Study Pack on Operations Research for Professional Exams

STUDY PACK
ON
OPERATIONS RESEARCH
PROFESSIONAL EXAMINATION I
1
STUDY PACK ON
OPERATIONS RESEARCH
PROFESSIONAL EXAMINATION I
@CIPM 2019
FOURTH EDITION
CHARTERED INSTITUTE OF PERSONNEL
MANAGEMENT OF NIGERIA
CIPM House, 1 CIPM Avenue, Off Obafemi Awolowo Way,

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All rights reserved, no part of this publication may be reproduced, stored in

retrieval system, or transmitted in any form or by any means, electronically,
mechanical, photocopying or otherwise without permission of CIPM
NIGERIA.
2
FOREWORD
This third edition of our study pack has been made available for the
use of our professional students to assist them in effectively
accomplishing their HR professional goal as dictated by the Institute
from time to time.
The text is meant not only for Chartered Institute of Personnel

Management of Nigeria (CIPM) students, but also for researchers,
HR practitioners and organisations embarking on the promotion of
human capital development in its entirety. It has therefore been
written not only in a manner that users can pass CIPM professional
examinations without tears, but also to provide HR professional
practitioners further education, learning and development references.
Each chapter in the text has been logically arranged to sufficiently

cover all the various sections of this subject in the CIPM
examination syllabus in order to enhance systematic learning and
understanding of the students. The document, a product of in-depth
study and research is both practical and original. We have ensured
that topics and sub-topics are based on the syllabus and on
contemporary HR best practices.
Although concerted effort has been made to ensure that the text is up
to date in matters relating to theories and practice of contemporary
issues in HR, we still advise and encourage students to complement
the study text with other relevant literature materials because of the
elastic scope and dynamics of the HR profession.
Thank you and have a productive preparation as you navigate

through the process of becoming a professional in Human Resources
Management
Ajibola Ponnle.
REGISTRAR/CEO
3
ACKNOWLEDGEMENT
On behalf of the President/Chairman of the Governing Council and
the entire membership of the Chartered Institute of Personnel
Management of Nigeria (CIPM), we acknowledge the intellectual
prowess of Dr. Bolanle A. Oseni and Mr. Musa Sanni in writing this
well researched text for Operations Research. The meticulous work
of our reviewers, Prof. Nnamdi Mojekwu and Dr. Joshua Ajilore has
not gone unnoticed and is hereby acknowledged for the thorough
review of this publication.
We also commend and appreciate the efforts of members of the

Education Committee of the Institute for their unflinching support.
Finally, we appreciate the contributions of the National Secretariat

staff competently led by the Registrar/CEO, Mrs. Ajibola Ponnle and
the project team, Dr. Charles Ugwu, Mrs. Nkiru Ikwuegbuenyi, Miss
Charity Nwaigbo, Mrs. Livina Onukuba and Miss Opeoluwa Ojo.
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Table of Contents
Page
CHAPTER ONE:
MEANING OF OPERATIONS RESEARCH 1
1.0 Learning Objectives 1
1.1 Introduction 1
1.2 Origin and Development of Operation Research 1
1.3 Definition of Operation Research 3
1.4 Procedure of Operations Research 5
1.5 Types of Model Formulation 5
1.6 Principle and Steps involved in Modelling 7
1.7 Advantages of Model in Operations Research 9
1.8 Disadvantages of Model in Operations Research 9
1.9 Limitations of Operations Research 9
1.10 Summary 10
1.11 Review Questions 10
References and Further Readings 10
CHAPTER TWO:
ELEMENTS OF DECISION ANALYSIS 11
2.1 Introduction 11
2.2 Concepts of Decisions Process, Rationality in
Decision Making Process and Decision Analysis 11
2.3 Phases in Decision Making Process 15
2.4 Types of Decision Situation 16
2.5 Decision Making Under Risk 24
2.6 Decision Tree Approach 31
2.7 Summary 35
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CHAPTER THREE:
LINEAR PROGRAMMING MODEL 38
3.1 Introduction 38
3.2 Definition of Linear Programming 38
3.3 Characteristics of Linear Programming 40
3.4 Basic Assumptions of Linear Programming Problems 40
3.5 Application Areas of Linear Programming Problems 41
3.6 Some Important Concepts in Linear Programming 42
3.7 Linear Programming Formulation 44
3.8 Solution of Linear Programming 51
3.9 Primal and Duality in Linear Programming 62
3.10 Summary 68
CHAPTER FOUR:
TRANSPORTATION MODEL 70
4.1 Introduction 70
4.2 Methods of Solving Transportation Problem 72
4.3 Optimality Test 76
4.4 Formulation of Assignment Problem 80
4.5 Solution to Assignment Model ( Hungarian method) 81
4.6 The Branch and Bound Method 84
4.7 Summary 85
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CHAPTER FIVE:
PROJECT PLANNING AND SCHEDULING 88
5.1 Introduction 88
5.2 Some Basic Terms in Network 89
5.3 Methods of Project Planning and Scheduling Analysis 89
5.4 Project Evaluation Review Technique (PERT) 96
5.5 Summary 104
CHAPTER SIX:
INVENTORY CONTROL AND MANAGEMENT 108
6.1 Introduction 108
6.2 Inventory Control Terminology 108
6.3 Economic Order Quantity 109
6.4 EOQ Where Stockouts are Permitted 111
6.5 Summary 115
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CHAPTER ONE
INTRODUCTION TO OPERATIONS RESEARCH
1.0 Learning Objectives

