Chapter 1 : Introduction to Management Science
solved at the same time. However, each must be solved with the consideration
An Insight to solving management problems for decision-making
What is Management Science?
 Management Science is the application of the scientific method to
address problems and decisions that arise in the business community and
other organizations such as government, private entities and military
institutions.
 This field is commonly known as Operations Research (OR) and
Quantitative Analysis (QA).
 Management Science can also be defined as a problem-solving process
used by interdisciplinary teams to develop mathematical models that
represent simple to complex functional relationships .
 It operates on the understanding that business managers can make
informed decisions only when they have access to scientifically acquired
knowledge.
Management Science
Practitioners of Management Science undertake the major steps of scientific
inquiry to gain knowledge/insights about problems/issues.
Major Steps of Scientific Inquiry
1. Identify the issue or problem
2. Formulate a hypothesis (theory) about possible solutions to the problem
3. Construct appropriate models to test the hypothesis
4. Collect and analyze the results of the tests, and
5. Determine the best way to resolve the issue or address the problem based
on the final results.
Historical Development of Management Science
The roots of management Science extend to the work of F.W. Taylor, the
father of Scientific Management. Taylor is known for his systematic
development of management techniques which he started at the Midvale Steel
Company in Philadelphia around 1880.
Management Science describes an integrated approach to operational control
based on the application of scientific research methods to business problems.
A systematic approach to problem solving received early impetus from
Taylor’s scientific management movement and is continued today by
industrial engineers and mathematical business analysts. This approach is
characterized by a methodology of sequential investigation steps.
Characteristics of Management Science
The four major characteristics of Management Science:
1. Examine Functional Relationships from a Systems Overview
-The activity of any one function of a company will have some effect on
the activity of each of the other functions.
2. Use the Interdisciplinary Approach
- Management Science makes good use of a simple principle, it looks at the
problem from different angles and approaches.
Mathematician : might look at the inventory problem and formulate some type
of mathematical relationships between the manufacturing departments and
customer demand.
Chemical Engineer: might look at the same problem and formulate it in terms
of flow theory.
Cost Accountant: might conceive the the inventory problem in terms of
component costs (e.g. direct material cost, direct labor cost, overhead, etc.)
and how such costs can be controlled and reduced.
3. Uncover New Problems for Study
-The 3rd characteristic of MS , which is often overlooked, is that solution to
an MS problem brings new problems to light.
-All interrelated problems uncovered by the MS Approach do not have to be
for other problems if maximum benefits are to be obtained.
4. Use a Modelling-Process Approach to Problem Solving:
-Management Science takes a systematic approach to problem solving.
-It may use a modelling process approach taking the help of mathematical
models.
Other Characteristics of Management Science
 A primary focus on managerial decision-making
 The application of science to decision-making
 A dependence on electronic computers
 An appraisal resting on criteria of economic effectiveness.
Effectiveness may be defined as the extent to which goals are achieved.
Effectiveness is evaluated by measures of effectiveness, also known as
measures of performance.
Chapter 2 : Concepts and Applications of Probabilities
Introduction to Probabilities
The idea of risk or probability is a part of our lives. A probability is a
numerical statement about the likelihood that an event will occur. In this
discussions, we will examine the basic concepts , terms and relationships of
probability and probability distributions that are useful in solving many
management science problems. The study of management science would be
quite difficult without the probability theory.
Probabilities
 Probability is the chance that something will happen.
 Probabilities are expressed as fractions, decimals or as percentages
between 0 and 1.
 When you assign a probability of 0, you mean that something can never
happen; when you assign a probability of 1, you mean that something
will always happen.
Important Terms Used in our Study of Probabilities
EVENTS AND EXPERIMENTS
In probability theory, an event is one or more of the possible outcomes of
doing something. If we toss a coin, getting a tail would be an event; getting a
head would still be another event.
The activity that produces an event is referred to in probability theory as an
experiment. Using this language, we could as: In a coin toss experiment,
what is the probability of the event heads? In this case, we would answer ½ or
.50.
 SAMPLE SPACE
The set of possible outcomes of an experiment is called the sample space for
the experiment. In a toss-coin experiment, for example, the sample space is
S = [head, tail]
If we assume the coin does not land on its edge, If we were drawing cards
from a deck, the sample space would have 52 members, one for each card in a
standard deck( ace of hearts, king of hearts and so on).
Fundamental Concepts of Probabilities
There are two basic rules regarding the mathematics of probability:
1. The probability, P, of any event or state of nature occurring is greater than
or equal to 0 and less than or equal to 1. That is,
0 > P (event) < 1
A probability of 0 indicates that an event is never expected to occur. A
probability of 1 means that an event is always expected to occur.
2. The sum of the simple probabilities for all possible outcomes of an activity the estimates. A number of probability values cannot be determined unless
must equal 1. the subjective approach is used.

There shall be no instance that the sum of probabilities will be more than 1 or What is the probability that the price of gasoline will be more than P60 in the
100%. next few years? What is the probability that our economy will be in a severe
depression in 2025? What is the probability that you will be president of a
Example 1: Two Rules of Probability. Demand for white latex paint at major corporation within 20 years?
Boysen Paint and Supply has always been 0, 1, 2, 3, or 4 gallons per day.
(There are no other possible outcomes and when one occurs, no other can.)
Over the past 200 working days, the owner notes the following frequencies of
demand.

If this past distribution is a good indicator of future sales, we can find the
probability of each possible outcome occurring in the future by converting the
data into percentages of the total:

Thus, the probability that sales are 2 gallons of paint on any given day is:

P(2 gallons) = 0.25 = 25%

The probability of any level of sales must be greater than or equal to 0 and
less than or equal to 1.

Since 0,1,2,3, and 4 gallons exhaust all possible events or outcomes, the sum
of their probability values must equal 1.

TYPES OF PROBABILITIES

There are two different ways to determine probability, the objective approach
and the subjective approach.

Objective Probability. Example 1 provides an illustration of objective

probability assessment. The probability of any paint demand level is the
relative frequency of occurrence of that demand in a large number of trial
observations (200 days, in this case). In general,

Objective probability can also be set using what is called the classical or
logical method. Without performing a series of trials, we can often logically
determine what the probabilities of various events should be. For example, the
probability of tossing a coin and getting a head is

Subjective Probability: When logic and past history are not appropriate,
probability values can be assessed subjectively. The accuracy of subjective
probabilities depends on the experience and judgment of the person making