The number of hours per week Niki will work at Job I.

and x2 = The number of hours per week Niki will work at Job II.

It is customary to choose the variable that is to be maximized as Z.

The problem is formulated the same way as we did in the last chapter.

Maximize Z = 40×1 + 30×2

Subject to: x1  +  x2  ≤  12

2×1 + x2  ≤  16

x1 ≥ 0;  x2  ≥  0

2.  Convert the inequalities into equations. This is done by adding one slack variable for each inequality.

For example to convert the inequality x1  +  x2  ≤  12 into an equation, we add a non-negative variable y1, and we
get

x1  +  x2  +  y1  = 12

Here the variable y1 picks up the slack, and it represents the amount by which x1  +  x2  falls short of 12.  In this
problem, if Niki works fewer that 12 hours, say 10, then y1 is 2.  Later when we read off the final solution from
the simplex table, the values of the slack variables will identify the unused amounts.

We can even rewrite the objective function Z = 40×1 + 30×2 as  – 40×1 – 30×2 + Z = 0.
After adding the slack variables, our problem reads

Objective function:      – 40×1 – 30×2  +  Z = 0

Subject to constraints:   x1  +  x2  +  y1  = 12

2×1 + x2  +  y2  =  16

x1 ≥ 0;  x2  ≥  0

3.  Construct the initial simplex tableau. Write the objective function as the bottom row.

Now that the inequalities are converted into equations, we can represent the problem into an augmented matrix
called the initial simplex tableau as follows.

x1 x2 y1 y2 Z C

1 1 1 0 0 12

2 1 0 1 0 16

–40 –30 0 0 1 0

Here the vertical line separates the left hand side of the equations from the right side.  The horizontal line
separates the constraints from the objective function.  The right side of the equation is represented by the
column C.

The reader needs to observe that the last four columns of this matrix look like the final matrix for the solution of
a system of equations.  If we arbitrarily choose x1 = 0 and x2 = 0, we get

Which reads

y1 = 12

y2 = 16

Z   = 0

The solution obtained by arbitrarily assigning values to some variables and then solving for the remaining
variables is called the basic solution associated with the tableau.  So the above solution is the basic solution
associated with the initial simplex tableau.   We can label the basic solution variable in the right of the last
column as shown in the table below.
 x1 x2 y1 y2 Z

1 1 1 0 0 12 y1

2 1 0 1 0 16 y2

-40 –30 0 0 1 0 Z

4.  The most negative entry in the bottom row  identifies a column.

The most negative entry in the bottom row is –40, therefore the column 1 is identified.

x1 x2 y1 y2 Z

1 1 1 0 0 12 y1

2 1 0 1 0 16 y2

–40 –30 0 0 1 0 Z

Q4. What is the significance of duality theory of linear programming? Describe the general rules
for writing the dual of a linear programming problem.

Ans.

Linear programming (LP) is a mathematical method for determining a way to achieve the best outcome
(such as maximum profit or lowest cost) in a given mathematical model for some list of requirements
represented as linear relationships. Linear programming is a specific case of mathematical programming.

More formally, linear programming is a technique for the optimization of a linear objective function, subject to
linear equality and linear inequality constraints. Given a polytope and a real-valued affine function defined on
this polytope, a linear programming method will find a point on the polytope where this function has the
smallest (or largest) value if such point exists, by searching through the polytope vertices.

Linear programs are problems that can be expressed in canonical form:

where x represents the vector of variables (to be determined), c and b are vectors of (known) coefficients and A
is a (known) matrix of coefficients. The expression to be maximized or minimized is called the objective function
(cTx in this case). The equations Ax ≤ b are the constraints which specify a convex polytope over which the
objective function is to be optimized. (In this context, two vectors are comparable when every entry in one is
less-than or equal-to the corresponding entry in the other. Otherwise, they are incomparable.)

Linear programming can be applied to various fields of study. It is used most extensively in business and
economics, but can also be utilized for some engineering problems. Industries that use linear programming
models include transportation, energy, telecommunications, and manufacturing. It has proved useful in
modeling diverse types of problems in planning, routing, scheduling, assignment, and design.

Duality: Every linear programming problem, referred to as a primal problem, can be converted into a dual
problem, which provides an upper bound to the optimal value of the primal problem. In matrix form, we can
express the primal problem as:

Maximize cTx subject to Ax ≤ b, x ≥ 0;

with the corresponding symmetric dual problem,

Minimize bTy subject to ATy ≥ c, y ≥ 0.