At the end of this chapter, readers should be able to:
• Explain the meaning of Operations Research
• Explain some concepts of Operations Research
• List and explain the principles and steps involved in
modeling
• Discuss the advantages and disadvantages of Operations
Research
1.1 Introduction
This chapter will introduce you to the basic terminologies in
operations research, including mathematical modelling, feasible
solutions, optimization and iterative computations. You will learn
that defining the problem correctly is the most important (and most
difficult) phase of practicing Operations Research (OR). The lecture
also emphasizes that while mathematical modelling is the
cornerstone of OR, unquantifiable factors (such as human behaviour)
must be accounted for in the final decision.
1.2 Origin and Development of Operation Research

During World War II, the military management in England looked at
tactical problems associated with air and land defence of the country.
Their objectives were to determine the most effective utilization of
limited resources, and how to use the newly invented radar. It was to
determine the effectiveness of the new type of bombers that had been
introduced. The establishment of this scientist team marked the first
formal OR activity. The name Operation Research (OR) came
apparently because the team was dealing with research on (military)
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operations. Since its birth, this new decision making field has been
characterised by the use of scientific knowledge through
interdisciplinary team efforts for the purpose of determining the best
utilization of limited resources.
The encouraging result achieved by the British operations research

team motivated the United State military management to start similar
activities. Areas covered by the U.S team included the study of
complex logistics problems; the invention of the new flight patterns,
the practice of sea mining and the effective utilization of electronic
equipment.
The development of operations research started at the pre-World War

era. During the pre-World War era, Taylor (1885) emphasized the
application of scientific analysis to methods of production. Taylor
(1885) conducted experiments in connection with a simple shovel.
His aim was to find the weight load of ore moved with shovel which
would result in a maximum of ore moved without fatigue. After
many experiments with varying weight, he obtained the optimum
weight load, which though much lighter than that commonly used,
provided maximum movement of ore in a day.
A Danish mathematician Erlang (1917), published his work on the

problem of congestion of telephone traffic. A few years after the
appearance of his work, the British Post Office accepted his work as
the basis for calculating circuit facilities. The formulae developed by
Erlang on waiting time are of fundamental importance to the theory
of telephone traffic. The work of Levinson in the 1930s was the first
industrial revolution that contributed mainly towards the
development of Operations research.
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In the era of post War II, the success of military teams attracted the
attention of industrial managers who were seeking solution to their
problems. Industrial Operations Research in UK and USA developed
along different lines. In the U.K., the potential of the field of
Operations research was further increased due to the nationalization
of a few key industries. Thus, operation research spread from
military to government, industrial, social and economic planning.
The progress of industrial operations research in USA was due to the

advent of second industrial revolution which resulted in the
replacement of man by machine as a source of control. This
revolution began around 1940s. Then in 1950, Operations Research
was introduced as a subject of academic study in American
Universities. Since then, Operations Research has been gaining ever
increasing importance for the students of Mathematics, Statistics,
Economics, Management and Engineering sciences. The Operations
Research Society of Nigeria was also formed in 1950 and today
almost all countries of the world now have one society or the other to
help government and private institutions in taking valuable decisions.
1.3 Definition (Operations Research)

