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MBCQ721D - QuantitativeTechniques For Management Applications
MBCQ721D - QuantitativeTechniques For Management Applications
) UP
ES
Course Design
ES
Advisory Council
Chairman
Members
Mr Ashok Sahu
Head-CCE
UP
SLM Development Team
Dr Raju Ganesh Sunder Mr. Aindril De
Head-Academic Unit Head-Operations
Author
All rights reserved. No Part of this work may be reproduced in any form, by mimeograph or any other
means, without permission in writing from University of Petroleum & Energy Studies.
)
Unit 6:
UP Block–II
Determinants..................................................................................................................37
Unit 7: Functions........................................................................................................................53
Unit 8: Equations........................................................................................................................61
Unit 9: Progression.....................................................................................................................65
Unit 10: Case Study: Analyzing The Demand of E-Books..........................................................73
Block–III
Unit 11: Forecasting.....................................................................................................................79
Unit 12: Introduction to Statistics...............................................................................................93
Unit 13: Statistics.......................................................................................................................101
Unit 14: Graphical Representation of Data...............................................................................105
Unit 15: Case Study: Analysis of Seasonality in Sales.............................................................109
)
Block–IV
iv
Block–V
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Unit 21: Transportation Model..................................................................................................145
Unit 22: Assignment Model........................................................................................................155
Unit 23: Game Theory................................................................................................................159
Unit 24: Simulation....................................................................................................................167
Unit 25: Case Study: SM Textiles – Decoding Transportation Model.....................................177
) UP
(c
ES
UP
BLOCK–I
)
(c
Detailed Contents
ES
UNIT 1: QUANTITATIVE TECHNIQUES: AN UNIT 3: INTRODUCTION TO MATRICES
INTRODUCTION
ll Introduction
ll Introduction
ll Summary
ll Meaning of Quantitative Techniques
ll Review Questions
ll Classification of Quantitative Techniques
ll Introduction
UNIT 5: CASE STUDY: NATARAJ AND SONS COST
ll Steps in Decision Making Process AND PRODUCTION ANALYSIS
ll
ll
ll
)
Decision Environments
Summary
Review Questions
UP
(c
3
Unit 1
ES
Notes
___________________
Quantitative Techniques: ___________________
An Introduction ___________________
___________________
Objectives: ___________________
After completion of this unit, you will be able to explain:
___________________
\\ The meaning of QT
___________________
\\ Classification of QT
\\ Role of QT in business and industry ___________________
___________________
Introduction
UP
Our world, the real world, does not give us information which is
readily available for us to use and derive answers from. We use
___________________
4
(ii) Accessibility of latest technology (high-speed computers/supe-
ES
Notes
rior algorithms), to simulate quantitative representations and
___________________ map them to real-life problems.
___________________ (iii) The complexity of today’s business dynamics, which pose se-
___________________ vere challenges in managerial activities involving situation
___________________
analysis, objective setting, seeking alternatives, implementa-
tion, coordination and evaluation of decisions.
___________________
The fore mentioned points substantiate the importance of quanti-
___________________
tative techniques but don’t eliminate the qualitative approach or
___________________ judgment ability of the decision maker. The perfect solution to any
___________________ complex business situation is a combined approach of quantitative
___________________
as well as qualitative techniques.
UP
___________________
Meaning of Quantitative Techniques
Quantitative techniques refer to the statistical and mathematical
techniques which help the decision maker to take an informed, eval-
uated and result in oriented decision for any given problem at hand.
5
directly proportional to the total quantity of items used
ES
at the time of creation of the order. Combination focuses Notes
6
● Arithmetic Mean or Simple Mean
ES
Notes
● Mode
___________________
● Geometric Mean
___________________
● Harmonic Mean
___________________
● Median
___________________
7
(vi) Interpolation and Extrapolation: Interpolation is a
ES
statistical technique which is used for estimation of par- Notes
8
ing for various situations by ascertaining various levels
ES
Notes of risks or expectations of the situation.
___________________
(v) Inventory Theory: Inventory theory, a mathematical
___________________ model, is used to evaluate and design the best produc-
___________________ tion or inventory system, which minimizes the cost for
the business.
___________________
9
like hypothesis testing, sample surveys, etc. can be used to an-
ES
alyze and assist in decision making. Notes
___________________
● Various statistical models like factor analysis and cluster sam-
pling can be done to understand the reach of old product vis-a- ___________________
techniques which can evaluate the optimum amount of cost and ___________________
the maximum amount of profit.
___________________
Hence, from the above, we can deduce that quantitative techniques ___________________
are not limited to a particular department in the organization but
___________________
form an integral part of decision making in many real-life scenarios
as well. ___________________
UP
Below are the management areas where quantitative techniques are
extensively used:
___________________
(i) Marketing:
(ii) Production:
mance.
(iv) Personnel:
10
(b) Trends regarding employment.
ES
Notes
(c) Appraisal of Performance.
___________________
___________________
Summary
___________________
This unit provides in-depth understanding of different quantita-
___________________
tive techniques employed in the realm of management of business.
___________________ Quantitative techniques are widely applied in business and man-
___________________ agement due to the complicatedness and essentiality of decision
making process. Users of such techniques get the motivation for
___________________
discovering more sophisticated data analysis techniques, thanks to
___________________ progress in computer technology. But it must be noted that though
decision making makes use of quantitative techniques, there is still
UP
___________________
scope for qualitative ability of a decision maker.
Review Questions
1. What are the different mathematical techniques used for quan-
titative analysis? Explain each by using a business example.
ES
Notes
___________________
Decision Making ___________________
___________________
Objectives:
___________________
After completion of this unit, you will be able to:
___________________
\\ Explain the stepwise process of decision making and elaborate on deci-
sion environment. ___________________
\\ Explain decision making in regard to certainty and uncertainty.
___________________
\\ Explain the decision-making process when subjected to risk.
___________________
\\ Explain the different techniques and calculations related to decision mak-
ing. ___________________
Introduction
UP
Decision making is termed as careful selection of the most viable
___________________
There are various steps and conditions under which decision making
is done, and those are described during the course of this chapter.
decision making.
● Defining criteria for choosing alternatives: This involves deter-
mining the aspects of the problem. On the basis of these as-
pects, alternatives are needed to be defined.
● Identifying all alternatives: This involves identifying the alter-
natives that are available to resolve a particular problem.
Quantitative Techniques for Management Applications
12
● Analysing and comparing alternatives on the basis of defined
ES
Notes
criteria (using quantitative and qualitative techniques: Once
___________________ the alternatives available to solve the problem are identified,
___________________ it becomes important to analyse each alternative. This helps
in assessing the best possible alternative. It also helps in the
___________________
comparison of all the alternatives.
___________________
● Selecting the best alternative as per defined criteria: After ana-
___________________
lysing all the alternatives, it is required to select the best alter-
___________________ native as per the defined criteria considered in the second step.
___________________
___________________
Decision Environments
___________________ There are 3 types of environments in which decision are made by
business managers:
UP
___________________
Now let us learn these environments in detail with the help of ex-
amples.
13
ES
Notes
Maximax Criterion
Criteria of Optimism ___________________
___________________
___________________
Maximin Criterion
Criteria of Pessimism ___________________
___________________
___________________
Minimax Criterion
Criteria of Regret ___________________
UP Hurwicz Criterion
Criteria of Realism
___________________
Alternative/
market Payoff
High Moderate Low
1 50 40 10
2 20 60 20
)
3 30 40 5
14
The maximum of maximum payoff is 60 for alternative 2.
ES
Notes So, basedon Maximax principle, alternative 2 is prefera-
___________________ ble.
___________________ 2. Maximin: The alternative with the best of the worst pos-
___________________ sible payoffs is selected. This is considered as a pessimis-
tic approach.
___________________
___________________ Example 2.1.2: Consider Table 2.1: Payoff Table given above.
___________________ Identify the minimum payoff for each alternative
___________________
Table 2.3: Payoff Table 3
___________________
Alternative / Payoff Minimum
___________________ market High Moderate Low payoff
UP
___________________ 1
2
3
50
20
30
40
60
40
10
20
5
10
20
5
2 20 60 20 33.3
3 30 40 5 25
15
Consider Table 2.1: Payoff Table given above.
ES
Notes
This method determines the regret for the alternatives associated
___________________
with each future state of nature.
___________________
The opportunity loss for each pair is the result of the difference be-
___________________
tween the payoff of the specific combination and the highest payoff
for that particular state of nature. ___________________
___________________
Table 2.5: Payoff Table 5
___________________
Alternative/ Payoff
___________________
market High Moderate Low
1 50 40 10 ___________________
2 20 60 20
___________________
3 30 40 5
UP
The regret for alternative 1 will be:
The regret table is then created, and maximum regret for each alter-
native is identified.
(c
Regret
Alternative High Moderate Low Maximum
1 0 20 10 20
2 30 0 0 30
3 20 20 15 20
Quantitative Techniques for Management Applications
16
The decision is made based on a minimum of maximum regret. So,
ES
Notes alternatives 1 and 3 are equally preferable, as they have the lowest
___________________ regret of 20.
___________________ 5. The criterion of Realism or Hurwicz criterion: This
___________________ is also known as a weighted average criterion and is a
mix of Maximax and Maximin criteria. Based on the pos-
___________________
sible outcome, a degree of optimism x is chosen. Hence
___________________
(1-x) is the degree of pessimism. Both the optimistic and
___________________ pessimistic degrees are multiplied with maximum and
___________________ minimum payoffs respectively to yield the value of the
outcome. The outcome with highest calculated value is
___________________
selected.
___________________
Example 2.1.5: Consider Table 2.1: Payoff Table given above.
UP
___________________
Let us choose x (degree of optimism) is 0.6. Hence the degree of pes-
simism will be 0.4
1 50 40 10 34
2 20 60 20 44
3 30 40 5 26
17
ES
Notes
Expected Value Criterion/
Expected Monitory Value criterion
___________________
(EMV)
___________________
___________________
Expected Value for Perfect
Information (EVPI) ___________________
___________________
Figure 2.2: Decision Making under Risk
___________________
The concept of expected value can be explained better with the help
of a basic example.
For determining the expected value for a single discrete and random
variable, the very first thing would be to conduct the multiplication
of the value of the given variable by its probability. Consider the ex-
ample of a normal six-sided die. On rolling the die, there will be the
1/6th possibility of considering 1, 2, 3, 4, 5, or 6. For
æ1 ö æ1 ö æ1 ö æ1 ö æ1 ö
)
= ç ´1÷ + ç ´ 2÷ + ç ´ 6 ÷ + ç ´ 5÷ + ç ´ 6 ÷
è6 ø è6 ø è6 ø è6 ø è6 ø
= 3.5
(c
So, on rolling a six-sided die for an infinite number of times, the av-
erage value will be 3.5.
18
Table 2.8: Payoff Table 8
ES
Notes
Event
___________________ Action High (0.3) Average (0.5) Low (0.2)
___________________ North India (A) Rs 50,000 Rs 30,000 Rs 10,000
South India (B) Rs 60,000 Rs 25,000 NIL
___________________
Event
Action High (0.3) Average (0.5) Low (0.2)
North India (A) Rs 50,000 Rs 30,000 Rs 10,000
South India (B) Rs 60,000 Rs 25,000 NIL
Average – 5,000
Low – 10,000
The Opportunity Loss Table will be:
(c
19
As EOL is lower in region A, the decision maker should prefer North
ES
India (A) for launching the product as per EOL analysis. Notes
___________________
Expected Value for Perfect Information (EVPI)
___________________
This criterion is based on the fact that the decision maker can get
___________________
the perfect information which is complete and accurate and hence
removes all the uncertainty for the future event. ___________________
___________________
EVPI is calculated by subtracting the maximum expected monetary
value from the expected profit from the perfect information. ___________________
Example: Find out the expected value for the optimum payoff asso- ___________________
ciated with each state of nature. Further, conduct the subtraction of ___________________
the optimal decision from the expected value.
___________________
low:
A B C D E F
1
2
3 Decision State of Nature Expected Recommendation
4 Alternatives s1 = 80 s2 = 100 s3 = 120 Value
5 d1 = Model = A 10,000 15,000 14,000 12,600
6 d2 = Model = B 8,000 18,000 12,000 11,600
7 d3 = Model = C 6,000 16,000 21,000 14,000 d3 = Model = C
8 Probability 0.4 0.2 0.4
9 Maximum Expected Value 14,000
10
11 Maximum Payoff EVwPI EVPI
12 10,000 18,000 21,000 16,000 2,000
Summary
)
20
Quantitative analysis or operations research gives a methodical and
ES
Notes standard approach to decision making. Decision making, scientific
___________________ approach, objectivity, inter-disciplinary approach and the use of dig-
___________________ ital computers are features of operations research. The methodology
used in operations research consists of a formulation of the problem,
___________________
building the model, collecting data, a solution of the model and in-
___________________ terpreting the results, validating the model and implementing the
___________________ solution achieved.
___________________
Review Questions
___________________
1. Consider the payoff table displayed below:
___________________
Table 2.11: Payoff Table 11
___________________
Alternatives Profit if future demand is
UP
___________________
X
Y
Low
10
–10
Medium
50
44
High
70
120
Z 0 20 140
(a) Maximin
(b) Maximax
(d) HurwiczCriterion
Maximin output?
ES
Notes
___________________
Introduction to Matrices ___________________
___________________
Objectives:
___________________
After completion of this unit, you will be able to explain the following:
___________________
\\ What Matrix is
\\ Size of a Matrix ___________________
___________________
Introduction
___________________
Matrix is a rectangular array of related values. It is represented by
UP
values arranged in columns and rows, covered by brackets.
æ 40 30 ö
ç ÷
è 25 30 ø
Size of a Matrix
Size of the matrix is defined by m × n
)
n = number of columns
(c
Example: 2 × 2 Matrix
æ 40 30 ö
ç ÷
è 25 30 ø
2 × 3 Matrix
æ 20 12 5 ö
ç ÷
è 35 6 8 ø
Quantitative Techniques for Management Applications
22
Types of Matrices
ES
Notes
___________________ æ 40 ö
ç ÷
ç 25 ÷
UP
___________________
ç 20 ÷
è ø
æ 400 0 0 ö
ç ÷
ç 0 305 0 ÷
ç 0 0 165 ÷ø
è
æ115 0 0 ö
ç ÷
ç 0 115 0 ÷
ç 0 0 115 ÷ø
è
tity Matrix.
