Management Science Techniques

1. Decision analysis-
Decision theory is an analytic and systematic approach to the
study of decision making
Six Steps in Decision Making
1. Clearly define the problem at hand.
2. List the possible alternatives.
3. Identify the possible outcomes or states of nature.
4. List the payoff (typically profit) of each combination of alternatives and
outcomes.
5. Select one of the mathematical decision theory models.
6. Apply the model and make your decision
In decision theory, an alternative is defined as a course of action or a strategy
that the decision maker can choose
those outcomes over which the decision maker has little or no
control are called states of nature.
the payoff resulting from each possible combination of alternatives and
outcome is called conditional values.
a decision table, sometimes called a payoff table

1. Linear Programming- it is one of the best-known tools of management

science. This approach mostly defines the problem as maximizing
(minimizing) a linear function, respecting the set of linear constraints.
● Maximization model-best for a product mix problem type
Why?
Minimization model-
A linear programming problem requires a choice between alternative courses of
action (i.e., a decision). The decision is represented in the model by decision
variables. A typical choice task for a business firm is deciding how much of several
different products to produce.
A third characteristic of a linear programming problem is that restrictions exist,
making unlimited achievement of the objective function impossible. In a business
firm these restrictions often take the form of limited resources, such as labor or
material.
1. Integer Linear Programming- further requirements for the values are added
to the original linear model. All or some of the variable values have to be
integer.
A Total Integer Model- all decision variables have integer solution
values
a 0–1 integermodel, the solution values of the decision variables are
zero or one
a mixed integer model, some solution values for decision variables are
integers and others can be non-integer.
Example integer programming problems include portfolio optimization
in finance, optimal dispatch of generating units (unit commitment) in energy
production, design optimization in engineering, and scheduling and routing in
transportation and supply chain applications.

3. Goal- Programming- when several competing objectives have to be considered

simultaneously, more powerful tool is needed. Goal programming is a special
technique for dealing with such cases, usually within the framework of linear
programming.

4. Distribution Models- A distribution problem is a special type of linear

programming problem. There are two main types of distribution problems:
the Transportation Problem and the Assignment Problem. The transportation
problem deals with shipments from a number of sources to a number of
destinations, whereas the assignment problem deals with finding the best
one-to-one match for each of a given number of possible “candidates” to a
number of proposed “positions”.

5. Nonlinear Programming- Models used in this area of management science are

similar to the models of linear programming; however there is an important
difference between them: nonlinear models contain nonlinear objective function
and/or some nonlinear constraints.
6. Network Models- Some problems can be described graphically as a network (the
set of nodes and arcs). Typical situation is a transportation network: cities (nodes)
are connected to each other by roads (arcs). In many problems, solved with the use
of the network models, the most important value is unit cost and the goal is to find
the minimal total cost.

7. Project Management- execution of different job takes specific time. There are two
methods for solving these problems, Critical and Method (CPM) and Program
Evaluation Review Technique (PERT). Both methods require the network
representation of the problem.

8. Inventory Models- Inventory control is one of the most popular techniques, which
helps managers to determines when and how much to order. The main goal is
usually to find a proper balance between the inventory holding cost and the cost
executing an order.

9. Waiting Line Models- deals with the situations where units (e.g. customers) need
to be served by a number of channels (e.g. vendors.) As the number of vendors is
limited, some of the units have to wait for the service in queue.
10. Simulation- When managerial problems become more complex, they
are often impossible (or non-effective because of spent time and cost) to be
solved using standard techniques. For this purpose, simulation approach is
advantageous and in many cases it is the only way how to manage the
problem. Simulation is a computer experimentation with a simulation model
aimed at describing and evaluating the real system’s behavior - the computer
program simulates the real system. The typical situations for successful use
of simulation are complex waiting line models and inventory models.
11. Decision Analysis- These techniques can be used to select optimal
strategies out of several decision alternatives. Managerial problems and
appropriate tools are divided, according to the kind of manager’s information,
into three classes: decisions under certainty (deterministic), decision under
risk (probabilistic) and decisions under uncertainty. We consider special
tools for this purpose: decision tables and trees.
12. Theory of games- This area is an extension of decision analysis to the
situations with two or more decision makers. Simultaneous decisions
(selected strategies) of all managers initiate an action that affects all decision
makers (players), i.e. their profit, cost, etc.