Operations research is the attack of modern science on complex
problems arising in the direction and management of large systems
of men, machines, materials and money, industry, business,
government and defence. The distinctive approach is to develop a
scientific model of the system, incorporating measurements of
factors such as change and risk, with which to predict and compare
the alternative decisions, strategies or controls in order to help the
management determine its policy and action scientifically (British
Standard definition).
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Several other definitions exist for Operations Research, but the one
favoured by the author is given below.
Operation Research is the application of scientific methods to

problems arising from operations involving integrated systems of
men, machines, and materials. It normally utilizes the knowledge and
skill of an interdisciplinary research team to provide the managers of
such systems with optimum operations solution. From the above
definition, it is clear that OR has some essential features which
include:
i. Application of a model based scientific approach: The basis of

the Operations research is to construct models of problems in an
objective, factual manner and experimenting with these models
to show the results of various possible causes of action.
ii. System approach to organizations: An activity by any part of an

organization has some effect on the activity of every other part.
Thus, the optimum operation of some other part. Therefore, to
evaluate any decision, it will be pertinent to identify all the
possible interactions and determine their impact on the
organization as a whole.
iii. The recognition of risk and uncertainty: Operation Research

techniques do not remove the risks and uncertainties on their
own, but it can be used to highlight the effect of the risks and
uncertainties on the organization’s operations.
iv. Assistance to management decision making and control. The

role of an OR expert to his organisation is the provision of
information to assist the planners and decision makers. It should
be noted that the skill, experiences and sense of judgment of
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managers cannot be replaced by formal decision making
techniques.
1.4 Procedure for model building in Operations Research

An Operation Research (OR) study consists in building a model of
physical situation. An OR model is defined as an idealized
(simplified) representation of real-life system. Since OR deals with
building model of the physical situations, the managers makes use of
scientific methods in model building. In building the model the
following issues are firstly recognized and specifically defined.
i. Recognize that a problem exists and defining the problem.
ii. Identification of parameter, such as the variables that are under

the control of the decision maker. Here, the objectives of the
goal are defined e.g to maximize profit to minimize cost, to
maintain stable employment etc. The practical constraint to those
problems must be recognized e.g Budget, Labour, Requirement,
Machine Capacity, Time factor etc.
iii. Examinations of all alternative solutions to the problems, there

may be many solutions that may satisfy the stated objective.
iv. The solutions are put into practice and the “Optimal” solution is
chosen.
1.5 Types of Model Formulation

(i) Mathematical models: Mathematical models are symbolic
models but instead of words, equations or symbols are used to
express a simplified version of a complex problem. In mathematical
model, data can be manipulated by person in such a way that if
another person were to manipulate it, the same unique result would
be obtained. It should be noted that most of the models in operations
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research and decision analysis are mathematical models which are
approximate representation of reality and are used for optimization
purpose to get the best decision.
(ii) Descriptive models: The model explains the various operations

in non-mathematical language. It defines the functional relationships
and interactions between various operations.
(iii) Predictive models: The model explains or predicts the

behaviour of the system.
(iv) Prescriptive models: The model develops decision rules or

criteria for optimal solutions. The model is applicable to repetitive
problems, the solution process of which can be programmed without
managerial involvement.
(v) Physical models: The physical models have properties that

resemble the system they represent but differ in size. In this type of
model, properties of the real system are represented by the properties
themselves, frequently with a change of scale. They are either
prototypes of the real objects or have characteristics that reflect the
function of the real objects. The models can be divided into two
categories. These are the iconic models and analogue models. The
iconic models look exactly like the real objects but could be scaled
downward or upward or could employ a change in materials of the
real object. On the other hand, the analogue models may or may not
look exactly like the real objects. They explain specific few
characteristics of an idea and ignore other details in the object.
(vi) Deterministic models: This is a model where all the variables in

the model are completely defined and the outcomes are certain.
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(vii) Probabilistic models: In this model, the input/output variables
take the form of probability distributions. They represent the
likelihood of occurrence of an event.
(viii) Static models: They are one-time decision models. In these

models cause and effect occur almost simultaneously.
(ix) Dynamic models: These are models in which time often plays
an important role. The models are used for optimization of
multistage decision problems which require a series of decisions with
the outcome of each depending upon the results of the previous
decisions in the series.
1.6 Principle and Steps involved in Modelling

The following are the steps involved in modelling.
1. Definition of the problem

A description of the objective of the study must reflect on accurate
representation of the overall interest of the system. In similar
manners a study that does not account for all the decision alternatives
and limitation of the system is liable to held an inaccurate-solution.
2. Construction of the model

Once you have defined the problem, and then formulate a model. A
model is an abstract representation of the problem situation. The
main components of a mathematical model are as follows.
a. Decision variables and parameter.