æ1 0 0 ö
ç ÷
ç0 1 0÷
(c
ç0 0 1÷
è ø
(g) Similar Matrices: Matrices of same size are termed as Simi-
lar Matrices.
æa bö æw x ö
ç ÷ ç ÷
è c dø è y zø
Unit 3: Introduction to Matrices
23
(h) Upper Triangular Matrix: An Upper Triangular Matrix is
ES
a type of square matrix which has all the elements above the Notes
æa b cö ___________________
ç ÷
ç0 d c÷ ___________________
ç 0 0 1÷
è ø ___________________
(i) Lower Triangular Matrix: A square matrix in which all ele- ___________________
ments above the diagonal row are zero. ___________________
æa 0 0ö ___________________
ç ÷
ç f b 0÷ ___________________
çe d c÷
è ø ___________________
UP
(j) Symmetric Matrix: A symmetric matrix is a type of square
matrix which has the same corresponding elements positioned
with respect to the diagonal. The diagonal works as a mirror
___________________
æa f e ö
ç ÷
ç f b d÷
çe d c÷
è ø
0 f e
−f 0 d
(c
−e −d 0
The transpose of
Quantitative Techniques for Management Applications
24
ES
æa b c ö
Notes A=ç ÷
è f e dø
___________________
æa f ö
___________________ ç ÷
A = çb e ÷
T
___________________ ç c d÷
è ø
___________________
___________________
Summary
___________________ This chapter covers the concept of the matrix and its dimensions.
___________________ Matrix is a rectangular array of related values represented by val-
ues arranged in columns and rows, covered by brackets. Matrices
___________________
are used in several ways to solve the systems of equations. Matrix
___________________ holds an important position in higher algebra. Most of the linear al-
gebra that is taught in college has a significant part denoted to ma-
UP
___________________
trices. Matrices are vastly used in the organization of data and the
study of complicated phenomena. For instance, matrices are widely
used for the determination of population growth and stabilization.
Review Questions
1. What are the different types of matrices?
5. What type of matrix will be the output of the product of two 3x3
lower triangular and upper triangular matrices?
)
(c
25
Unit 4
ES
Notes
___________________
Mathematical Operations ___________________
on Matrices ___________________
___________________
Objectives: ___________________
After completion of this unit, you will be able to explain the following:
___________________
\\ Addition of Matrices
___________________
\\ Subtraction of Matrices
\\ Scalar Multiplication of Matrices ___________________
Introduction
UP
A basic mathematical operation like addition, subtraction, and mul-
___________________
Addition of Matrices
The possibility of conducting the addition of matrices holds true
when the matrices are of equal size.
A + B = B + A
æ a b ö æw x ö æ a + w b + x ö
ç ÷+ç ÷=ç ÷
è c dø è y z ø è c + y d + zø
æ 3 5 ö æ 4 9 ö æ 7 14 ö
)
ç ÷+ç ÷=ç ÷
è1 0 ø è 5 7 ø è 6 7 ø
Subtraction of Matrices
(c
26
A−B≠B–A
ES
Notes
___________________ The result obtained from the subtraction of matrix B from matrix A
is not equal to the result obtained from the subtraction of matrix A
___________________
from matrix B.
___________________
æ a b ö æw x ö æ a - w b - x ö
___________________ ç ÷-ç ÷=ç ÷
è c dø è y z ø è c - y d - zø
___________________
___________________ æ 3 5 ö æ 4 9 ö æ -1 -4 ö
ç ÷-ç ÷=ç ÷
___________________ è 1 0 ø è 5 7 ø è -4 -7 ø
___________________
æ4 9ö æ3 5ö æ1 4 ö
ç ÷-ç ÷=ç ÷
è 5 7 ø è1 0 ø è 4 7 ø
___________________
UP
___________________
Scalar Multiplication of Matrices
When a matrix is multiplied by a constant, each element of the ma-
trix is multiplied by the constant to get the resultant matrix.
æ a b ö æ ka kb ö
kx ç ÷=ç ÷
è c d ø è kc kd ø
æ 4 9 ö æ 20 45 ö
5´ç ÷=ç ÷
è 5 7 ø è 25 35 ø
Multiplication of Matrices
The possibility of conducting multiplication of two matrices holds
true when the number of columns present in matrix 1 is equal to the
number of rows in matrix 2. This means that the multiplication of
aij is possible with ajk with the resultant matrix being aik. Size of
new matrix = number of rows in matrix 1 × number of columns in
)
matrix 2.
A×B≠B×A
æ a b ö æ w x ö æ aw + by ax + bz ö
(c
ç ÷´ç ÷=ç ÷
è c d ø è y z ø è cw + cy dx + dz ø
æ 3 5 ö æ 4 9 ö æ 3 ´ 4 + 5 ´ 5 3 ´ 9 + 5 ´ 7 ö æ 37 52 ö
ç ÷´ç ÷=ç ÷=ç ÷
è 1 0 ø è 5 7 ø è1 ´ 4 + 0 ´ 5 1 ´ 9 + 0 ´ 7 ø è 4 9 ø
27
Two matrices can be multiplied with one another when the dimen-
ES
sions are congruent. It must be noted that the number of columns Notes
present in the first matrix should be equal to the number of rows ___________________
present in the second matrix. ___________________
æ3ö ___________________
(4 3) ´ ç ÷ = (4 ´ 3 3 ´ 2 ) = (18)
è2ø ___________________
___________________
Summary
UP
The study of matrices is incomplete without learning how to apply
the same in mathematical operations. It is very necessary to learn
___________________
tive inverse.
Review Questions
(c
28
(b) Diagonal matrix
ES
Notes
(c) Lower triangular matrix
___________________
___________________ 3. What type of matrix will be the output of the product of two
3 × 3 lower triangular and upper triangular matrices?
___________________
___________________
___________________
___________________
___________________
___________________
UP
___________________
)
(c
29
Unit 5
ES
Notes
___________________
Case Study: Nataraj and Sons ___________________
___________________
A firm, Nataraj and Sons Pvt. Ltd., is a Rajasthan based textile
company. The main product line of the firm is cloth manufacturing, ___________________
that’s given to wholesalers and retailers. The company deals with
___________________
the production of four line of products, like Sari, Dhoti, Shirts, and
Trousers; requiring a mix of four different materials, like Silk, Cot- ___________________
ton, Nylon and Linen. Below is the requirement (per unit) of each
___________________
product for each material:
___________________
Silk Dhoti Nylon Linon
W=
UP
Sari é5
Dhoti êê2
3
1
1
7
2ù
3 úú
___________________
Shirts ê3 4 6 1ú
ê ú
Trousers ë1 2 4 7û
● find the total amount of each material given that the firm de-
velops:
● Given that the per unit cost of Silk, Dhoti , linen,and Nylon
are Rs 5, 15, 4 and 8; determine the per unit cost of producing
each of the products.
)
30
ES
Solution:
Notes
(a) 200 units of each
___________________
___________________
Case: Sari
Case: Dhoti
● 2 units of silk
● 1 unit of cotton
● 7 units of nylon
● 3 units of linen
Case: Shirts
● 3 units of silk
● 4 units of cotton
● 6 units of nylon
● 1 unit of linen
contd.
Unit 5: Case Study: Nataraj and Sons Cost And Production Analysis
31
For the sake of 200 units of sari, requirements will be:
ES
Notes
● 600 units of silk
___________________
● 800 units of cotton
___________________
● 1200 units of nylon
___________________
● 200 units of linen
___________________
Case: Trousers
___________________
1 unit of trouser requires ___________________
● 1 unit of silk ___________________
● 2 units of cotton ___________________
● 4 units of nylon ___________________
● 7 units of linen
UP
For the sake of 200 units of sari, requirements will be:
The new matrix for 200 units of each product thus will be
(b) 100 units of sari and shirts and 250 units of dhoti and trou-
sers
)
● 5 units of silk
contd.
Quantitative Techniques for Management Applications
32
● 3 units of cotton
ES
Notes
● 1 unit of nylon
___________________
● 2 units of linen
___________________
Multiplying each by their by respective unit cost
___________________
● 1 unit of cotton
● 7 units of nylon
● 3 units of linen
● 3 units of silk
● 4 units of cotton
)
● 6 units of nylon
● 1 unit of linen
33
Cost of per unit shirt will be Rs. 127
ES
Notes
For 1 unit of trouser:
___________________
● 1 unit of silk
___________________
● 2 units of cotton
___________________
● 4 units of nylon
___________________
● 7 units of linen
___________________
Multiplying each by their by respective unit cost
___________________
● 1 unit of silk Rs. 5/unit
___________________
● 2 units of cotton Rs. 15/unit
___________________
● 4 units of nylon Rs. 8/unit
___________________
● 7 units of linen Rs. 4/unit
UP
Cost of per unit trouser will be Rs. 95 unit
ES
UNIT 6: DETERMINANTS ll Linear Equations
ll Introduction ll Roots of Linear Equations
ll Main Properties of Determinants ll Quadratic Equation
ll Applications in Management ll Summary
ll Summary ll Review Questions
ll Review Questions
UNIT 9: PROGRESSION
UNIT 7: FUNCTIONS ll Introduction
ll Introduction ll Sequence
ll Constant ll Series
ll Parameter ll Arithmetic Progression (AP)
Types of Functions Harmonic Progression
ll
ll
ll Functions
UP
Functions and its Graphs
ll
ll
ll
Mean Definitions
Summary
ll Summary ll Review Questions
ll Review Questions
UNIT 10: CASE STUDY: ANALYZING THE DEMAND
OF E-BOOKS
UNIT 8: EQUATIONS
ll Introduction
)
(c
37
Unit 6
ES
Notes
___________________
Determinants ___________________
___________________
Objectives
___________________
After completion of this unit, the students will be able to:
___________________
\\ Explain the concept of determinants
\\ Solve linear equations using determinants ___________________
Introduction
UP
In this unit, we will discuss the concepts of determinants and their
___________________
38
a1 a2x + a2 b1y = a2h1 (3)
ES
Notes
a1 a2x + a1 b2y = a1h2 (4)
___________________
___________________ Then, Eliminate x by subtracting the first equation from the second
equation:
___________________
a1b2y − a2 b1y = a1 h2− a2 h1
___________________
These two formulae are called the general formulae to solve for un-
known variables of any pair of simultaneous linear equations.
a1 b1
= a1b2 − a2b1
a2 b2
The equation displays the determinant on its left side with the
elements of the determinant denoted by the variables present in
between the vertical lines. The set of 4 elements shown this way
always represent a difference between the elements. This kind of
equation is notably termed as Identity,and its purpose holds true for
any values or symbols.
Properties of Determinants
)
This section will cover the properties of determinants and its ap-
plication in finding out the determinant of a matrix. We will fur-
ther study how these properties can provide information about
(c
matrices.
39
Further, Identities are certainly helpful in representing these two
ES
properties: Notes
___________________
a1 b a1 a2
≡ ___________________
a2 b b1 b2
___________________
a1 b1 a a2
≡ −1 1 ___________________
a2 b2 b1 b2
___________________
___________________
The justification of the identities holds true when both the sides are
multiplied according to the actual definition of a determinant. This ___________________
is termed as expanding the determinants. There is a third simple ___________________
property which can be similarly proved; the value of the determi-
___________________
nant remains unaltered when and if any multiple of a row or column
UP
is added to the other row or column respectively.
h1 b1
h2 b2
(c
X=
a1 b1
a2 b2
40
● Determinants
ES
Notes
● Row operations and
___________________
___________________ ● Matrices
as follows:
41
ES
h1 b1 c1
Notes
h2 b2 c2
___________________
h3 b3 c3
X=
a1 b1 c1 ___________________
a2 b2 c2 ___________________
a3 b3 c3
___________________
Until now, a determinant with three rows and three columns, termed ___________________
as Third Order determinant, has not been defined; there are, there- ___________________
fore, no rules for evaluating this. Since determinants hold the pur-
___________________
pose of determining the solution of a set of equations, the guidelines
___________________
for the evaluation of higher order determinants are hence designed
accordingly. ___________________
UP
The value of x for the aforementioned determinant is
a1 (b2 c3 − b3 c2 ) − b1 ( a2 c3 − a3 c2 ) + c1 ( a2 b3 − a3 b2 )
The terms here, have been arranged so that all the expression in
brackets can be expressed as second-order determinants. It can now
be seen that this will be the same formula as given previously. So,
the rule that evaluates a third order determinant is:
a1 b1 c1 b2 c2 a2 c2 a2 b2
a2 b2 c2 ≡ a1 − b1 + c1
a3 b3 c3 b3 c3 a3 c3 a3 b3
a1 h1 c1 a1 b1 h1
a2 h2 c2 a2 b2 h2
a3 h3 c3 a3 b3 h3
y= z=
a1 b1 c1 a1 b1 c1
a2 b2 c2 a2 b2 c2
a3 b3 c3 a3 b3 c3
Quantitative Techniques for Management Applications
42
The same concept can be used to find out the solution for larger sets
ES
Notes
of equations with the determinants structured in the same manner.
___________________ A determinant always consists of the same number of rows and col-
___________________ umns corresponding to the number of equations and the variables
that need to be solved.
___________________
___________________
The evaluation of a determinant consisting of “n” rows and columns
follow a specific rule; that is to multiply each of the “n” elements in
___________________
the first row by the smaller determinant that was obtained by not
___________________ considering the first row and column which contains the elements
___________________ in question.
___________________ Hence, the multiplication of the first element and the default deter-
___________________
minant reduced by the first row and the first column is conducted.