An alternative primal formulation is:

Maximize cTx subject to Ax ≤ b;

with the corresponding asymmetric dual problem,

Minimize bTy subject to ATy = c, y ≥ 0.

There are two ideas fundamental to duality theory. One is the fact that (for the symmetric dual) the dual of a
dual linear program is the original primal linear program. Additionally, every feasible solution for a linear
program gives a bound on the optimal value of the objective function of its dual. The weak duality theorem states
that the objective function value of the dual at any feasible solution is always greater than or equal to the
objective function value of the primal at any feasible solution. The strong duality theorem states that if the
primal has an optimal solution, x*, then the dual also has an optimal solution, y*, such that cTx*=bTy*.

A linear program can also be unbounded or infeasible. Duality theory tells us that if the primal is unbounded
then the dual is infeasible by the weak duality theorem. Likewise, if the dual is unbounded, then the primal must
be infeasible. However, it is possible for both the dual and the primal to be infeasible

MB0048 – Operation Research (Set-2)

Q1. What are the essential characteristics of Operation Research? Mention different phases in an
Operation Research study. Point out some limitations of O.R?
Ans.                                         Characteristics of Operations Research
Operations research, an interdisciplinary division of mathematics and science, uses statistics, algorithms
and mathematical modeling techniques to solve complex problems for the best possible solutions. This
science is basically concerned with optimizing maxima and minima of the objective functions involved.
Examples of maxima could be profit, performance and yield. Minima could be loss and risk. The
management of various companies has benefited immensely from operations research.
Operations research is also known as OR. It has basic characteristics such as systems orientation, using
interdisciplinary groups, applying scientific methodology, providing quantitative answers, revelation of
newer problems and the consideration of human factors in relation to the state under which research is
being conducted.
Systems Orientation
o    This approach recognizes the fact that the behavior of any part of the system has an effect on the
system as a whole. This stresses the idea that the interaction between parts of the system is what
determines the functioning of the system. No single part of the system can have a bearing effect on the
whole. OR attempts appraise the effect the changes of any single part would have on the performance of
the system as a whole. It then searches for the causes of the problem that has arisen either in one part of
the system or in the interrelation parts.
Interdisciplinary groups
o    The team performing the operational research is drawn from different disciplines. The disciplines
could include mathematics, psychology, statistics, physics, economics and engineering. The knowledge
of all the people involved aids the research and preparation of the scientific model.
Application of Scientific Methodology
o    OR extensively uses scientific means and methods to solve problems. Most OR studies cannot be
conducted in laboratories, and the findings cannot be applied to natural environments. Therefore,
scientific and mathematical models are used for studies. Simulation of these models is carried out, and
the findings are then studied with respect to the real environment.
New Problems Revealed
o    Finding a solution to a problem in OR uncovers additional problems. To obtain maximum benefits
from the study, ongoing and continuous research is necessary. New problems must be pursued
immediately to be resolved. A company looking to reduce costs in manufacturing might discover in the
process that it needs to buy one more component to manufacture the end product. Such a scenario would
result in unexpected costs and budget overruns. Ensuring flexibility for such contingencies is a key
characteristic of OR.
Provides Quantitative Answers
o    The solutions found by using operations research are always quantitative. OR considers two or more
options and emphasizes the best one. The company must decide which option is the best alternative for
it.
Human Factors
o    In other forms of quantitative research, human factors are not considered, but in OR, human factors
are a prime consideration. People involved in the process may become sick, which would affect the
company’s output.
PHASES OPERATIONS RESEARCH
 Formulate the problem: This is the most important process, it is generally lengthy and time
consuming. The activities that constitute this step are visits, observations, research, etc. With the
help of such activities, the O.R. scientist gets sufficient information and support to proceed and is
better prepared to formulate the problem. This process starts with understanding of the
 organizational climate, its objectives and expectations. Further, the alternative courses of action
are discovered in this step.
 Develop a model: Once a problem is formulated, the next step is to express the problem into a
mathematical model that represents systems, processes or environment in the form of equations,
relationships or formulas. We have to identify both the static and dynamic structural elements,
and device mathematical formulas to represent the interrelationships among elements. The
proposed model may be field tested and modified in order to work under stated environmental
constraints. A model may also be modified if the management is not satisfied with the answer that
it gives.
 Select appropriate data input: Garbage in and garbage out is a famous saying. No model will
work appropriately if data input is not appropriate. The purpose of this step is to have sufficient
input to operate and test the model.
 Solution of the model: After selecting the appropriate data input, the next step is to find a
solution. If the model is not behaving properly, then updating and modification is considered at
this stage.
 Validation of the model: A model is said to be valid if it can provide a reliable prediction of the
system’s performance. A model must be applicable for a longer time and can be updated from
time to time taking into consideration the past, present and future aspects of the problem.
 Implement the solution: The implementation of the solution involves so many behavioural
issues and the implementing authority is responsible for resolving these issues. The gap between
one who provides a solution and one who wishes to use it should be eliminated. To achieve this,
O.R. scientist as well as management should play a positive role. A properly implemented
solution obtained through O.R. techniques results in improved working and wins the management
support.
Limitations
 Dependence on an Electronic Computer: O.R. techniques try to find out an optimal solution
taking into account all the factors. In the modern society, these factors are enormous and
expressing them in quantity and establishing relationships among these require voluminous
calculations that can only be handled by computers.
 Non-Quantifiable Factors: O.R. techniques provide a solution only when all the elements
related to a problem can be quantified. All relevant variables do not lend themselves to
quantification. Factors that cannot be quantified find no place in O.R. models.
 Distance between Manager and Operations Researcher: O.R. being specialist’s job requires a
mathematician or a statistician, who might not be aware of the business problems. Similarly, a
manager fails to understand the complex working of O.R. Thus, there is a gap between the two.
 Money and Time Costs: When the basic data are subjected to frequent changes, incorporating
them into the O.R. models is a costly affair. Moreover, a fairly good solution at present may be
more desirable than a perfect O.R. solution available after sometime.
 Implementation: Implementation of decisions is a delicate task. It must take into account the
complexities of human relations and behaviour.