The decision variables are the unknown to be determined from the
solution of the model.
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The parameter represents the controlled variables of the system
which may be deterministic or probabilistic. The decision variables
are under the control of the management.
b. Constraint or restrictions.
This refers to physical limitation of the system. These are practical
constraints that inhibit the decision maker in achieving his goals.
c. Objective function: This acts as an indicator for the achievement

of the optimum solution. This is the goal of the management. It must
be clearly defined as part of the model.
3.Solution of the problem

This aspect deals with solving the model. In mathematical models,
this is achieved by using well-defined optimization techniques and
the model is said to yield an “optimum” solution. In addition, to the
(optimum) solution of the model, one must also secure whenever
possible, additional information concerning the behaviour of the
solution due to changes in the system’s parameters. This is usually
referred to as “sensitivity analysis” which is needed when parameters
of the system cannot be estimated accurately. A situation where there
will be additional information to the system due to the behaviour of
the solution due to changes in the system in the parameters.
4.Validation of the problem

A model is valid if despite its inexactness in representing the system,
it can give a reliable prediction of the system performance. A
common method for testing the validity of a model is to compare its
performance with some past data available for the actual system. The
model will be valid if under similar conditions of the system. It must
be noted that such a validation method is not appropriation for none
existing system since there will be no available data for comparison.
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5. Implementation of the final results
This should be executed through the cooperation of both the
operators’ research team and those who will be responsible for
managing and operating the system.
1.7 Advantages of Model in Operations Research

i. An iconic model is concrete.
ii. It is easy to construct the model.
iii. It is easy to study model than the system itself.
iv. Better control.
v. Better decision.
vi. Better system
1.8 Disadvantages of Model in Operations Research

i. The model is not suitable for further implementation.
ii. It cannot be use to study the changes in operation of the system.
iii. It is not possible to make any modification in the model.
iv. Adjustment with changing situation cannot be done in the model.
1.9 Limitations of Operations Research

Below are the some of the limitations of operations research:
i. Model is only idealized representation of reality and should not be

regarded as absolute in any case.
ii. The validity of a model for a particular situation can be

ascertained only by conducting experiments on it.
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1.10Summary
In this chapter, we have explained some fundamental concepts such
as definition of Operation Research, basic principles of Operations
Research, OR objectives and methodology, modeling and models
characteristics in Operations Research, application in business,
Management, Banking and Finance.
1.11 Review Questions

1. List and explain any four principle of Modelling in Operation
Research.
2. Explain different types of model formulation in Operation

Research.
3. List and explain principles and steps involved in modelling.
References and Further Readings

Adekeye, K.S. (2008). Unpublished Lecture Note on Introduction to
Linear Programming.
Akinbade, F. (1996).Basic Operational research techniques.Panaf

Publishing Inc., Bariga, Lgaos, Nigeria
Banjoko, S.A. (2000). Production and operations management.Saban

publishers, Lagos.
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CHAPTER TWO
ELEMENTS OF DECISION ANALYSIS

At the end of this chapter the readers should be able to:
• Mention the importance of business decision
• Discuss the concept of Decision Analysis
• Mention different types of Decision Situation
• Describe decision tree
• Develop ability of using Decision Analysis in areas of practical
decision making.
2.1 Introduction
Decision analysis has been described as a scientific technique and is
useful for finding optimal course of actions and strategy when a
decision maker is confronted with many options. Decision making
can be complex or otherwise.
2.2 Concept of Decision Process and Decision Analysis,

Rationality in Decision Making Process
A normal human being is an experienced rational decision maker.
Decisions like what to eat for breakfast, lunch or dinner are
important decisions that can affect our life tremendously. There is a
saying, that “good decisions makers are made, they are not born”.
Decision problem plays a key role in economics, politics, social,
technological as well as personal life.
In business, various decisions have to be made. Management

decision unconsciously uses techniques similar to that in personal
decision making. However, it can be improved greatly with training
and this is necessary in view of the complex nature of business
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decision making. The life wire of an organization is management. If
management falters, the organization will find it difficult to survive.
Hence there is need for managers to be trained on related and
systematic ways of decision making.
Decision analysis has been described as a scientific technique that