The second element is also multiplied by the original determinant
UP
___________________
which was reduced by the first row and the second column. This pro-
cess goes on. Finally, the products are collected together by adding
all the odd ones and subtracting all the even ones. So, a fourth order
determinant is expanded as:
a1 b1 c1 d1
b2 c2 d2 a2 c2 d2 a2 b2 d2 a2 b2 c2
a2 b2 c2 d2
= a1 b3 c3 d3 − b1 a3 c3 d3 + c1 a3 b3 d3 − d1 a3 b3 c3
a3 b3 c3 d3
b4 c4 d4 a4 c4 d4 a4 b4 d4 a4 b4 c4
4 b4
a c4 d4
a2 c2 d2
− a3 c3 d3
a4 c4 d4
)
1. The interchanging of the rows and columns does not affect the
value of the determinant.
43
two properties of determinants. In case of columns being inter-
ES
Notes
changed, the value of the determinant is again multiplied by –1.
___________________
3. The value of the determinant remains unaltered when any
multiple of any row or column gets added (or subtracted) to ___________________
___________________
a1 b1 c1 a1 b1 c1
___________________
pa2 pb2 pc2 ≡ p a2 b2 c2
a3
UP b3 c3 a3 b3 c3
44
ES
12 −28 9 1
Notes 12 −28 1
−10 −22 7 0
___________________ = −10 −22 0 (Positive sincee j = 3 and k = 3)
0 0 1 0
−1 5 15
___________________ 1 5 −2 15
___________________
12 −28 1
___________________ −5 −11
−5 −11 0 = (Positive since j = 1 and k = 3)
___________________ −181 425
−181 425 0
___________________
___________________ 2 7 0 5
2 7 5
___________________ −1 3 0 4
= −7 −1 3 4 (Negative since j = 4 and k = 3)
4 2 0 −2
___________________ 4 2 −2
5 −4 7 1
UP
___________________
Applications in Management
Managerial Problems Involving Determinants
The structured characteristics of determinants are effective in find-
ing the solution of simultaneous linear equations with the help of a
computer thus removing the drudgery from mathematics. It is still
necessary to understand the nature of determinants and their prin-
cipal properties to know what the computer is doing and why it may
sometimes fail to produce a solution. It is also an advantage to be
able to solve fairly simple sets of equations without the complica-
tions of computers, either by calculation on papers or by using a
calculator.
)
Example 1:
In an ONGC workshop, there are 7 machines for drilling, 2 for turn-
ing, 3 for milling and 1 for grinding. There are 4 types of brackets/
combinations made.
Unit 6: Determinants
45
A – Type A is found by work-study to require 7 minutes for drill-
ES
Notes
ing, 3 minutes turning, 2.5 minutes for milling and 1.5 minutes for
Grinding. ___________________
B – 5 minutes (D), 0 minutes (T), 1.5 minutes (M), 0.5 (G). ___________________
___________________
D – 26 (D), 9 (T), 11 (M), 1.5 (G).
___________________
How many brackets of each type should be developed per hour to
ensure that all the machines are fully occupied? ___________________
___________________
Solution:
___________________
The four equations could be set up in the same way as done earlier,
___________________
each equation representing the total minutes of work per hour on a
UP
machine. The numbers on the right-hand sides would, therefore, be
420, 120, 180, and 60 respectively. The coefficients on the left-hand
sides would form the determinant constituting the denominator in
___________________
the solution.
7 5 14 26
3 0 6 9 7 5 14 26 0 5 0 5
1 1 31 0 2 3 31 0 2 3
2 1 9 11 = =
2 2 45 3 18 22 4 0 3 8 7
1 1 1 1 3 1 7 3 0 1 1 −6
1 3 1
2 2 2 2
The operations have been as follows. From second row 3 and from
3rd and 4th-row ½ has been taken out as common. Then, 1 in the
second determinant the second row multiplied by 7, 5 and 3 respec-
tively is subtracted from 1st, 3rd, and 4th row respectively.
)
5 0 5 1 0 1
3 −15
(c
=− 3 8 7 = 3 8 7
4 4
8 1 −6 1 1 −6
1 0 0
−15
= 3 8 4
4
1 1 −7
Quantitative Techniques for Management Applications
46
−15 8 4 2 1
ES
Notes = = −15
4 1 −7 1 −7
___________________
___________________ The numerator for type A appears more formidable at first, but can
___________________ be quickly simplified:
___________________ 420 5 14 26 7 5 14 26 7 5 14 26
___________________ 120 0 6 9 2 0 6 9 2 0 6 9
= 60 = 50
___________________
180 3 9 11 3 3 9 11 6 3 18 22
60 1 3 1 1 1 3 1 2 1 7 3
___________________
___________________ −3 0 −21 11
−3 −21 11
2 0 6 9
UP
___________________
= 15
0 0 −3 13
2 −1 7 3
= 15 2 6
0 −3 13
9
−3 −7 16
= 45 2 2 35
0 −1 9
−3 −7 16
−3 −80
= 45 2 2 35 = 45
2 35
0 −1 9
−3 −16
= 225
2 7
47
Brand Switching Example
ES
Notes
Let us take up a managerial application of matrices, which is of the-
___________________
oretical as well as practical interest. This is commonly used by ad-
vertising agencies and big companies in brand management. ___________________
___________________
Example 2:
___________________
3 brands of oil, share the market as mentioned below:
___________________
40% customers prefer Brand A
___________________
50% customers prefer Brand B ___________________
Each week there are changes in customer’s choices, below is the ___________________
market switch related information:
UP
● Of those who bought Brand A in last week, 50% buy it again,
15% shift to B and 35% shift to C
___________________
What ratio of the total market share will each of the three brands
hold eventually? Which brand will lead the market share within 2
weeks?
Solution:
It is simplest to express the brand switching percentage as decimals,
keeping percentage figures for the market shares. The change in
market shares in the first week can be obtained as the product of a
matrix representing the brand switching and a vector representing
)
It will easily be seen that the terms involved in this product, (0.50×
40), (0.10 × 50), etc., are the correct calculations from the informa-
tion given in the example to obtain the new market shares. In this
type of model, each of the matrices adds up to 1 and the elements in
each vector totals 100.
Quantitative Techniques for Management Applications
48
For the following week, the new market-share vector must multiply
ES
Notes
the same brand switching matrix:
___________________
0.50 0.10 0.05 25.5 18.325
___________________ 0.15 0.60 0.10 37.0 = 29.775
___________________ 0.35 0.30 0.85 37.5 51.900
___________________
As could have been guessed from the original information, Brand C
___________________
is getting a steadily larger share of the market. It cannot, however,
___________________
obtain a monopoly. A little arithmetic will show that if Brand C
___________________ has 80% of the market in the first week, it cannot have more than
___________________ 75% the next. Clearly its eventual share will be somewhere between
51.9% and 75%, but obviously, a direct method of finding the even-
___________________
tual share is difficult to calculate using matrix method.
UP
___________________
As a practical application, the brand switching example has two
drawbacks. First, repeated matrix multiplications will eventu-
ally involve fractions of customers, which is impossible. Second,
it is highly improbable that there will be a persistent pattern of
brand switching; either customer will become less inclined to switch
brands,or the pattern of switching will be disrupted by special sales
campaigns or dynamic market forces.
However, the model has many other applications more realistic than
brand switching, particularly when the discussion is transferred
from proportions to probabilities. Hence, we can see that matrix
and determinant play the role of important quantitative techniques
which can be used by decision manager to solve a real-life manage-
ment problem.
Summary
The determinant is notably a useful value which can be easily de-
)
49
calculation of determinants is needed in certain situations, and a
ES
Notes
number of methods exist to do so. The naive method to implement
an algorithm to determine the determinant includes the use of the ___________________
Laplace’s formula. ___________________
___________________
Review Questions
___________________
1. Solve for the number of brackets required per hour for types B,
___________________
C and D in example 1 provided earlier.
___________________
2. How do determinants differ from matrices?
___________________
3. What is the value of a 3 × 3 determinant in which all the diago-
___________________
nal elements are 1,and all the remaining elements are 0?
___________________
4. Using the determinant method, determine the values of X and
Y.
UP 3x + 2y = 5
___________________
5x + 6y = 19
)
(c
(c
) UP
ES
51
Unit 7
ES
Notes
___________________
Functions ___________________
___________________
Objectives:
___________________
After completion of this unit, you will be able to:
___________________
\\ Explain functions.
\\ Differentiate the type of functions. ___________________
___________________
Introduction ___________________
UP
A variable y is stated to be a function of variable x under a specific
rule. For instance- the area of a circle is a function of radius.
It is represented as y = f(x)
___________________
A = f(r) or A = nr2
Constant
Constant values remain unchanged in a problem.
Parameter
)
the function. When parameters are set, the definition takes into con-
sideration the entire family of functions, one for every rational set of
the value of the parameters.
Quantitative Techniques for Management Applications
52
Types of Functions
ES
Notes
___________________ A linear function can be defined as any function that can be graphed
to a straight line. The mathematical explanation of this definition
___________________
is, a linear function has one or two variables without exponents and
___________________ powers. When the function has more variable, the variables must be
___________________ constants for the function to be considered a linear function.
Y = 34 + 12X
X-axis
(0, 34)
(-17/6, 0) X-axis
)
y = │x│
Unit 7: Functions
53
For example:
ES
Notes
X 20 −35 − 12 40 − 21 25
___________________
y 20 35 12 40 21 25
Y-Axis ___________________
___________________
___________________
___________________
___________________
___________________
y = |x|
___________________
___________________
UP
Figure 7.2: Graph for Absolute Functions
X-Axis ___________________
Step Function
A function defined on real numbers that are expressed as a finite
linear combination of indicator functions of intervals is defined as
a Step function. A step function may increase or decrease suddenly
from one constant value to another. The value of y remains same for
a range of values from x
For example:
Y = 10 for x = 0 – 10
Y = 5 for x = 11 – 20
Y = 0 for x = 21 – 30
Y-Axis
)
(c
X-Axis
Figure 7.3: Graph for Step Functions
Quantitative Techniques for Management Applications
54
Quadratic Function
ES
Notes
A Quadratic function is a form, where a, b, and c are numbers; where
___________________
a is not equal to zero. The graph formed from a quadratic function
___________________ is always a parabolic curve. A parabolic curve is either open upward
___________________ or downwards and varies in its width or steepness.
___________________ y = ax2 + bx + c
___________________ Where, a, b and c are numbers where ‘a’ is unequal to Zero.
___________________
For example:
___________________
y = 3x2 + 20x + 340
UP
___________________
Polynomial Function
A function which is defined by the assessment of a polynomial is
termed as a Polynomial function So, a function f of an argument is
a polynomial function if it satisfies. The function f(x) = 0 is a polyno-
mial, with an undefined degree. A polynomial function involves only
non-negative integer powers of x. A function of the following form is
called a polynomial function if the power of x is n
For example
● Level of motivation
(c
55
that productivity maintains with each of the factors will certainly
ES
differ. Notes
___________________
Functions and its Graphs ___________________
In everyday life, it is a very common case that the value of one quan- ___________________
tity is dependent on the value of another quantity. For example, the ___________________
salary of a person working in a fast food store will depend on his
___________________
number of working hours.
___________________
In the following section, We will be focusing on functions and their
___________________
graphs.
___________________
Functions ___________________
UP
A function is a rule that explains the dependency of the value of one
quantity on the value of the other quantity.
___________________
Example:
A bicycle has been newly introduced in the market. It can cover a
distance of 20 seconds. The speed of the bicycle can be given by:
d
s= = 0.05d
20
Here,
s is speed
d is the distance
s = 0.05 × 10
)
=0.5m/s
56
Example:
ES
Notes
A new bowler in the Australian team has a height of 2m. When he
___________________
throws a ball straight upward,and the height to which the ball goes
___________________ up is given as h = 2 + 9t – 4.9t2m. Graph the function for the given
___________________ scenario.
___________________ Solution:
___________________ In the given scenario, we will start at t = 0, as the negative values of
___________________ the time do not have any value.
___________________ Let us consider the values 0.5 apart.
___________________
t 0 0.5 1 1.5 2
___________________ h 2 5.3 6.1 4.5 0.4
UP
___________________ The graph for the given scenario can be plotted as follows:
3
2
1 t
-1 0.5 1 1.5 2
Summary
The graph of a function f in mathematics is known as an assembly of
all ordered pairs. There exists a conception that highlights the gen-
eralized connection of the graph of a function to the graph of rela-
tion. It is necessary to be aware of the fact that although a function
is always recognized with its graphical representation, they might
)
not be the same. This comes in regard to two functions having dif-
ferent co-domains but having the same graph.
Real world problems can be best modeled using the graph of a func-
tion. This includes the process of determining the relationship that
various quantities share. The graph provides us with the meaning-
ful notion regarding the function that needs to be applied to solve a
situation, especially when we are not aware of an expression for a
function.
Unit 7: Functions
57
Review Questions
ES
Notes
1. Take one management example each from Finance, Market- ___________________
ing,and Operation domains, which explain the relationships
___________________
between dependent and independent variables in the form of a
function. ___________________
___________________
2. Create the line graph of the linear equation
___________________
Y = − 4 − 1.2x
___________________
3. Create a graph of y = 3│x│
___________________
___________________
___________________
) UP ___________________
(c
(c
) UP
ES
59
Unit 8
ES
Notes
___________________
Equations ___________________
___________________
Objectives: ___________________
After completion of this unit, you will be able to describe the following:
___________________
\\ Linear Equations and Roots
___________________
\\ Quadratic Equations and Roots
___________________
Introduction ___________________
___________________
Equation expresses the mathematical relationship between two
UP
variables. The independent variable can assume any value within
its specified range. The value of the dependent variable depends on
the value assumed by the independent variable.
___________________
In this chapter, you will study about linear equations and quadratic
equations and along with solving such types of equations.
Linear Equations
A linear equation is best defined as an algebraic expression which
contains a constant for every term or a product of a constant and a
single variable. A simple linear equation having one variable can be
denoted in the form of ax + b = 0, where a and b are constants and a
is unequal to 0.
)
y = a + bx
(c
Where,
60
Roots of Linear Equations
ES
Notes
y = ax2 + bx + c
Where,
y = ax2 + bx + c
ax2 + bx + c = 0
(c
x = ((-b±√(b2 – 4ac))/2a
Summary
In this module, we have studied equations. We have encountered
equations with one variable that have a finite number of solutions.