Q2. What are the common methods to obtain an initial basic feasible solution for a transportation
problem whose cost and requirement table is given? Give a stepwise procedure for one of them?
Ans.
Transportation Problem & its basic assumption
This model studies the minimization of the cost of transporting a commodity from a number
of sources to several destinations. The supply at each source and the demand at each
destination are known. The transportation problem involves m sources, each of which has
available.
i (i = 1, 2, …..,m) units of homogeneous product and
n destinations, each of which requires
bj (j = 1, 2…., n) units of products. Here a
i and bj are positive
integers. The cost cij of transporting one unit of the product from the
ith source to the
jth destination is given for each
i and j
. The objective is to develop an integral transportation schedule that meets all demands
from the inventory at a minimum total transportation cost.It is assumed that the total supply
and the total demand are equal.i.e.
Condition (1)The condition (1) is guaranteed by creating either a fictitious destination with a
demand equal to the surplus if total demand is less than the total supply or a (dummy)
source with a supply equal to the shortage if total demand exceeds total supply. The cost of
transportation from the fictitious destination to all sources and from all destinations to the
fictitious sources are assumed to be zero so that total cost of transportation will remain the
same.

Q3. a. What are the properties of a game? Explain the “best strategy” on the basis of minmax
criterion of optimality.
b. State the assumptions underlying game theory. Discuss its importance to business decisions.
Ans.  a)
Minimax (sometimes minmax) is a decision rule used in decision theory, game theory, statistics and
philosophy for minimizing the possible loss while maximizing the potential gain. Alternatively, it can be
thought of as maximizing the minimum gain (maximin). Originally formulated for two-player zero-sum
game theory, covering both the cases where players take alternate moves and those where they make
simultaneous moves, it has also been extended to more complex games and to general decision making
in the presence of uncertainty.
Game theory
In the theory of simultaneous games, a minimax strategy is a mixed strategy which is part of the solution
to a zero-sum game. In zero-sum games, the minimax solution is the same as the Nash equilibrium.
Minimax theorem
The minimax theorem states:
For every two-person, zero-sum game with finitely many strategies, there exists a value V and a mixed
strategy for each player, such that (a) Given player 2′s strategy, the best payoff possible for player 1 is
V, and (b) Given player 1′s strategy, the best payoff possible for player 2 is −V.
Equivalently, Player 1′s strategy guarantees him a payoff of V regardless of Player 2′s strategy, and
similarly Player 2 can guarantee himself a payoff of −V. The name minimax arises because each player
minimizes the maximum payoff possible for the other—since the game is zero-sum, he also maximizes
his own minimum payoff.
This theorem was established by John von Neumann,[1] who is quoted as saying “As far as I can see,
there could be no theory of games … without that theorem … I thought there was nothing worth
publishing until the Minimax Theorem was proved”.[2]
See Sion’s minimax theorem and Parthasarathy’s theorem for generalizations; see also example of a
game without a value.
Example
The following example of a zero-sum game, where A and B make simultaneous moves, illustrates
minimax solutions. Suppose
B chooses B1 B chooses B2 B chooses B3
each player has three choices
and consider the payoff matrix A chooses A1 +3 −2 +2
for A displayed at right.
Assume the payoff matrix for A chooses A2 −1 0 +4
B is the same matrix with the
signs reversed (i.e. if the A chooses A3 −4 −3 +1
choices are A1 and B1 then B
pays 3 to A). Then, the
minimax choice for A is A2 since the worst possible result is then having to pay 1, while the simple
minimax choice for B is B2 since the worst possible result is then no payment. However, this solution is
not stable, since if B believes A will choose A2 then B will choose B1 to gain 1; then if A believes B
will choose B1 then A will choose A1 to gain 3; and then B will choose B2; and eventually both players
will realize the difficulty of making a choice. So a more stable strategy is needed.
Some choices are dominated by others and can be eliminated: A will not choose A3 since either A1 or
A2 will produce a better result, no matter what B chooses; B will not choose B3 since some mixtures of
B1 and B2 will produce a better result, no matter what A chooses.
A can avoid having to make an expected payment of more than 1/3 by choosing A1 with probability 1/6
and A2 with probability 5/6, no matter what B chooses. B can ensure an expected gain of at least 1/3 by
using a randomized strategy of choosing B1 with probability 1/3 and B2 with probability 2/3, no matter
what A chooses. These mixed minimax strategies are now stable and cannot be improved.
b)
Brandenburger and Nalebuff discuss how game theory works and how companies can use the principles
to make decisions. The authors state that managers can use the principles to create new strategies for
competing where the chances for success are much higher than they would be if they continued to
compete under the same rules. A classic example used in the article is the case of General Motors. The
automobile industry was facing many expenses due to the incentives that were being used at the
retailers. General Motors responded by issuing a new credit card where the cardholders could apply a
portion of their charges towards purchasing a GM car. GM even went so far as to allow cardholders to
use a smaller portion of their charges towards purchasing a Ford car, allowing both companies to be able
to raise their prices and increase long term profits. This action by GM created a new system where both
GM and Ford could be better off, unlike the traditional competitive model where one company must
profit at the expense of another.
The authors state that while the traditional win-lose strategy may sometimes be appropriate, but that the
win-win system can be ideal in many circumstances. One advantage to win-win strategies is that since