consists of collection of principles and methods whose principal
objectives is to aid decision making by individuals, group of
individuals, management of organization and others who have to
make one decision or the other. In decision analysis, complex
decision problems are broken down into smaller elements which may
be probabilistic, differential or value oriented.
Decision analysis is useful for finding optimal course of actions and

strategy when a decision maker is confronted with many options and
an uncertain or risk filled pattern of future events. For example, a
frozen chicken supplier wishes to prepare large quantities of frozen
chicken provided consumer’s acceptance and demand for the product
will be high. Otherwise, he would prepare small quantities. Actual
acceptance can only be determined when he puts them out for sale.
The process of selecting the best consumer acceptance among
several alternatives where there is uncertainty of future demand can
be done best by decision analysis. Stages of decision making can be
categorized into two. These are the structural stage and the decisional
stage. The structural stage involves where the decision maker gets all
the information available, organizes them and identifies a specific
decision problem that needs to be solved. The decisional stage is the
stage where the decision maker develops methods and technologies
to assemble the information.
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2.2.1 Steps in Decision Analysis
Decision analysis involves the following steps:
(i) Definition of decision problem
(ii) Exploring available data and information
(iii) Stating alternative courses of action
(iv) Analysis of feasible alternatives
(v) Selection of best or optimal actions
(vii) Implementation of decision
(viii) Evaluation of results
2.2.2 Problems of Decision Analysis

Decision problem exist when individual or group of individuals’
organization known as decision makers have the need to select
among different options. The problems in decision analysis can be
classified into two categories. These are:
(i) Sequential decisions that involve uncertainty and probability
estimates. Sequential decisions are modeled using decision
trees and influence diagrams which allow sequential
organization of sequence of decisions and their probabilities
in diagrammatic form.
(ii) The multiple conflicting goals and objectives decisions

where groups of alternatives are to be compared on the basis
of goals. Multi-objective decisions are modeled using the
multi-attribute utility theory which enables one to compute
an alternative’s overall desirability based on its performance
on specified set of evaluation measures.
2.2.3 Structure of Decision Making Process

The basic structure of a decision problem especially under risk and
uncertainty are decision alternatives, states of nature and conditional
payoffs.
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Decision alternatives are alternatives course of actions that are
available and feasible. Practically, there are many alternative courses
of actions that can be considered in a decision problem and it may be
practically impossible to consider them exhaustively. We therefore,
identify and use the feasible ones in our analysis of the problem
before taking decision.
States of Nature are independent uncontrollable variables that can

occur with possibilities. They are outside the direct control of the
decision maker and they include all the possibilities of outcomes that
can occur. It should be noted that only one of them can occur in the
final decision making.
Conditional payoffs are the outcomes of the combination of events

and decision alternatives. It is associated with time and it is known as
planning or decision horizon.
Payoff Table
The payoff table is the table that is used to proffer solution to
decision problem. Information on decision alternatives, states of
nature and payoff are usually represented on a payoff table. The table
is a concise table containing summary of information available for
various alternatives and events in a decision making process. It is in
the form of a matrix in which the rows represent the decision
alternatives and the columns represent the states of nature which
could deal with high medium and low acceptance of a product.
For example, the payoff table below represents the amount gained
from three strategies (alternatives) and four conditions (state of
nature)
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States of nature
S1 S2 S3 S4
Decision
alternative
D1 4000 -100 600 18000
D2 20000 5000 400 0
D3 20000 15000 -2000 1000
The above table can also be represented in a matrix form, which is

called decision matrix. Therefore, the decision matrix for the above
payoff table is
 4000 −100 600 1800 
 
 20000 5000 400 0 
 2000 15000 −2000 1000 
 
The rows of the matrix represent the decision alternatives and the
columns represent the states of nature.
2.3 Phases in Decision Making Process

The decision analysis cycle consists of four phases of operation. The
phases are:
(i) Decision framing phase: this is where the problems as well
as the possible available alternatives from which one can
select are clearly stated. The phase is also called the
structural phase. In this phase, the decision makers
collect and organize information relevant to the decision
problem. Tools used at this stage include performance
measures of consequences of each alternative as well as
diagrammatic representative of relations between
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decisions, uncertainties and consequences of each
alternative.
(ii) Deterministic analysis Phase: this is the phase which

accounts for certainties rather than uncertainties. Here,
graphical and diagrammatic models like influence
diagrams and flowcharts can be translated into
mathematical models. Necessary tools are used in this
phase for predicting consequences of alternatives and for
evaluating the decision alternatives.
(iii) Probabilistic analysis phase: this phase has been developed

to cater for uncertainties in the decision making
processes.
(iv) Evaluation phase: this is the phase where the decision tree is
evaluated to enable the identification of the decision
outcomes that correspond to sequence of decisions and
events represented in the decision trees.
2.4 Types of Decision Situation