Unit 8: Equations
61
We have also come across equations with two variables which are
ES
Notes
satisfied by an infinite number of ordered pairs. The system of equa-
tions is also an important part of equations that we have dealt with. ___________________
___________________
Review Questions
___________________
1. Determine the roots of the quadratic equation:
UP y = x2 + 17x + 52
y = 4x2 + 5x + 47
y = x2 – x – 56
y = x2 – 1
)
(c
Quantitative Techniques for Management Applications
62
ES
Notes
___________________
___________________
___________________
___________________
___________________
___________________
___________________
___________________
___________________
UP
___________________
)
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63
Unit 9
ES
Notes
___________________
Progression ___________________
___________________
Objectives:
___________________
After completion of this unit, you will be able to explain the following:
___________________
\\ Sequence and Series
\\ Arithmetic Progression and Arithmetic Mean ___________________
___________________
Introduction
UP
A progression may be defined as a collection of numbers that may
increase or decrease or follow a certain pattern. This can help us see
___________________
Sequence
If for every positive integer n, there corresponds a number an such
that an is related to n by some rule, then the terms a1,a2, ... an... are
said to form a sequence.
1, ...
● Installment buying,
64
Series
ES
Notes
___________________ a1 + a2 + ………….. + an
___________________
Arithmetic Progression (AP)
___________________
a, a + d, a + 2d, a + 3d,.......
where ‘a’ is known as the first term. Thus, the corresponding stan-
dard sum of an arithmetic series becomes:
Example:9.1
Suppose we invest Rs. 100 at a simple interest of 15% per annum for
5 years. The amount at the end of each year is given by:
The nth term of an AP is also known as the general term of the stan-
dard AP. It is given by:
)
65
= (a + a + a +…+ a) + d{1+2+3+…..+(n − 1)}
ES
Notes
= n.a + d {(n(n - 1))/2} (using formula for the sum of first (n −
___________________
1) 2 natural numbers)
___________________
S = (n/2)(2a+(n-1)d)
___________________
___________________
Geometric progression is defined as a sequence that calculates the
successive numbers of the series by conducting the multiplication of ___________________
the previous number by a fixed, non-zero number known as common ___________________
ratio. Geometric progression is also known as Geometric series.
___________________
In general, we can represent the GP as: ___________________
UP
{a, ar, ar2, ar3,…, ar(n-1))
Here, the general formula for tenth term of the series becomes:
an = ar(n-1)
If a =10, r = 3
(c
S = 10 + 30 + 90 + 270 = 400
66
= 10 (80/2)
ES
Notes
= 400
___________________
___________________
S∞ = lim Sn = lim
(
a 1 − rn )= a
___________________
n→∞ n→∞ 1−r 1−r
UP
___________________ Example: 9.2
If a ball is released from a height of 100 meters, and it rebounds to
a height of two-thirds from the height it has fallen., find the total
amount of distance covered by the ball before stopping.
Solution:
Once the ball is dropped, it covers the 100m distance in the first
release before hitting the ground. After this, it covers the rebound
distance twice every time it bounces (once while going up and once
while coming down)
S = 100 + 2(a/(1 − r)) where “a” will be initial bounce distance which
will be (100/3) and r is 2/3 as per data
So,
S = 100+ 2{((100/3)/(1−(2/3))}
)
Harmonic Progression
(c
67
A sequence is considered as a harmonic progression if it contains the
ES
Notes
non-zero reciprocals of arithmetic progression as its terms.
___________________
A harmonic progression has a maximum possible length and can be
calculated as follows: ___________________
___________________
Max. length of a harmonic progression = m + n – 1
___________________
Here,
___________________
m is the m term of harmonic progression
th
___________________
___________________
Mean Definitions
___________________
Mean
UP
Mean is one of the easiest and most understood measures of central
tendencies. There are basically three types of mean. They are:
___________________
● Arithmetic mean
● Geometric mean
● Harmonic mean
Arithmetic Mean
Arithmetic mean is the sum of a collection of numbers divided by
numbers in a collection.
x1 + x 2 + x3 + .... + x n
x=
n
)
86%, 65%, 91%, 79%, 83%, 88%, and 77%, then the average percent-
age of the class will be as follows,
82 + 93 + 71 + 86 + 65 + 91 + 79 + 83 + 88 + 77
x =
10 %
Quantitative Techniques for Management Applications
68
815
ES
Notes x = %
10
___________________
___________________ x = 81.5%
Harmonic Mean
The harmonic mean is the progression which contains the recipro-
cals of an arithmetic progression. The reciprocals of the elements
are in arithmetic progression in this sequence of numbers. The for-
mula for the harmonic mean is given below:
k
fHM =
1 1
++
a1 ak
1 1 1
Example of harmonic progression is , , , , where if the re-
3 6 9
ciprocal of each term is taken into consideration, the sequence will
come out to be 3, 6, 9, …
)
69
a+b
ES
AM = Notes
2 (i)
___________________
GM = ab (ii)
___________________
2ab
HM = ___________________
a + b (iii)
___________________
Therefore, the relationship between the arithmetic means, geomet-
___________________
ric mean and harmonic mean can be represented as follows:
___________________
fAM ≥ fGM ≥ fHM
___________________
It is visibly apparent that the relationship between the arithmetic
___________________
mean, geometric mean and harmonic mean follows a descending or-
der of magnitude. ___________________
Summary
UP
A sequence of numbers that offers a constant value when the consec-
___________________
Review Questions
1. In an arithmetic progression, if the 35th term is 15 and the com-
mon difference is 2, what is the 32nd term?
ES
Notes
___________________
Case Study: Analyzing The ___________________
___________________
An electronic book or (e-book) is a book publication made avail-
able in digital form, consisting of text, images, or both; readable on ___________________
the flat-panel display of computers or other electronic devices. It’s
___________________
an electronic version of a traditional print book that can be read by
using a personal computer or by using an eBook reader. ___________________
These e-books can either be downloaded onto your smartphones via ___________________
apps or can be purchased from thousands of retailers like Amazon. ___________________
In fact, you can also buy eBooks directly from an author’s website.
UP
With e-books searching for your favorite read is easier than before,
as users can simply browse through titles online, and place the or-
der to be shipped or downloaded.
___________________
The significant reasons for the rise in demand for e-books are the
saving money, mobility, saving space, convenience, saving time,
and ease-of-use.
72
ES
hard-bound book Rs. 1,500, Mr. Sudeep, wants to plot the demand
Notes
function on the graph and determine the number of e-books de-
___________________ manded by the society each month. Also, he wants to find out a
how much the society is willing to pay by calculating an inverse de-
___________________
mand function using the values of average monthly income of the
___________________ society and price of hard-bound books and what is the relationship
between the prices of e-books and prices of hard-bound books.
___________________
___________________
Solution:
Q = 32 + 0.15 Pe – 0.4 Pe
Q = 257 – 0.4 Pe
Q + 0.4 Pe = 257
Substitute 0 for Pe
Q = 257
Pe = 642
Q = 32 + 0.15 Ph – 0.4 Pe
Q = 284 + 0.15 Ph
Contd.
Unit 10: Case Study: Analyzing The Demand of E-Books
73
Ph = 6.6 Q – 1893.33
ES
Notes
price ___________________
___________________
900
___________________
750 642
___________________
___________________
600
___________________
450
___________________
___________________
300
___________________
150
40
UP
80 120 160 200 240 240 320
257
quantity
___________________
Ph = 6.6 Q –1893.33
Q + 0.4 Pe = 247
And,
Q = 0.4 Pe = 257
So that makes,
Outcome/Result:
(c
(c
) UP
ES
ES
UP
BLOCK–III
)
(c
Detailed Contents
ES
UNIT 11: FORECASTING UNIT 13: STATISTICS
ll Introduction ll Statistical Data
ll Techniques of Forecasting
UNIT 14: GRAPHICAL REPRESENTATION
ll Forecasting Error OF DATA
ll Summary
ll Review Questions
)
(c
79
Unit 11
ES
Notes
___________________
Forecasting ___________________
___________________
Objectives:
___________________
After completion of this unit, you will be able to explain the following:
___________________
\\ Concept of forecasting
\\ Dependent and independent demand ___________________
\\
Forecasting errors
UP
Monitoring forecast errors
___________________
Introduction
Forecasting is determining the direction of future trends based on
historical data. It involves the estimation of some variable at a fu-
ture date. Forecasting is a planning tool that helps the management
to attain with the uncertainty of the future. Forecasting initiates
with assumptions, such as experience, knowledge, and judgment.
Forecasting involves the use of past data to find out the direction of
future trends.
independent demand.
80
blades. This is called dependent demand. When the demand is
ES
Notes constant in nature and has a null dependency on any variable
___________________ like season, subparts, etc. it is termed as independent demand.
___________________
Steps in Demand Forecasting
___________________
The steps involved in forecasting are as under:
___________________
___________________ Specifying the Objective: The objective for the demand forecast-
___________________
ing must be clearly stated. The parameters, such as complete or
seasonal, long term or short term, etc. should be described clearly.
___________________
With the addition to this, the targeted market should also be spec-
___________________ ified. The objective should be stated clearly before the forecast is
___________________ demanded, this gives a sense of direction to the forecast.
UP
___________________ Determining the Time Perspective: The forecast for demand
could either be for a short-term or a long-term ranging from 1 to
3 years. Although the determinants stay constant in a short-term
forecast, the same does not stand true for long-term forecasts. With
time, the determinants of long term forecasts and forecasts them-
selves can also alter. Therefore, it is essential to keep time in mind.
Components of Demand
Demand comprises of five major components. These are as follows:
81
● Trend: A continuous increase or decrease in demand over time
ES
Notes
● Seasonal influence: An increase or decrease in demand during ___________________
different identifiable phases of time
___________________
● Cyclical movements: Change in demand pattern over a long ___________________
span of time
___________________
Random Movements: Random variations in demand usually occur ___________________
because of unpredictable reasons or a random phenomenon such as
___________________
a natural calamity.
___________________
The techniques of forecasting can be broadly divided into three cat- ___________________
egories:
● Based on judgment
UP ___________________
● Associative forecast
Survey Method.
In this, the forecaster collates the details only for a se-
lected sample of consumers. The collated data is then
blown up to project the demand for the complete popula-
tion. Consumer survey is a less troublesome task,and the
Quantitative Techniques for Management Applications
82
method does not have much room for errors. The samples
ES
Notes will be from various aspects of the population and will
___________________ come from all variants in the population. If chosen prop-
___________________ erly, there will be no room for errors. If the sample size
increases, the chances of errors during sampling decreas-
___________________
es. End User Method of Consumers Survey
___________________
Under this method, the sales of a product are projected
___________________
through a survey of its end users.
___________________
In this, a small set of experts are asked about their view/
opinion/feel to forecast the sales/demand for the p
roduct.
vations of time series are involved while making such time series
based forecasts. A time series is described as sequence of observa-
tions taken at regular intervals. There is yet another form of fore-
casting based on time, termed as naive forecasting. Naive forecast-
ing is an estimating technique wherein the actual of the previous
Unit 11: Forecasting
83
period is considered as the forecast for this period, without adjusting
ES
them to create causal factors. Some of the key procedures that are Notes
___________________
(a) Simple Average: Total demands in prior periods are aggregat-
___________________
ed to calculate simple average.
___________________
___________________
This technique eliminates deviations caused due to fluctuations
___________________
over time. Although it helps in minimizing deviation from actu-
al results, if the pattern for the survey changes, the method will ___________________
turing firm:
1 100
2 120
3 80
4 90
5 110
6 70
= 570 / 6 = 95
84
Example 11.2: Consider the following data which is available for
ES
Notes past 6 periods for a manufacturing firm:
___________________
___________________ The forecast for period 7 based on 5-period simple moving average
will be
UP
___________________
120 + 80 + 90 + 110 + 70 / 5
= 470 /5 = 94
90 + 110 + 70 / 3
= 270 / 3 = 90
4 90
5 110
6 70
85
The weighted moving average will be
ES
Notes
0.3 × 70 + 0.2 × 110 + 0.5 × 90
___________________
= 21 + 22 + 45 = 88 ___________________
___________________
Associative Forecasting
___________________
Variables are identified and are used to forecast some other relevant
variable under the process of Associative Forecasting. ___________________
___________________
For example: Rate of interest is utilised to predict the home refi-
nancing demand. This technique employs linear regression to de- ___________________
velop a succinct equation for understanding the impact of predictor ___________________
variable on forecasted variable. Some of the key procedures used
___________________
in this are:
UP
(a) Exponential Smoothing: This method uses to past aspects to
get the result. A portion of the past demand and a portion of the
past forecast is used in the measurement or the ascertainment
___________________
Ft = Ft – 1 + α (Dt – 1− Ft – 1)
Or Ft = α Dt – 1 + (1 − α) Ft – 1
ing constant.
86
Example 11.4: Consider the following data which is available for
ES
Notes past 6 periods for a manufacturing firm:
___________________ Table 11.4: Demand in 6 Periods of a Manufacturing Firm
___________________
1 Actual demand D Forecast
___________________ 1 100 120
2 120 100
___________________
3 80 95
___________________ 4 90 100
= 0.2 × 70 + 0.8 × 80
= 14 + 64 = 78
Y’ = a + bt
t = specified number of periods
Y = forecast for period t
a = value of Y at t =0
b = slope of the line
Period t Demand D
1 5
(c
2 8
3 9
4 12
5 16
87
Table 11.6: Calculations using values of Table11.5
ES
Notes
Period t Demand D Ty T2
___________________
1 5 5 1
2 8 16 4 ___________________
3 9 27 9
___________________
4 12 48 16
5 16 80 25 ___________________
___________________
∑ t = 15
___________________
∑ y = 50
___________________
∑ ty = 176
___________________
∑ t2 = 55
___________________
N=5
UPb=
nå ty - å t å yn
nå t 2 - ( å t ) Ù n
___________________
= 130 / 50 = 2.6
= 50 – 39 / 5 = 11 / 5
= 2.2
So, D = a + bt
D = 2.2 + 2.6 t
= 18 (approx.)
