Linear Programming: Linear programming is a mathematical technique for finding optimal solutions to

problems that can be expressed using linear equations and inequalities.

Markov Chains: Random process in which the occurrence of future state depends on the
immediatelypreceding state and only on it. A Markov chain is a stochastic process that satisfies the
Markov property, which means that the past and future are independent when the present is known.
This means that if one knows the current state of the process, then no additional information
of its past states is required to make the best possible prediction of its future. This simplicity
allows for great reduction of the number of parameters when studying such a process.

Monte Carlo Simulation, also known as the Monte Carlo Method or a multiple probability
simulation, is a mathematical technique, which is used to estimate the possible outcomes
of an uncertain event .Monte Carlo simulation performs risk analysis by building models of
possible results by substituting a range of values — distribution — a probability for any
factor that has inherent uncertainty. It then calculates results over and over, each time
using a different set of random values from the probability functions. Depending upon the
number of uncertainties and the ranges specified for them, a Monte Carlo simulation
could involve thousands or tens of thousands of recalculations before it is complete.
Monte Carlo simulation produces distributions of possible outcome values.
Limitations of Monte Carlo: 1. Computationally inefficient — when you have a large amount of variables
bounded to different constraints, it requires a lot of time and a lot of computations to approximate a solution
using this method.
2. If poor parameters and constraints are input into the model then poor results will be given as outputs.

Decision theory deals with methods for determining the optimal course of action when a number of
alternatives are available, and their consequences cannot be forecasted with certainty. Very simply, the
decision problem is how to select the best of the available alternatives. The elements of the problem
are alternatives (actions, acts), the possible events the possible (states, outcomes of a random process),
the probabilities of these events associated with each possible alternative, the consequences event
combination, and the criterion selected. (decision rule) according to which the best alternative is selected.

Decision-making under risk describes a situation in which each strategy results in more than one outcome
or payoffs and the manager attaches a probability measure to these payoffs. This model covers the case when
the manager projects two or more outcomes for each strategy and he or she knows, or is willing to assume,
the relevant probability distribution of the outcomes.

Expected Monetary Value (EMV). The Expected monetary value analysis (EMV) is an important concept in
project risk management which is used for all types of projects to make a quantitative risk analysis. As a risk
management tool, Expected monetary value (EMV) helps to quantify and compare risks in many aspects of the
project. It is a statistical technique that is used to convert the risk into a number and supports the project
manager to determine the contingency reserve. Expected Monetary Value (EMV) Calculation Steps
Below are the steps to be followed to calculate the EMV of a circumstance.
1. Calculate the probability of occurrence of each risk.
2. Calculate the impact of each risk as a monetary value
3. Multiply the probability by impact

Decision making under uncertainty: Under conditions of uncertainty, only pay-offs are known and nothing
is known about the likelihood of each state of nature. Such situations arise when a new product is introduced
in the market or a new plant is set up. The number of different decision criteria available under the condition
of uncertainty is given below.
 Linear Programming: Linear programming is a mathematical technique for finding optimal solutions to

Decision making under certainty: In this case the decision maker has the complete knowledge of
consequence of every decision choice with certainty. In this decision model, assumed certainty means that
only one possible state of nature exists.

Game theory was developed for the purpose of analyzing competitive situations involving conflicting
interests. In other words, game theory is used for decision making under conflicting situations where there
are one or more opponents (i.e., players). For example, chess, poker, etc., are the games which have the
characteristics of a competition and are played according to definite rules. Game theory provides solutions to
such games (Strategies for Profit and loss), assuming that each of the players wants to maximize his profits
and minimize his losses.

Pure Strategy: It is the decision rule which is always used by the player to select the particular strategy
course of action does each player knows in advance of all strategies out of which he always select only one
particular strategy regardless of the others player strategy and objective the player is to maximize gain or
minimise losses.