There are four types of decision situations in decision analysis. These
are discussed below:
1. Decision making under certainty: In this situation, only one
state of nature exists for each alternatives. Since the decision
maker has perfect knowledge about the future outcomes, he
simply chooses the alternative with the optimum payoff.
2. Decision making under uncertainty: In this situation, more than

one states of nature exist but the decision maker lacks the
knowledge about the probabilities of their occurrence. Much
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of the business decision takes place under conditions of
uncertainty. Business decision may sometimes be taken with
incomplete knowledge or knowing that the outcomes of these
decisions are uncertain. In decision making under uncertainty,
it is assumed that the true state of nature belongs to the set of
all states in that decision environment and so the process does
not make use of probability estimates on these states.
The decision criteria used for judgment under this environment are:
(i) Maximax (Optimistic) Criterion
The decision maker finds the maximum possible payoff for
each alternatives and then chooses the alternative with the
maximum payoff within the group of the maximum.
(ii) Walds' Maximin (Pessimistic) Criterion

The decision maker finds the minimum possible payoff for
each alternative and then chooses the alternative with the
maximum payoff within the group of the minimum.
(iii) Minimax Regret Criterion

This criterion is also known as the savage criterion. Here, the
decision maker might experience regret after the decision has
been made and the states of nature (events) have occurred.
Thus, the decision maker tries to minimize this regret prior
to the selection of a particular alternative. Therefore, the
maximum amount of regret is determined for each
alternative and thereafter, the alternative with the minimum
of the above maximum regrets are chosen.
The following steps can be used to take decision in minimax
regret criterion:
• Identify the highest value in each column
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• Subtract the highest value from every value in its respective
column to obtain the regret
• For each decision alternative, obtain the maximum regret
• Find the minimum of this maximum regret to obtain the
minimax regret value
• Identify the decision alternatives corresponding to the
minimax regret as the optimum decision
(iv) Hurwicz Criterion

Hurwicz criterion is the criterion of realism. It is also called
the weighted average criterion because of the nature of its
determination. It is a compromise between the maximax and
the minmax decision criteria. The criterion is based on an
index of optimism or coefficient of optimism denoted by α,
where 0 < α < 1. The valuation function is
V(dj) = (α max dij) + ((1- α)min dij) , j = 1, 2, 3, …, m
The above function can be re-written to be
Weighted payoff = α(maximum payoff) + (1 – α)(minimum
payoff).
From the above expression, it is clear that if α = 0, then we
have the maximin criterion and if α = 1, then we have the
maximax criterion. Then, the best decision alternative will
be the one with the maximum weighted payoff.
(v) Laplace Criterion