)
Forecasting Error
Forecasting error can be defined as the difference between the real
or the actual result from the forecasted result for a time series. There
(c
forecast error
Mean Absolute Deviation (MAD) =
n
88
Mean Squared Error (MSE) = (actual demand – forecast)2
ES
Notes
n
___________________
100 n At - Ft
___________________ å A ,
n t =1 t
___________________
___________________
Where At = Actual Value of demand
___________________
Ft = Forecasted value of demand
___________________
___________________
n = Total no. of periods
UP
___________________ Sources of Forecast Errors
● Misinterpretation of results
89
Example 11.6: Following is the data of actual and forecasted
ES
demand. Notes
___________________
Period Actual Demand Forecasted Demand
___________________
1 170 155
2 140 160 ___________________
RSFE Bias TS
___________________
RSFE
Actual å( A - F ) å( A - F ) IA - FI
Period Demand Forecast A −F n n IA − FI n /MAD
1 170 155 15 15 15 15 15 1
Summary
Forecasting is the method of estimation of future in advance based
)
90
As the horizon of forecast increases, its accuracy decrease. For ex-
ES
Notes ample, forecasting the weather for tomorrow will be more accurate
___________________ than forecasting the weather for next month.
___________________ Forecasting can give better and accurate results taken together
___________________ than individually. For example, a car manufacturing company may
forecast with more accuracy for the demand of a total number of cars
___________________
over a year instead of forecasting the demand for a specific car with
___________________
certain package option.
___________________
Qualitative techniques of forecasting are subjective while the quan-
___________________ titative techniques are objective in nature. Qualitative techniques
___________________ are beneficial is infancy stage of product life cycle as relevant past
usage data is not available. Quantitative techniques are time-series
___________________
forecasts and based on associative models.
UP
___________________
For better and accurate forecasting result, the forecasting method
should be chosen carefully. It should provide results that are more
accurate, it should be reliable and consistent, and it should be easy
to use and understand.
Review Questions
1. For the below set of data, calculate the forecasted demand us-
ing the below methods:
1 105
2 142
3 101
(c
4 119
5 127
6 131
91
Table 11.10: Values of Actual Demand in 6 periods
ES
Notes
1 Actual demand D Forecast
___________________
1 50 65
___________________
2 45 51
___________________
3 61 59
___________________
4 74 94
5 80 71 ___________________
6 78 77 ___________________
___________________
3. Considering the following data, create the equation of Trend-
line and hence calculate the forecaster volume for period 7. ___________________
___________________
Table 11.11: Values of Actual Demand in 6 periods
UP
Period t
1
Demand D
3
___________________
2 4
3 10
4 15
5 18
6 21
5 84 78
6 88 89
MAD
(c
MSE
MAPE
5. For the data of actual and forecasted demand (of Question 4),
confirm regarding the suitability of the forecasting technique
being used by using tracking signal
Quantitative Techniques for Management Applications
92
Table 11.13: Values of Actual Demand and Forecasted Demand in 6 periods
ES
Notes
Period Actual Demand Forecasted Demand
___________________
1 170 155
___________________ 2 140 160
3 165 130
___________________
4 170 185
___________________ 5 180 170
___________________
___________________
___________________
___________________
UP
___________________
)
(c
93
Unit 12
ES
Notes
___________________
Introduction to Statistics ___________________
___________________
Objectives:
___________________
After completion of this unit, you will be able to explain the following:
___________________
\\ Primary and Secondary Data
\\ Methods of Collecting Primary Data ___________________
Introduction
In order to make any kind of business decisions the management
needs data and statistics. Data is nothing but, information or facts
converted and expressed in quantitative form. Any kind of statis-
tical investigation can be made successful if the statistical data
obtained is accurate and derived from reliable sources. Thus, data
collection plays a vital role in decision making.
94
2) Questionnaire Method: This method is more widely used, and
ES
Notes a questionnaire is created containing all relevant questions
___________________ which are asked of the respondents. Questionnaire method
___________________ can be carried out through personal interview, or by mail or
telephone.
___________________
(i) Personal Interviews or In-house questionnaire:
___________________
This is the best method to gain most reliable information
___________________
as the interviewer and respondent sit together and then
___________________ exchange information. The information here is gained by
___________________ evaluating a number of things when the interviewee is
answering the questions. Furthermore, the information
___________________
gained from personal interviews is reliable, accurate
___________________ and free from any sort of distortions. However, this is
time-consuming and costly.
UP
___________________
1. Designing a Questionnaire
Unit 12: Introduction to Statistics
95
2. Pre-Testing a Questionnaire
ES
Notes
3. Editing the Primary data
___________________
96
important questions, and these questions are required to per-
ES
Notes form a survey, a disclaimer with them should be provided stat-
___________________ ing that the information will not be shared or used for other
___________________ purposes than for calculating the results of the survey.
belong.
97
● It allows rectification of problem, removal of inconsistencies,
ES
repetitions, etc. Notes
___________________
● It allows us to make the required amendments (including addi-
tions and removal of questions) in the survey questions before ___________________
can be done for better accuracy of data thus obtained but only if ___________________
there are adequate resources and time.
___________________
98
clearly state whether the respondent requires answering the
ES
Notes question in terms of a week, in terms of a month or on the daily
___________________ term. Ambiguous questions in a questionnaire will inevitably
___________________ lead to ambiguous answers, which will only hamper the survey
results.
___________________
● Labour Bureau
Unpublished Sources
It is not necessary for every statistical data to be published. A great
example of unpublished sources includes the records kept by the
(c
99
Secondary Data Usage Precautions
ES
Notes
Prior to utilising data from secondary sources due caution is necessary.
___________________
Such data can’t and shouldn’t be accepted at face value. The reason is
that the data can be full of errors or can be biased. Following points ___________________
should be kept in mind for the same of accuracy and consistency: ___________________
Suitability: The investigator should ensure that the data in hand ___________________
is useful for his/her questionnaire or not. Comparison of the nature ___________________
and scope of investigation can be used for this purpose.
___________________
Reliability: The investigator needs to be confident about using the ___________________
secondary source data about the reliability, credibility, unbiased na-
___________________
ture, and homogeneous sampling nature of the data.
___________________
Adequacy: Investigator should ensure that the secondary source
UP
data is adequate and serves the purpose of investigation. More im-
portantly, the data shouldn’t be time bound.
___________________
The main advantage of census method is the fact that detailed and
accurate information can be obtained about every item. That said,
the primary constraint of time and money restricts usage of the cen-
sus method. In most cases, the census is not required. Judicial choice
of samples and key inferences which are correct will do the trick.
)
Summary
Statistics is a mathematical body of science that deals with the col-
lection, analysis, interpretation, presentation, and organization of
data. It describes the observations in a measure of location or cen-
tral tendency, statistical dispersion, the shape of the distribution,
and when one or more variable is measured.
Quantitative Techniques for Management Applications
100
There are sometimes when census method cannot be followed such
ES
Notes as in cases where elements of the population cannot be measured,
___________________ small groups of individuals or elements are selected from the pop-
___________________ ulation at random for the study. The inference is drawn from the
sample of the population. For instance, a firm is planning to buy
___________________
500,000 electric switches form a manufacturer. The firm will buy
___________________ the switches only if no more than 1 percent of switches are defective.
___________________ Hence, in this condition, it is practically not possible to test each
switch. A sample of 500 switches is taken and tested for defects.
___________________
The result of the tests is further used to estimate the percentage of
___________________ defective switches in the population.
___________________
The use of statistics is prevalent in applied statistics, theoretical
___________________ statistics, and mathematical statistics, machine learning, and data
mining, in a wider variety of academic disciplines such as natural
UP
___________________
and social sciences, government and business. Statistical consul-
tants also help those firms and organizations that do not have ex-
pertise solutions to their problems.
Review Questions
ES
Notes
___________________
Statistics ___________________
___________________
Objectives:
___________________
After completion of this unit, you will be able to explain the following:
___________________
\\ Statistical Data
\\ Quantitative Data and Qualitative Data ___________________
Statistical Data
UP
Any information or facts when collected, presented and organized in
___________________
Data
Data is a set of values of qualitative or quantitative variables. It
is a raw or unorganized form of information that represents ideas,
)
102
Quantitative Data
ES
Notes
As discussed quantitative data have a certain value or a unit of
___________________
measurement attached to it. For example student’s grades, average
___________________ rainfall experienced in a state, number of runs scored by a batsman
___________________ in a test series, etc. There are 2 categories or subgroups of this
quantitative data:
___________________
___________________
● Discrete: It is the result of counting (the number of students of
a given ethnic group in a class, the number of books on a shelf,
___________________
etc. The data takes a particular value like 15 books on a shelf,
___________________ 60 students in a class, or 12 players in a field.
___________________ ● Continuous: It is the result of measuring (distance traveled,
___________________ the weight of luggage, etc. The data takes the range of values ,
such as the weight of the students in the class ranges from 45
UP
___________________
to 55 kilograms.
103
The fifth number is denoted by a diagonal line drawn across the first
ES
four numbers. Notes
___________________
The representation of data in the tabular form as given below is
called a grouped frequency distribution. In this table, the class inter- ___________________
vals is a discrete variable which contains the value of marks scored ___________________
by 20 students is denoted by ‘x’. The number of students will refer to
___________________
the frequency ‘f’ of the variable.
___________________
Table 13.2: Frequency Distribution of Total Marks Scored by 20 Students
___________________
in 5 Subjects
___________________
Class Tally mark f F (Cumulative f)
320.45 – 325.35 1 1 ___________________
325.35 – 330.25 2 3 ___________________
330.25 – 335.15 5 8
335.15 – 340.05
340.05 – 344.95
344.95 – 349.85
UP 5
6
1
13
19
20
___________________
Number of observations = 20
Range = 24.6
Summary
Statistics is defined as the mathematical science that centers on data
collection, analysis, data interpretation, presentation, and organiza-
tion. In the application of statistics to a scientific or an industrial
)
104
also help those firms and organizations that do not have expertise
ES
Notes solutions to their problems. It is also applied to mathematics or the
___________________ arts. Statistical techniques are used in different scientific and social
___________________ research, like biostatistics, network biology, social science, sociolo-
gy, and social research.
___________________
ES
Notes
___________________
Graphical Representation ___________________
of Data ___________________
___________________
Objectives: ___________________
After completion of this unit, you will be able to explain the following:
___________________
\\ Graph and Types of Graphs
___________________
\\ Representation of Data in the Form of Graphs
___________________
A graph gives a pictorial representation of the data for better under- ___________________
standing, and to comprehend and analyze the data easily. Graphical
UP
representation of data will also facilitate the comparison between 2
or more frequency distributions.
___________________
● Bar Graphs
● Pie Charts
● Line Graphs
Below is the sample data which we will show in all forms of graphi-
cal representations:
Table 14.1: Sample Frequency Distribution
5 337.6 1
6 330.2 1
7 341.3 1
8 339.7 1
(c
9 320.5 1
10 345.1 1
11 330 1
12 334.2 1
13 332.8 1
Quantitative Techniques for Management Applications
106
Bar Graph
ES
Notes
___________________ A bar graph comprises 2 axis’s, namely, X-Axis and Y-Axis. These
axis’s take values of 2 variables, observation(x) and its frequency(y).
___________________
There are primarily two types of bar graphs:
___________________
● Vertical bar graphs
___________________
● Horizontal bar graphs
___________________
___________________
30
___________________ Frequency (f)
___________________ 25
___________________
20
UP
___________________
15
10
0
1 2 3 4 5 6 7 8 9 10 11 12 13
Graph 14.1: V
ertical Bar Graph representation of Frequency Distri-
bution
13
12
11
10
9
8
)
7
6 Frequency (f)
5
(c
4
3
2
1
0 5 10 15 20 25 30
Graph 14.2: R
epresentation of Frequency Distribution in the
Form of Horizontal Bar Graph
Unit 14: Graphical Representation of Data
107
Pie Charts
ES
Notes
The pie chart is a graph which represents the proportion of all obser- ___________________
vations in a circle by dividing it among sectors as per their weightage.
___________________
___________________
___________________
___________________
___________________
___________________
___________________
___________________
UP ___________________
Line Graph
The line graph represents the data pictorially. It represents the data
in the form of connected lines.
30
24
25
21 22
20
)
15
15
12
10
9
(c
8 7 6
5 5
4
3 3
0
1 2 3 4 5 6 7 8 9 10 11 12 13
108
Summary
ES
Notes
___________________ It also helps in the study of time series and frequency distribution,
___________________
since they give a clear account of the problem. Moreover, it is also
easy to understand and attractive to the eye.
___________________
Review Questions
UP
___________________
11 345 5
12 346 6
13 347 22
(c
109
Unit 15
ES
Notes
___________________
Case Study: Analysis of ___________________
___________________
Way2Go Printing Company was established in the year 1975. It is
an unlisted company whose only branch of operations is in Kota, ___________________
Rajasthan. Way2Go Printing Company publishes books of various
___________________
authors, mainly dealing with the technical and academic back-
ground. It also prints newsletters but is famous for its in-house ___________________
publication of Q&A series for all Engineering subjects.
___________________
Since, Kota is an educational hub in Rajasthan with numerous ___________________
coaching institutes, schools, and colleges. The printing compa-
UP
ny has seen tremendous a growth over the years. The company’s
growth rate is positive but nothing compared to its growth over the
last 10 years. This may be due to the large internet penetration and
___________________
Below is the data for the annual sales of the company from the year
2001 – 2008:
Cont.d
Quantitative Techniques for Management Applications
110
The company hires an analyst to compute an index of seasonal
ES
Notes
variation using the method of the ratio of the two-item average of a
___________________ 12-month moving average. Use arithmetic mean of specific season-
al and, if necessary, a leveling factor.