Mixed Strategy: courses of action that are to be selected on a particular occasion with some fixed
probability are called mixed strategies. Thus there is a probabilistic situation and objective of the players is to

Transportation problem works in a way of minimizing the cost function. Here, the cost function is the
amount of money spent to the logistics provider for transporting the commodities from production or supplier
place to the demand place. Many factors decide the cost of transport. It includes the distance between the two
locations, the path followed, mode of transport, the number of units that are transported, the speed of
transport, etc.

Transportation problem exists in two forms.

1. Balanced
2. Unbalanced
Balanced
It is the case where the total supply equals the total demand.
Unbalanced
It is the case where either the demand is greater than the supply, or vice versa.
In most cases, the problems take a balanced form. It is because usually, the production units work, taking the
inventory and the demand into consideration. Overproduction increases the inventory cost whereas under
production is challenged by the demand. Hence the trade-off should be carefully examined. Whereas the
unbalanced form exists in a situation where there is an unprecedented increase or decrease in demand
 maximize expected gains or to minimise expected losses by making choice among pure strategies with fix
probabilities.

Queueing theory is the mathematical study of waiting lines, or queues. A queueing model is constructed so
that queue lengths and waiting time can be predicted. Queueing theory is generally considered a branch of
operations research because the results are often used when making business decisions about the resources
needed to provide a service.

Probability: Probability is the branch of mathematics concerning numerical descriptions of how likely an
event is to occur, or how likely it is that a proposition is true.

Conditional probability theorem: Conditional probability refers to the chances that some outcome occurs
given that another event has also occurred. It is often stated as the probability of B given A and is written as
P(B|A), where the probability of B depends on that of A happening.

Random Variable: A variable which takes of different values as a result of the random experiment is referred
as random variable.

Discrete Random Variable assumes only a finite (0,1, 2 ..) or countably infinite set of value. e.g. Number of
person standing in a Queue. (Binomial distribution)

A continuous variable is a random variable that can be measured to any desired degree of accuracy. e.g.
age, height, weight of students etc. (Normal distribution)

The Standard Normal Distribution is a Normal Distribution with a mean and standard deviation.
Interval Estimation is the evaluation of a parameter of a population by computing an interval, or range of
values, within which the parameter is most likely to be located. In other words, estimating a parameter using
a range of values rather than a single number.

The critical path method (CPM) is a technique where you identify tasks that are necessary for project
completion and determine scheduling flexibilities. A critical path in project management is the longest
sequence of activities that must be finished on time for the entire project to be complete. Any delays in
critical tasks will delay the rest of the project. CPM revolves around discovering the most important tasks in
the project timeline, identifying task dependencies, and calculating task durations.

PERT (Project Evaluation and Review Technique) It is a probabilistic model with uncertainty in
activity duration. It is an event-oriented approach used for planning, controlling and reviewing the
project. The expected time for each activity can be calculated using three-time estimates-

• Optimistic time (to)

• Most likely time (tm)
• Pessimistic time (tp)

Total float vs. free float

Here’s a breakdown of the two types of float:

Total float: This is the amount of time that an activity can be delayed from the early start date without
delaying the project finish date or violating a schedule constraint. Total float = LS - ES or LF - EF
 maximize expected gains or to minimise expected losses by making choice among pure strategies with fix
Free float: This refers to how long an activity can be delayed without impacting the following
activity. There can only be free float when two or more activities share a common successor. On a
network diagram, this is where activities converge. Free float = ES (next task) - EF (current task)

The main difference between PERT and CPM is their level of certainty around activity durations—
PERT is used to estimate the time required to complete activities, whereas CPM is used when the
activity durations are already estimated.

Let’s see how the two techniques compare:

• PERT manages uncertain project activities; CPM manages predictable project activities.
• PERT focuses on meeting or minimizing project duration, CPM focuses on time-cost-trade-offs.
• PERT is a probabilistic model, CPM a deterministic model.
• PERT has three estimates for each activity, CPM just one.