they have not been used much, they can yield many previously unidentified opportunities. Another
major advantage is that since other companies have the opportunity to come out ahead as well, they are
less likely to show resistance. The last advantage is that when other companies imitate the move the
initial company benefits as well, in contrast to the initial company losing ground as they would in a win-
lose situation.
The authors also state that there are five elements to competition that can be changed to provide a more
optimal outcome. These elements are: the players (or companies competing), added values brought by
each competitor, the rules under which competition takes place, the tactics used, and the scope or
boundaries that are established. By understanding these factors, companies can apply different strategies
to increase their own odds of success.
The first way that companies can increase their chances of success involves changing who the
companies are that are involved in the business. One way that companies can improve their odds of
success is by introducing new companies into the business. For example, both Coke and Pepsi wanted to
get a contract to have Monsanto as a supplier. Since Monsanto had a monopoly at the time, they
encouraged Holland Sweetener Company to compete with Monsanto. Since it seemed Monsanto no
longer had a monopoly on the market, they were able to get more favorable contracts with Monsanto.
Another way that companies can improve their chances is by helping other companies introduce more or
better complimentary products.
Companies can also change the added values of themselves or their competitors. Obviously, companies
can build a better brand or change their business practices so they operate more efficiently. However, the
authors discuss how they can also lower the value of reducing the value of other companies as a viable
strategy. Nintendo reduced the added value of retailers by not filling all of their orders, thus leaving a
shortage and reducing the bargaining power of the stores buying its products. They also limited the
number of licenses available to aspiring programmers, lowering their added value. They even lowered
the value held by comic book characters when they developed characters of their own that became
widely popular, presumably so that they wouldn’t have to pay as much to license these characters.
Changing the rules is another way in which companies can benefit. The authors introduce the idea of
judo economics, where a large company may be willing to allow a smaller company to capture a small
market share rather than compete by lowering its prices. As long as it does not become too powerful or
greedy, a small company can often participate in the same market without having to compete with larger
companies on unfavorable terms. Kiwi International Air Lines introduced services on its carriers that
were of lower prices to get market share, but made sure that the competitors understood that they had no
intention of capturing more than 10% of any market.
Companies can also change perceptions to make themselves better off. This can be accomplished either
by making things clearer or more uncertain. In 1994, the New York Post attempted to make radical price
changes in order to get the Daily News to raise its price to regain subscribers. However, the Daily News
misunderstood and both newspapers were headed for a price war. The New York Post had to make its
intentions clear, and both papers were able to raise their prices and not lose revenue. The authors also
show an example of how investment banks can maintain ambiguity to benefit themselves. If the client is
more optimistic than the investment bank, the bank can try to charge a higher commission as long as the
client does not develop a more realistic appraisal of the company’s value.
Finally, companies can change the boundaries within which they compete. For example, when Sega was
unable to gain market share from Nintendo’s 8-bit systems, it changed the game by introducing a new
16-bit system. It took Nintendo 2 years to respond with its own 16-bit system, which gave Sega the
opportunity to capture market share and build a strong brand image. This example shows how
companies can think outside the box to change the way competition takes place in their industry.
Brandenburger and Nalebuff have illustrated how companies that recognize they can change the rules of
competition can vastly improve their odds of success, and sometimes respond in a way that benefits both
themselves and the competition. If companies are able to develop a system where they can make both
themselves and their competitors better off, then they do not have to worry so much about their
competitors trying to counter their moves. Also, because companies can easily copy each other’s ideas,
it is to a firm’s advantage if they can benefit when their competitors copy their idea, which is not usually
possible under the traditional win-lose structure.
This article has some parallels with the article “Competing on Analytics” by (). The biggest factor that
both of these articles have in common is how crucial it is for managers to understand everything they
can about their business and the environment in which they work. In “Competing on Analytics”, the
authors say that it is important to be familiar with this information so that managers can change the way
they compete to improve their chances of success. At the end of “The Right Game: Use Game Theory to
Shape Strategy”, the authors discuss how in order for companies to be able to change the environment or
rules under which they compete they need to understand everything they can about the constructs under
which they are competing. Whether a manager intends to use analytics or game theory to be successful,
he or she must first have all available information and use that information to understand how to make
the company better off. However, the work shown in “Competing on Analytics” tends to place an
emphasis almost exclusively on the use of quantitative data to improve efficiency or market share of the
company. “The Right Game”, however focuses more on using information to find creative ways of
changing the constructs or rules applied between companies, often yielding a much broader impact.