___________________
The company also wishes to compute the variation along the time
___________________
series data of the annual sales and forecast the sales for the next
___________________ financial year.
___________________ Forecast demand for all months of following year.
___________________
___________________
___________________
___________________
UP
___________________
)
(c
ES
UP
BLOCK–IV
)
(c
Detailed Contents
ES
UNIT 16: CENTRAL TENDENCY OF DATA ll OR Techniques
ll Arithmetic Mean ll Phases of OR Study
ll Mode ll Application of OR
ll Median ll Limitation of OR
ll Summary ll Summary
ll Review Question ll Review Questions
ll
ll
Summary
Review Questions
UP UNIT 20: CASE STUDY: ON ROAD TO ACHIEVE
OPTIMAL PRODUCTION: GYS CHEMICALS
ES
Notes
___________________
Central Tendency of Data ___________________
___________________
Objectives:
___________________
After completion of this unit, you will be able to describe the following:
___________________
\\ Mean, Median and Mode of Grouped and Ungrouped Data
___________________
The central tendency of data measures the values centered on the ___________________
frequency distribution and thus represents the entire distribution.
___________________
● We will be focusing on the 3 measures of central tendency in ___________________
case of both grouped and ungrouped frequency distribution.
UP
Mean or Arithmetic Mean
● Median
___________________
● Mode
Arithmetic Mean
An arithmetic mean is the result of the summation of all observa-
tions further divided by the total number of observations. In case of
ungrouped frequency distribution, Let us explain this by using an
example; refer to the values obtained from Table 16.1
Table 16.1: Sample Ungrouped Frequency Distribution
X F
340.4 5
330.9 2
331.2 1
335.7 3
)
337.6 1
330.2 1
341.3 1
339.7 1
(c
320.5 1
345.1 1
330 1
334.2 1
332.8 1
Quantitative Techniques for Management Applications
114
The Mean or Arithmetic Mean(AM)= ∑x / n
ES
Notes
Where ∑x = Sum of all the values of x
___________________
Here, the middle value of the class interval is considered as the val-
ue of x. Mean = ∑ fx / ∑ f = 6712.4/20 = 335.62
Mode
The frequent occurrence of particular value in a set of observations
is termed as the Mode of the frequency distribution. For example,
the average height of an Indian Male is 5’.6” – This is the mode it
explains that most of the Indian males would have 5’.6” as their
height.
)
115
Where, D
1 = frequency of the modal class – frequency of the preced-
ES
ing class Notes
___________________
D2 = frequency of the modal class – frequency of the follow-
ing class ___________________
___________________
C = range of the modal class
___________________
⇒ D1 = 6 − 5=1
___________________
⇒ D2 = 6 − 1=5
___________________
⇒ C = 344.95 – 340.05 = 4.9 ___________________
= 340.87 ___________________
Median
UP
A Median is defined as the value that equally divides the whole
___________________
Median = 335.7
)
116
Table 16.3: Calculation of Cumulative Frequencies in the Grouped
ES
Notes Frequency Distribution
___________________ Class F CF
320.45 – 325.35 1 1
___________________
325.35 – 330.25 2 3
___________________
330.25 – 335.15 5 8
___________________ 335.15 – 340.05 5 13
340.05 – 344.95 6 19
___________________
344.95 – 349.85 1 20
___________________
Median Class is the class interval corresponding to the ‘CF’ which is
___________________
just greater than N/2. In this case class interval, ‘335.15-340.05’ will
___________________ be the median class.
___________________
Median = L + [(N/2 – F) / f] x c
UP
___________________
Where, L = Lower limit of the median class
N = Total number of observations
F = The ‘CF’ preceding the median class
C = Range of the median class
= 335.15 + [(10 – 8) / 5] × 4.9
= 337.11
Summary
Central tendency refers to a central or a typical value for a probabil-
ity distribution. The Arithmetic Mean, Median, and Mode constitute
the measures of Central Tendency. These measures help in solving
variation problems They are used to calculate average production,
average wage, average cost, per capital income, exports and imports,
consumption, and prices. They are further used in problems related
to the distribution of income, wealth and investment.
)
Review Questions
1. Table 16.4, shows the values when 8 coins were tossed together
and number heads resulted was noted. This process was re-
(c
x: 0 1 2 3 4 5 6 7 8
f: 1 9 26 59 72 52 29 7 1
Unit 16: Central Tendency of Data
117
Calculate mean, median and mode for the above frequency
ES
distribution. Notes
___________________
2. Table 16.5, shows the distribution of age of 1000 workers work-
ing in a large manufacturing unit: ___________________
___________________
Age Group No. Of Persons
20-25 30 ___________________
25-30 160
___________________
30-35 210
35-40 180 ___________________
ES
Notes
___________________
Measures of Dispersion ___________________
___________________
Objectives:
___________________
After completion of this unit, you will be able to explain the following:
___________________
\\ Dispersion
\\ Mean Deviation ___________________
Mean Deviation
As the name suggests, it measures the deviation from the average
value or the mean value. Mean deviation from average value (or
mean) is given by;
X (x – x) (x – x)
340.4 4.7 4.7
)
120
ES
X (x – x) (x – x)
Notes
332.8 –2.9 2.9
___________________ 331.2 –4.5 4.5
___________________ 341.3 5.6 5.6
340.4 4.7 4.7
___________________
330.9 –4.8 4.8
___________________
335.7 0 0
___________________ 335.7 0 0
335.7 0 0
___________________
340.4 4.7 4.7
___________________
Variance
Variance is the difference between numbers or the spread between
numbers in a given dataset. The variance measures how far a num-
ber is set from the mean value. Variance = ∑ ( –) 2 / (n – 1)
Consider Table 17.1 and refer to the values and Table 17.2 for cal-
culation of variance
Table 17.2: Table for Calculating Variance Using Values from Table17.1
x (x – x) (x – x)
121
ES
x (x – x) (x – x)
Notes
341.3 5.6 31.36
___________________
340.4 4.7 22.09
330.9 –4.8 23.04 ___________________
335.7 0 0 ___________________
335.7 0 0
___________________
335.7 0 0
340.4 4.7 22.09 ___________________
___________________
Variance = ∑ (x – x)^2/ (n – 1)
___________________
= 620.55 / 19 = 32.66
___________________
Hence, the variance is 32.66. This further implies that the calculat- ___________________
ed arithmetic mean of the squares of the deviation of a certain value
UP
from their arithmetic mean for the above data is 32.66.
Standard Deviation
___________________
Coefficient of Variance
The coefficient of variance is a standardized measure of dispersion.
The coefficient of variance is computed by the ratio of standard devi-
ation to the mean. It is expressed as a percentage and is the ratio of
standard deviation s to the mean m. It can also be explained as the
percentage deviation in the mean.
CV = (SD/mean) × 100
(c
= (5.72/335.7) = 1.7%
122
Summary
ES
Notes
3
30 – 40
61
40 – 50
132
50 – 60
153
60 – 70
140
70 – 80
51
80 – 90
Firm A Firm B
No of workers 500 600
Average Daily Wage Rs 186 Rs 175
The variance of distribution of the wages 81 100
together.
(c
123
Unit 18
ES
Notes
___________________
Applications of QT in Research ___________________
Techniques/Operations ___________________
Technique ___________________
___________________
Objectives: ___________________
After completion of this unit, you will be able to explain the following: ___________________
\\ Operations Research (OR) and Its Characteristics ___________________
\\ Techniques in OR
___________________
\\ Phases of OR
\\
\\
Applications of OR
Limitation of OR
UP ___________________
Introduction
OR or operational research is a mathematical method of analysis
to provide duodecimal results to aid decisions using quantitative
techniques. Most of our daily decisions are based on common sense
and expertise and not around any mathematical models. But the
problems which require operational research are complex, and the
decisions to be made around them are heavily impacting too. For
example The operational research to be conducted for the network
planning of a public transportation in a city, as it would have a lot
of population, roads, factories, residential societies, and highways.
Considering factors such as the demand for public transports and
the availability of roads makes the process of operational research
complex, thereby impacting the decision. OR tools not only use a
particular discipline but involve different disciplines like mathemat-
)
124
of data, proposing innovative approaches and allowing us to create
ES
Notes various mathematical models. The OR professionals create and de-
___________________ velop many models that give perception and a framework for deci-
___________________ sion making
125
(iv) System Approach: The primary function of the OR system
ES
is to work on various proposals, and the evaluate their effects Notes
formed. ___________________
OR Techniques
The OR has a wide array of methods and techniques available for
solving problems:
)
126
● Assignment Problem: This is one of the fundamental prob-
ES
Notes lems/models of linear programming. This model assigns dif-
___________________ ferent activities to different resources on a one-on-one basis.
___________________ In this manner, the costs are reduced and results in minimum
costs and maximum sale or profit.
___________________
127
● Dynamic Programming: This kind of mathematical model
ES
considers the effect of the solution on both present and future Notes
times. The model is used to evaluate and find an outcome for ___________________
decisions which are multi-leveled. ___________________
___________________
● Replacement Models:
___________________
● Markov Process: It is a process to be used in instances when
___________________
the system moves from one state to another on basis of probabil-
UP
ity, which is known to user, and the different states have been
defined. Long-rum probability of being in a particular state is
efficiently computed through this theory.
___________________
mal logic.
128
Phases of OR Study
ES
Notes
Under this step analysis of internal and external data and computer
data banks for data collection are used with an objective to procure
pertinent and adequate inputs for operation and testing of the OR
model.
(c
129
limitations to the solution or the model does not behave as it should,
ES
modifications and changes are made or considered. To get the de- Notes
sired results and to support the objectives of the organization is the ___________________
driving factor for this step. ___________________
This is the final stage of the OR study. With OR models, the decision ___________________
making is a scientific implementation of well-thought and rational ___________________
solution. The model’s behavioural irregularities are fixed and elim-
___________________
inated, and the authority of the organization must resolve all the
issues regarding the workers, supervisors and other things to avoid ___________________
Application of OR
Developing over the past few decades, the operational research mod-
el makes used of mathematical techniques to improve the process
of decision making in businesses. This model helps the manage-
Quantitative Techniques for Management Applications
130
ment by providing tools to optimize the business and offers the best
ES
Notes solutions for the many decisions to be made by the managers in
___________________ the organizations during their daily business activities, planning
___________________ for something or for their strategic planning. Here are some types
of OR applications which show how these techniques are used today:
___________________
___________________ Accounting
● Workforce analysis
● Workforce deployment
Facilities Planning
● Decision regarding factory location and size
● Hospital planning
Finance
● Development of models for cash management
(c
● Capital Allocation
● Analysing Investments
● Analysis of Portfolio
131
Manufacturing
ES
Notes
● Inventory management
___________________
● Projection of marketing balance
___________________
● Scheduling production ___________________
Marketing ___________________
___________________
● Timing product introduction
___________________
● Product mix selection
___________________
● Analysing packaging alternatives
UP
Organizational Behaviour / Human Resources
● Personnel planning
___________________
● Employees recruitment
● Balancing skills
Purchasing
● Ideal buying
● Best reordering
● Transferring Materials
o Projects control
)
o Budget allocation
Limitation of OR
OR is widely used and offers many applications. However, the model
also has a number of drawbacks which are mainly present due to
the fact that the model building involves a lot of money, time and
the problems related to building the structure of the model. Some of
them are as given below:
Quantitative Techniques for Management Applications
132
(i) The distance between O.R. Specialist and Manager: The
ES
Notes job of an OR researcher requires the person to be an expert
___________________ mathematician as well as a good statistician, who has knowl-
___________________ edge of complex workings of the model and the mathematical
problems involved in the model. Although experienced and ex-
___________________
pert in their field of study, the study of an OR does not follow
___________________ or entail the study of business management. The OR specialist
___________________ is not trained like a manager is and does not have knowledge
of the business and its functions. On the same note, a manager
___________________
is trained from a business point of view and may find it hard
___________________ to understand the complex mathematical solutions the OR spe-
___________________ cialist comes up with. There is a large distance between the
manager and the OR researcher.
___________________
(iii) Money and Time Costs: A lot of changes could occur in the
information regarding the model and it is costly to incorporate
them in models. In such situations seeking the perfect situation
is not recommended, going for a workable solution is the better
option.
Summary
OR has been used with great success in various operations in almost
all fields such as military, army, business, government, industries
etc. OR is a useful tool and offers many applications and provides
tools from the fields of economics, engineering, statistics, mathe-
Unit 18: Applications of QT in Research Techniques/Operations Technique
133
matics, etc. The OR tool includes linear programming, dynamic pro-
ES
gramming, game theory, queuing problem, etc. Notes
___________________
Although the OR model has many uses and applications, there are
many drawbacks to the model, mainly due to the excessive time and ___________________
ES
Notes
___________________
Linear Programming ___________________
___________________
Objectives:
___________________
After completion of this unit, you will be able to :
___________________
\\ Explain linear programming?
\\ Solve a basic 2-decision variables problem which requires maximiza- ___________________
tion
___________________
\\ Apply graphical approach to solve a 2-decision variable inequality to
arrive at an optimal solution ___________________
___________________
Introduction
UP
One of the most commonly used decision-making tools is Linear Pro-
gramming. It is applicable to various maximization and minimiza-
___________________
136
Now, let us convert it to a linear programming problem.
ES
Notes
Profit maximization is the objective
___________________
___________________
5T + 3C ≤ 300
10T ≤ 600
UP
___________________
Maximize 5T + 3C
Subject to:
4T + 8C ≤ 400
5T + 3C ≤ 300
10T ≤ 300
Now for the next step, we need to find the optimal solution for the
problem. The steps involved are:
● Find the feasible area for the solution on the graph which sat-
isfies all constraints
)
4T + 8C = 400
(c
Placing T as zero, C = 50
Plot the equation and find a feasible area for the constraint
Unit 19: Linear Programming
137
ES
100 Notes
90
___________________
80
70 ___________________
60
___________________
50
40 ___________________
30
20 ___________________
10
___________________
___________________
Figure 19.1: Using Values of Table19.1
___________________
5T + 3C = 300
Placing C as zero, T = 60
Plot the equation and find a feasible area for the constraint.
100
90
80
70
60
50
40
30
20
)
10
10T = 300
Or T = 30
Plot the equation and find a feasible area for the constraint.
Quantitative Techniques for Management Applications
138
ES
Notes 100
90
___________________
80
___________________ 70
60
___________________
50
___________________ 40
30
___________________ 20
10
___________________
___________________
Figure 19.3: Using Values of Table19.1
___________________
UP
___________________
Now, find the feasible area satisfying all constraints.
100
90
80
70
60
50
40
30
20
10
(0, 0)
(30, 0)
(0, 50)
(c
And intersection of
4T + 8C = 400
5T + 3C = 300
139
Calculating profit at all points
ES
Notes
Coordinates Profits (5T + 3C)
___________________
(0, 0) 0
(30, 0) 150 ___________________
(0, 50) 150
___________________
(43, 28) 299
___________________
So, for maximization of profit it is necessary to produce 43 batches of
___________________
tablets and 28 batches of capsules.
___________________
Thus, it can be analysed that to create an OR model to solve a prac-
___________________
tical problem for maximization of profits, linear programming tech-
niques are of a great help to the managers. ___________________
___________________
Summary
UP
Linear programming is a method of obtaining the best possible out-
come in a mathematical model. Linear programming is used to solve
___________________
Review Questions
P and Q are two products made by a company using two machines
X and Y. Following is the processing time required for production of
each product on a machine: -
Machine Y – 30 minutes
)
Machine Y – 33 minutes
140
1. How much of each product to be made in the current week as a
ES
Notes
linear program?
___________________
2. Solve this linear program graphically.
___________________
If company’s policy is to maximize the profits by the end of the week,
___________________
calculate the optimal quantities of P and Q that the company should
___________________ produce if the profits per unit of products P and Q are Rs.100 and
___________________ Rs.85 respectively.
ES
Notes
___________________
Case Study: On Road to Achieve ___________________
Chemicals ___________________
___________________
A chemical based company, GYS limited, which is owned by
___________________
the South African government, primarily manufactures 2
products, potassium sulfate and sulphuric acid. Each of the ___________________
● Reaction ___________________
● Filtration
● Evaporation
UP ___________________
Contd.
Quantitative Techniques for Management Applications
142
ES
Machine hours on
Notes
Demand
___________________ in tonnes/
Products Reaction Filtration Evaporation annum
___________________
Potassium
___________________ Sulphate (40
tons per day) 18 8 14 6500
___________________ Sulphuric Acid
(produce 51.7
___________________ tons)per annum
for sulphuric
___________________ acid24 24 24 24 5200
___________________ Total available
time (assuming
___________________ 300 working
days/year) 7200 7200 7200
___________________
The total cost prices and the selling price of the two chemi-
UP
___________________
cals, potassium sulfate, and sulphuric acid are given below
as per the productions and the sales department. The ob-
jective is to find out how many tons of both the chemicals
should be produced in a day to maximize the daily profits of
the company while considering that the company works for
an average of 300 days in a year.
ES
UNIT 21: TRANSPORTATION MODEL ll Types of Games
ll Introduction ll Pure Strategies: Game with Saddle Point
ll Setting Up a Transportation Problem ll Dominance Property
ll Mathematical Model of a Transportation Problem ll Summary
ll Initial Solution – Northwest Corner Rule ll Review Questions
ll Optimality Test – the Stepping Stone Method
UNIT 24: SIMULATION
ll Summary
ll Introduction
ll Review Questions
ll Why Simulation
ll Review Questions
ll Basic Assumptions
)
(c
145
Unit 21
ES
Notes
___________________
Transportation Model ___________________
___________________
Objectives:
___________________
After completion of this unit, the learners will be able to:
___________________
\\ Define Transportation Problem
\\ Apply a Mathematical Model of Transportation Problem ___________________
___________________
Introduction
UP
A transportation model is type of linear programming that is as-
sociated with shipment of goods from source to destination. This
___________________
model is used to find out the optimum and cost-efficient strategy for
transporting goods from supply centres such as factories to various
receiving centres like warehouses. Each source can supply a fixed
units or products as per its capacity and each destination has a fixed
requirement.
The plants can supply the following number of material in tons per
)
week:
146
Table 21.2: Setup of Transportation Problem in Demand Site
ES
Notes
Manufacturing Site Demand (Requirement)
___________________
A 200
___________________ B 200
C 300
___________________
___________________ The cost of transporting 1 ton of raw material from each plant to
each site is shown in the table below. In this table, each row rep-
___________________
resents a source, and each column represents a destination.
___________________
Table 21.3: Cost and Requirements Table
___________________
Supply
___________________ From To A B C Availability
1 4 3 8 300
___________________
2 7 5 9 300
UP
___________________ 3
Demand Requirement
4
200 200
5 5
300
100
700
The delivery expenses of the goods from the starting point to end
point , i.e., “I” to “j” is directly proportional to the number of com-
modities distributed. Let Z be total distribution costs from all the ‘m’
(c
sources to the ‘n’ destinations. We also assume that the total supply
= total demand.
m si = n di
i=1 j=1
Unit 21: Transportation Model
147
This is called a balanced problem. When a problem is balanced, all
ES
the products that can be supplied are used to meet the demand. Notes
___________________
The formulation of this problem as a linear programming problem
is presented as, ___________________
___________________
Minimize Z = m n cij * xij
i=1 j=1
___________________
Subject to the below Constraints
___________________
In the Northwest Corner Rule, one moves methodically from the top
left-hand corner of the table to the bottom right-hand corner by ei-
ther going along the column or the row. Here are the steps:
5. Later, look again to ensure that the model’s capacity and other
requirements have been met.
(c
148
Factories
ES
Warehouses
Notes (Sources) (Destinations)
___________________
300 Units E B 200 Units
___________________
___________________
300 Units F C 200 Units
___________________
___________________
As per assumptions, the production costs for every furniture manu-
facturing company is identical. The only significant difference in the
___________________
various shipping costs for the manufacturers. The costs are shown
UP
___________________ in the table below:
From
Transportation Costs per Furniture
To A B C
D 5 4 3
E 8 4 3
F 9 7 5
To
From A B C Capacity
D 5 4 3
100
E 8 4 3
)
300
F 9 7 5
300
Requirements 300 200 200 700
(c
149
3. Check that all supply and demand requirements are met. The
ES
initial shipping assignments are given in the table below. Notes
To ___________________
F C 200 5 1000
Total 4200
Therefore, the initial feasible solution for this problem is Rs. 4,200.
Now that the initial feasible solution has been found, its time to find
out if it is the optimum solution as well.
The procedure for finding the optimum solution using the Stepping
Stone Method is as follows:
2. Starting from this square, trace a closed path back to the origi-
)
nal square through only that squares that have been used ear-
lier (only horizontal or vertical moves allowed). Directions can
be changed only at occupied cells.
(c
3. Starting with a plus (+) sign at the idle square, place an alter-
nate minus and plus signs on each corner square of the closed
path that was just traced.
150
5. Steps 1 to 4 have to be repeated until an improvement index
ES
Notes has been calculated for all unused squares.
___________________
Result –
___________________
llAn optimal solution is said to have reached when all indices
___________________
computed are zero or greater than zero.
___________________
llIf this is not the case, then it is more likely to minimise the
___________________ total shipping costs.
___________________ llTo check the optimality criterion, it is important that the cost
___________________ value index values for the currently unoccupied cells be non-
negative. This will prove the current situation as optimal.
___________________
llThe solution should be improved further if there are negative
___________________
values. For the improvement, an allocation is made to an empty
UP
___________________
cell and the subsequent changes in the demand and supply are
made.
Steps 1–3: Beginning with the D-B route, we first trace a closed path
using only currently occupied a square and then place alternate plus
signs and minus signs in the corners of this path.
Step 4: An improvement index Iij for the D-B route in now comput-
ed by adding unit costs in squares with plus signs and subtracting
costs in squares with minus signs. Thus
IDB = +4 – 5 + 8 – 4 = +3
Table 21.7: Evaluating D-B Route
To
From A B C Capacity
)
D 5 Start 4 3
100 – ← + 100
E 8 ↑ 4 3
↓
(c
151
+DC – DA +EA –EB + FB –FC
ES
Notes
The D-C improvement index is, IDC = +3 – 5+8 – 4+7 – 5 = +4
___________________
Table 21.8: Evaluating D-C route
___________________
To
___________________
From A B C Capacity
___________________
D 5 4 Start 3
100 – ← ← ← ← + 100 ___________________
E ↓ 8 4 ↑ 3
___________________
200 + → –100 ↑ 300
F 9 ↓ 7 ↑ 5 ___________________
+ → → – ___________________
100 200 300
___________________
Requirements 300 200 200 700
UP
Since the improvement index for D-C route is +4; it cannot be the
optimal solution. Similarly, calculating EC and FA route
___________________
EC route: +1
F-A route: – 2
To
From A B C Capacity
D 5 4 3
100 100
E 8 4 3
200 + ← + 100 300
F ↓ 9 ↑ 7 5
)
As the improvement index for the F-A route is negative, the number
of allowed units are transported on this route referring to the closed
(c
path of plus signs and minus signs drawn for the route. For a new
solution, the same number is added to all the squares on the closed
path which have a plus sign and is subtracted from all the squares
which show a minus sign. Other squares remain same. Here is how
the new solution will look:
Quantitative Techniques for Management Applications
152
Table 21.10: Calculation of Cost Using the Improved Solution
ES
Notes
To
___________________
From A B C Capacity
___________________ D 5 4 3
___________________ 100 100
E 8 4 3
___________________
100 200 300
___________________ F 9 7 5
100 200 300
___________________
Requirements 300 200 200 700
___________________
___________________
The shipping cost for this new solution is 100 × 5 + 100 × 8 + 200
× 4 + 100 × 9 + 200 × 4 = RS. 4,000. The shipping cost for this new
___________________
solution is Rs. 4,000
UP
___________________
The above steps are repeated to check if the above solution is opti-
mal. We see that Index for E-C route is, Rs.1. Hence, an improve-
ment can be made by shipping the maximum allowable number of
units from E to C in the below table.
Table 21.11: Path to Evaluate the E-C Route
To
From A B C Capacity
D 5 4 3
100 100
E – 8 ← ← 4 ← + 3
100 ↓ 200 Start 300
F ↓ 9 7 ↑ 5
100 + → → → → → – 200 300
Requirements 300 200 200 700
Summary
The transportation problem looks into the allocation of sources and
jobs to destinations and machines. It is useful for many problems
that require effective utilization of resources. It is used in manu-
Unit 21: Transportation Model
153
facturing to determine how to assign labor and machinery to reduce
ES
the cost of operations. It is also applicable in high-level business Notes
___________________
1. What is transportation problem?
___________________
2. Assume that there is a company that carries out production at
three facilities and then ships them to three warehouses. Pre- ___________________
Plant Warehouse
W1
UP W2 W3
Plant Capacity
(No. of Units)
___________________
P1 22 18 26 350
P2 12 12 10 450
P3 14 20 10 200
Warehouse 250 450 300
Demand (No.
of Units)
1 30 75 45
2 35 35 40
3 55 50 45
(c
154
and 90 units respectively. Daily warehouse requirements (de-
ES
Notes mands) are 180, 120 and 150 units respectively. Determine the
___________________ optimum distribution for this company to minimize shipping
___________________ costs. Unit shipping costs are as follows:
___________________
___________________
___________________
UP
___________________
)
(c
155
Unit 22
ES
Notes
___________________
Assignment Model ___________________
___________________
Objectives: ___________________
After completion of this unit, you will be able to explain the following: ___________________
\\ What is Assignment Model as an Operational Research Tool?
___________________
\\ How can Assignment Model Assist the Managers to Distribute the
Tasks Effectively? ___________________
___________________
Introduction ___________________
UP
An assignment problem seeks to minimalize the overall cost assign-
ment of “m” workers to “m” jobs, given that the cost of worker “ per-
forming job “j” is cij. Below are the key points which should be noted:
___________________
llIt is assumed that all the workers have been assigned, and each
job has been performed.
W X Y Z
A 15 13 14 17
B 11 12 15 13
C 13 12 10 11
)
D 15 17 14 16
Allocate the jobs, so the time consumed by all the 4 workers is less.
(c
Step 1: Subtract the smallest value of all columns from each element
of columns
Table 22.2: Step 1 in Allocation of Work
W X Y Z
A 4 1 4 6
Quantitative Techniques for Management Applications
156
ES
B 0 0 5 2
Notes
C 2 0 0 0
___________________
D 4 5 4 5
___________________
___________________ Step 2: Subtract the smallest value of all rows from each element of row
___________________ Table 22.3: Step 2 in Allocation of Work
___________________ W X Y Z
___________________
A 3 0 3 5
___________________
B 0 0 5 2
___________________
C 2 0 0 0
___________________
UP
___________________ D 0 1 0 1
W X Y Z
A 3 0 3 5
B 0 0 5 2
C 2 0 0 0
D 0 1 0 1
Since 4 lines were used, so it is the optimal solution. There are four
lines because there were four workers.
W X Y Z
A 3 0 3 5
B 0 0 5 2
(c
C 2 0 0 0
D 0 1 0 1
157
Summary
ES
Notes
An assignment model is a statistical tool that is a part of trans- ___________________
portation method and assists with elimination of classic assignment
___________________
problems such as allocation of employees to machines or machines to
jobs or employees to jobs. Number or employees has to be provided ___________________
Review Questions
Case I
UP ___________________
Job Workers
A B C D
1 10 20 18 14
2 15 25 9 25
3 30 19 17 12
4 19 24 20 10
2. Solve the problem using Assignment Model and find out a way
of assigning the workers so as to reduce the total number of
man-hours.
(c
Case II
A production manager must allocate three different jobs to three la-
bors. Depending on the efficiency and the capacity of the individual
the time taken by each differas shown in the table. How should the
tasks be assigned to the 3 labours to minimize the total man-hours?
Quantitative Techniques for Management Applications
158
ES
Job Workers
Notes
A B C
___________________ 1 17 27 33
2 47 35 43
___________________
3 46 44 44
___________________
3. Formulate the problem of deciding what job should be assigned
___________________
to each labor.
___________________
4. Solve this using assignment model to find out how the tasks
___________________
should be assigned to all the workers so as to minimize the total
___________________ man-hours.
___________________
___________________
UP
___________________
)
(c
159
Unit 23
ES
Notes
___________________
Game Theory ___________________
___________________
Objectives:
___________________
After completion of this unit, learners will be able to:
___________________
\\ Explain the game theory?