Q4. a. Compare CPM and PERT explaining similarities and mentioning where they mainly differ.
Ans.
The Major Differences and Similarities between CPM and PERT
CPM (Critical Path Method) & PERT(Program Evaluation and Review Technique)
1)PERT is a probabilistic tool used with three 1)CPM is a deterministic tool, with only single
Estimating the duration for completion of estimate of duration.
2)This tool is basically a tool for planning 2)CPM also allows and explicit estimate of and control of
time. costs in addition to time, therefore CPM can  control both time and cost.
3)PERT is more suitable for R&D related 3)CPM is best suited for routine and those projects where the
project is performed for projects where time and cost estimates can the first time and the estimate of
duration be accurately calculated are uncertain.
4)The probability factor i major in PERT 4)The deterministic factor is more so values or so outcomes
may not be exact. outcomes are generally accurate and realistic.
Extensions of both PERT and CPM allow the user to manage other resources in addition to time and
money, to trade off resources, to analyze different types of schedules, and to balance the use of
resources. Tensions of both PERT and CPM allow the user to manage other resources in addition to time
and money, to trade off resources, to analyze different types of schedules, and to balance the use of
resources.
Graphs
_ In mathematics, networks are called graphs, the entities are nodes, and the links are edges
_ Graph theory starts in the 18th century, with Leonhard Euler
_ The problem of Königsberg bridges
_ Since then graphs have been studied extensively.
Graph Theory
_ Graph G=(V,E)
_ V = set of vertices
_ E = set of edges                                                                           2
_ An edge is defined by the
two vertices which it
connects
_ optionally:                                                      1                                          3
A direction and/or a weight
_ Two vertices are adjacent
if they are connected by
an edge                                                                       4                       5
_ A vertex’s degree is the
number of its edges
 
Graph G=(V,E) 2
V = set of vertices
E = set of edges
Each edge is now an                                                     1                                                       3
arrow, not just a line ->
direction
The indegree of a vertex
is the number of                                                                               5
incoming edges                                                                                                                 4
The outdegree of a vertex
is the number of outgoing
edges