\\ Define how game theory is used to achieve an optimal solution for in- ___________________
volved players?
___________________
\\ Apply pure game with saddle point – Implementing minimax and max-
imin strategies. ___________________
\\ Apply Game without any saddle point – Learning mixed strategy. How ___________________
to solve for an optimal solution using probabilities?
\\
UP
Define Dominance Property – Solving games which involve more than
2 strategies for both the players.
___________________
Basic Assumptions
There are few basic assumptions which are considered in game the-
ory:
cation.
Types of Games
There are several types of games under this, primary being:
Quantitative Techniques for Management Applications
160
ll Two-person games and n-person games
ES
Notes
ll Zero-sum and non-zero sum games
___________________
1 2
1 1 3
Player A
2 −1 6
Figure 23.1: Game Problem
To solve the game, we will use minimax procedure. Find the small-
Unit 23: Game Theory
161
est value in each row and select the larger of those 2. Then, find the
ES
largest value in each column and select the smaller of those 2. Notes
___________________
Palyer B
1 2 Row Min ___________________
1 1 3 1 1 ___________________
Player A →
2 −1 6 −1 −1
___________________
Col Max → 1 6
Figure 23.2: Pay-off Matrix ___________________
___________________
If maximum value in row is equal to the minimum value in column,
then saddle point exists. ___________________
___________________
1=1
UP
Therefore, there is a saddle point.
The optimal strategies are:
___________________
Value of game = 1.
Example 2: Solve the game with the pay-off matrix as given in Fig-
ure 23.3.
Player B
B1 B2 B3
A1 −4 0 4
Player A A2 1 4 2
A3 −1 5 −3
Figure 23.3: Game Problem
A1
A2 1 4 2 1
A3 −1 5 −3 −3
→
Column Max 1 5 4
→
Figure 23.4: Minimax-Maximin Procedure
Quantitative Techniques for Management Applications
162
Select the largest element in row and smallest element in column.
ES
Notes
Check for the minimax criterion
___________________
Max Min = Min Max
___________________
1=1
___________________
Therefore, there is a saddle point of the minimax maximin situation
___________________
is the payoff that is simultaneously a row minimum and a column
___________________ maximum. Such a situation is a pure strategy. A pure strategy is
___________________ one that is used by a paler at each round of the game to win each
round of the game.
___________________
Optimum Strategy:
___________________
___________________
Player A A2 Strategy
Player B B1 Strategy
UP
___________________
The value of the game is 1.
A1 A2 B B2
(a ) S A = and ( b) SB = 1
p1 p2 q1 q2
Figure 23.6: (a), (b): Optimum Strategies
(c
a22 − a21
q1 = and q2 = 1 − q1
( a11 + a22 ) − ( a12 + a21 )
Unit 23: Game Theory
163
The game’s value is given by
ES
Notes
(a11a22 – a12a21)/((a11 + a22) – (a12 + a21))
___________________
___________________
For the cases where the payoff matrices are larger than 2 × 2 size,
its size is reduced to 2 × 2 through dominance property. Dominance ___________________
Player B
1 2 3
1 1 7 2
Player A
2 6 2 7
Figure 23.8: Reduction the Matrix by Using Dominance Property
1 1 7
Player A
2 6 2
Figure 23.9: Reduced 2 × 2 Matrix
164
Player B
ES
Notes
1 2 Row Min
___________________
1 1 7 1
Player A
___________________ 2 6 2 2
___________________ Column Max 6 7
Max Min ≠ Min Max
___________________
2≠6
___________________ Figure 23.10: Maximin Procedure
___________________
Therefore, there is no saddle point, and the game has a mixed strat-
___________________ egy.
___________________ Applying the probability formula:
___________________
p1 = (2 – 6)/((1 + 2) – (6 + 7)) = 4/10 = 2/5
UP
___________________
p2 = 1 – (2/5) = 3/5
q1 = (2 – 7)/((1+2) – (6+7)) = 5/10 = ½
q2 = 1 – 1/2 = ½
The optimum strategies are shown in Figure 23.11 (a) and (b)
A1 A2 A3 B1 B2 B3
SA = 2 and SB = 1
5 3
5 0 2 1
2 0
Figure 23.11 (a, b): Optimum Strategies
Summary
Game theory studies cooperation and conflict amidst intelligent
decision makers based on mathematical observations. It is used in
various fields such as economics, political science, and psychology.
It is also used as logic, computer science, and biology. Currently
)
Review Questions
For the below-mentioned game problem in Figure 23.12
Unit 23: Game Theory
165
Player B
ES
Notes
1 2 3 4
1 5 −10 9 0 ___________________
26 7 8 1 ___________________
Player A
3 8 7 15 1 ___________________
4 3 4 −1 4
___________________
Figure 23.12 Game Problem
___________________
1. Calculate whether there exists any saddle point for the above
___________________
matrix.
___________________
2. Transform the game problem into 2 × 2 matrix.
___________________
3. Calculate the optimal strategies for players A and B
___________________
4. Calculate the value of the game.
) UP ___________________
(c
(c
) UP
ES
167
Unit 24
ES
Notes
___________________
Simulation ___________________
___________________
Objectives:
___________________
After completion of this unit, students shall be able to explain and under-
stand: ___________________
Introduction
Simulation is a quantitative technique established to understand
the several course of actions by creating a model of a system and
then carrying out various trial and error experiments to forecast
the behavior of the model for the given period of time. Studying the
experiments thus conducted is very much like studying that real
system in operation. To study how the real system would react to
certain changes, we can produce these changes in our model and
simulate the reaction of the real system. In fact, under uncertain
conditions simulation is used for decision making process. In cir-
cumstances where quantitative formulation of the problem is not
achievable, a model which represents real life situations is used to
represent simulation technique. Many real-life business problems
are so complicated that it is impossible to transcribe them in math-
)
168
Simulation technique had its origin in the work of Prof. John Von
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Notes
Neumann and Prof. Stanislaw Ulam, about 30 years ago. They
___________________ solved the nuclear-shielding problems that were either too complex
___________________ for analysis or too expensive to real experimentation. The advent of
high-speed digital computers during the 1950s has made it possible
___________________
to solve several real-life business problems using computer simula-
___________________ tion since this is the only economical and fast method of performing
___________________ a number of computations required and repeating the experiment a
number of times to obtain more accurate results.
___________________
Because of its vast range of applications, simulation technique has
___________________
become a viable tool. It can be employed for analysis and find solu-
___________________
tions to large and multifaceted real-world problems. Various prob-
___________________ lems of functional areas such as production, marketing, HR, finance
etc., are solved through simulation. It is also used in corporate plan-
UP
___________________
ning models for policy decisions. It helps in reduction of time and
cost involved in the exercise, by generating significant amounts of
data through usage of only a small sample data.
Problem Definition
Introduction of Variables
Simulate
)
Examination of results
Not Acceptable Not Acceptable
(c
Acceptable
Figure 24.1 describes the simulation process with detailed steps in-
volved. The various steps that are involved are definition of problem,
Unit 24: Simulation
169
variables introduction, simulation model construction, variables
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testing, examination of simulation results, and best alternative to Notes
be chosen. ___________________
___________________
Why Simulation
___________________
With the multi-disciplinary approach to present day complex busi-
___________________
ness problems, often the mathematical solution is difficult to obtain.
___________________
In cases where the implementation of mathematical simplification
is not possible, simulation becomes an appropriate substitute for the ___________________
mathematical evaluation of a model. In this, a specific type of model ___________________
is formulated which describes the system’s operation. The system
___________________
is segregated into various segments and the inter-relationship be-
tween the various segments is made with the help of probability ___________________
(iv) There may not be sufficient time to allow the system to operate
extensively. For example, one may not be able to wait for sever-
al years to study the long-run trends of sales of a firm, etc.
solution which should be very close to the optimal, but not necessari-
ly the exact solution. However, it should be noted that this technique
yields a solution that converges to the optimal or correct solution as
the number of simulated trials leads to infinity. This is only possible
with a high-speed digital computer, and therefore, in actual prac-
tice, it is necessary to truncate the simulation process after a finite
Quantitative Techniques for Management Applications
170
number of trials. This method of simulation, Monte Carlo simula-
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Notes
tion, does not expel the requirement of developing a model that will
___________________ depict the operation of the system under study. Hence, the first step
___________________ would be defining the problem and structuring it in a quantitative
format without any concern about its mathematical solvability. It
___________________
should be emphasized that the model developed still needs to be
___________________ a complete and realistic representation of all essential aspects of
___________________ the system under study. It should be noted that all models are not
amenable to Monte Carlo simulation technique. Only models under
___________________
uncertainty can be studied with the help of Monte Carlo method.
___________________ This is because the Monte Carlo simulation method is based on the
___________________ continued observation of the system over a prolonged period of expe-
___________________
rience. This long history of the operation of the system is simulated
rather than real history. Theoretically, we draw on a large number
UP
___________________
of samples from the model and through these observations examine
the behavior of the system. Without a random aspect to the model,
all samples or trials would yield the same result.
Step 2:
Each variable’s cumulative probability distribution to be
found
171
Table 24.1: Simulation of Demand Problem
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Notes
Demand (No. of Dishes) No of Days
___________________
4 5
5 10 ___________________
6 6
___________________
7 8
8 1 ___________________
___________________
Simulate the demand for first 10 days of the month.
___________________
Solution: Express the frequencies in terms of proportion and find the
probability distribution of demand by dividing each value by 30(To- ___________________
The demand per day can be represented in the form a distribution as ___________________
shown in Table24.2.below:
UP
Table 24.2: Probability Distribution of Demand
4 0.17
5 0.33
6 0.20
7 0.27
8 0.03
17 is the first selected random number that lies between the interval
17–49 of random numbers corresponding to 5 dishes being demand-
Quantitative Techniques for Management Applications
172
ed every day. Therefore, 5 is the demand for day one. Table 24.4
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Notes
shows the remaining days demand:
___________________ Table 24.4: Demand Simulation
___________________ Day 1 2 3 4 5 6 7 8 9 10
___________________ Random 17 46 85 09 50 58 04 77 69 74
Number
___________________ Demand 5 5 7 4 6 6 4 7 6 7
___________________
Random Number Generation
___________________
Random numbers are used to simulate a sample. Random numbers
___________________ are those numbers which have been selected as such that there is
___________________ an equal selection probability for every number. Once the random
number has been selected, we then convert it into an observation
___________________
drawn from the probability distribution specified in the model under
UP
___________________
study.
erally will produce 105 random numbers. For example, if our initial
number is say 4261, then the first random number is 1561 (42612 =
18156121), the second random number is 4367 (15612 = 2436721),
the next random number is 0706 and so on. Repeating this process,
(c
It should be noted that this is only one of the many methods that are
used for generating random numbers. But no matter what method
is used, careful attention must be given to ensure that the numbers
generated are in fact random, and result in the observations follow-
Unit 24: Simulation
173
ing the probability distribution specified in the model. This is the
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crucial aspect of Monte Carlo simulation. Notes
___________________
If the random number generating process cycles or contains a bias,
the results of simulation will be erroneous. Careful analysis of the ___________________
174
difficulties. For example, in production management, one may not
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Notes
be able to foresee bottlenecks and problems while erecting plant and
___________________ machinery for the first time. Simulation studies are valuable and
___________________ convenient methods for breaking down a complicated system into
sub-systems and study by simulation each of these sub-systems in-
___________________
dividually or jointly with other sub-systems. This type of simulation
___________________ allows one to gain increased knowledge of the operating system. It
___________________ also allows one to observe a cause and effect relationship which can
result in the improvement of the system and its sub-systems.
___________________
175
Advantages and Disadvantages of Simulation Can Be Summed
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Up as follows: Notes
Advantages ___________________
___________________
llSimulation is the best method for evaluating and analyzing
complicated or completed practical problems which cannot be ___________________
solved with the help of mathematical methods. ___________________
llSimulation is flexible; in order to select the best solution
___________________
amongst the alternatives changes in the system’s variables can
___________________
be made.
___________________
llSystem is not disturbed, as the experiments care carried out
with help of a model. ___________________
Disadvantages
llThe
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simulation does not create optimal solutions.
___________________
For certain activities and cases, these models can be expensive. The
decision maker or the operator must provide all the relevant infor-
mation required for the functioning of the model including informa-
tion about the constraints and the conditions. The simulation model
does not provide these conditions on its own.
Summary
Simulation is the use of models to develop data as a basis for techni-
cal decision making. Simulation can be used by an analyst for iden-
tification of possible course of action, introduction of constants and
variables using simulation and identification of probable course of
action and the criteria that act as parameters of effectiveness. It
)
176
hospital emergency services, location analysis like determining lo-
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Notes
cations for warehouses and plants and evaluation of industrial pol-
___________________ icies.
___________________
Review Questions
___________________
___________________
1. What is a simulation? Give a few areas of its application.
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Notes
___________________
Case Study: SM Textiles – ___________________
___________________
SM Textiles is one of the largest manufactures of readymade gar-
ments in south India. It was established in the year 1985 and was ___________________
operating out of a single manufacturing unit in Chennai, but now it
___________________
also has manufacturing units located in Mysore and Vishakhapa-
tnam. The vision of the company is ‘To bring authentic clothing to ___________________
India.’ The company’s annual turnover is Rs. 50Cr and plans to
___________________
spread its distribution centers all over India. The company’s larg-
est wholesaler distributors currently are limited to 4 locations Ban- ___________________
galore, Hyderabad, Cochin, and Madurai.
UP
The issue faced by the company over the recent years after the
expansion of its business is to control the transportation cost. The
___________________
2 Mysore 5000
3 Vishakhapatnam 4000
Quantitative Techniques for Management Applications
178
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Table 25.2: Demand Requirements at Distribution Centres
Notes
Destination Wholesale Distributor Weekly Demand (Units)
___________________
1 Bangalore 5000
___________________
2 Hyderabad 4000
___________________ 3 Cochin 2000
4 Madurai 4000
___________________
Table 25.3: Transportation Cost per Unit
___________________
Supply Location Destination Location
___________________