This criterion is based on what is known as the principle of
insufficient reason. This criterion is also called equal
probabilities criterion. Under this criterion, equal
probabilities are assigned to each state of uncertainty when
25
the probabilities are not known in the case of decision
environment under uncertainty.
The steps for determining the best decision under the
Laplace criterion are:
(a) For two states cases, we assign probabilities of 0.5 to each of
the states
(b) For three states cases, we assign probability 0.33 to each of
the states
(c) For n states we assign probability to each of the state.
(d) The expected payoffs are computed as in the expected value
criterion and the decision with the maximum payoff is
selected to be the best.
Example 2.1
The CIPM investment recently purchased a land at Lekki and the
management is trying to determine the types of building to be erected
on the land, namely shopping complex, high-rise building and blocks
of flat. The Institute knows that a large development that results in
low demand could be very disastrous. On the other hand, if CIPM
investment makes a conservative small development decision and
obtain a high demand, substantial profit will be obtained. Managers
of the company used three levels of demands and obtained the
following payoffs decision matrix:
States of nature
Decision alternative Low Medium High
Build shopping complex 200 100 400
(d1)
Build high-rise houses (d2) 100 150 300
Build block of flats (d3) 300 400 200
Probability 0.25 0.3 0.45
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Advice the institute investment on the decision to take using the
Laplace criterion assuming the probabilities values were not
provided.
Solution:
Since there are three states of nature in the problem, then we assign
probabilities P (S1) = P (S2) = P(S3) =1/3. Then the expected values
for each of the decision alternative are determined as follows:
For (d1) = (200*1/3) + (100*1/3) + (400*1/3) = 233.3
For (d2) = (100*1/3) + (150*1/3) + (300*1/3) = 183.3
For (d3) = (300*1/3) + (400*1/3) + (200*1/3) = 300
The best decision alternative = max {233.3, 183.3, 300} = 300 = d3.
Therefore, based on Laplace criterion, the CIPM investment is
advice to build blocks of flats.
Example 2.2
A steel manufacturing company in Nigeria is concerned with the
possibility of a strike. It will cost an extra N20,000.00 to acquire an
adequate stockpile. If there is a strike and the company has not
stockpiled, management estimates an additional expense of
N60,000.00 on account of lost sales. Should the company stockpile
or not under,
(a) Optimistic criterion (b) Wald criterion (c) Savage criterion
(d) Hurwicz criterion for  = 0.4 (e) Laplace criterion
Solution: Using the given information, we construct the payoff table.
State of nature
Decision alternative Strike(S1) No Strike (S2)
Stockpile(A1) 20,000 20,000
No stockpile(A2) 60,000 0
27
(a) Using the optimistic criterion, we use the maximax
approach. The table below is constructed to determine the
maximum payoff for each decision alternative
State of nature Maximum
Decision Strike(S1) No Strike value
alternative (S2)
Stockpile(A1) 20,000 20,000 20,000
No stockpile(A2) 60,000 0 60,000
The max {20000, 60000} = 60000. Therefore, using the
optimistic criterion, the company should choose the no
stockpile alternative.
(b) Using the pessimistic (Wald) criterion, we use the maximin
maximum payoff for each decision alternative.
State of nature Minimum
Decision Strike(S1) No Strike value
alternative (S2)
Stockpile(A1) 20,000 20,000 20,000
No stockpile(A2) 60,000 0 0
The maximum (0 , 20000) is 20000. Therefore, using the Wald
criterion, the company should choose the stockpile alternative.
(c) Using the Savage criterion, we first construct a conditional
regret table. Following the step of the regret criterion, from
the pay off table, the highest value in column 1 is 60,000 and
the highest value in column 2 is 20,000.
The regret value = highest value – value.
Therefore, we have
D1S1 regret= 60,000 -20,000 = 40, 000
28
D2S1 regret = 60, 000 – 60, 000 = 0
D1S2 regret = 20,000 – 20000 = 0
D2S2 regret = 20,000 – 0 = 20,000.
The above regret values are summarized in the table below
Decision alternative Strike(S1) No Strike regret
(S2)
Stockpile (A1) 40,000 0 40,000
No stockpile (A2) 0 20,000 20,000
The minimum of the maximum regret is the min {40000 , 20000} =

20000. Therefore, the minimax regret is N20,000. Hence, using the
Savage criterion, the company should choose the no stockpile
alternative.
(d) Using the Hurwicz criterion for  = 0.4 , the formula for
weighted payoff is employed.
Recall that, weighted payoff = α(maximum payoff) + (1 –
α)(minimum payoff).
Therefore, for alternative 1, we have
Weighted payoff for A1 = 0.4(20000) + (0.6)(20000)= N
20,000
Similarly, for alternative 2, we have
Weighted payoff for A2 = 0.4(60000) + (0.6)(0)= N 24,000
The optimal decision is the alternative with the highest weighted

payoff. Therefore, the alternative with the maximum of the weighted
payoff is A2. Hence, the company should not stockpile.
(e) Using the Laplace criterion, we assign a probability value ½
to each of the state since there are two states in the problem
under consideration. Thus we have
29
Expected payoff (Alternative 1) = ½ (20000 + 20000) = N
20,000
Expected payoff (Alternative 2) = ½ (60000 + 0) = N30,000
The optimal decision is the alternative with the highest expected

payoff. Therefore, alternative 2 is selected and hence the company
should not stockpile.
Examples 2.3
A major energy company offers a landowner N60,000 for the
exploration rights to natural gas on a certain site and the option for
future development. The option, if exercised, is worth an additional
N 660, 000 to the landowner, but this will occur only if natural gas is
discovered during the exploration phase. The landowner, believing
that the energy company’s interest is a good indication that gas is
present, is tempted to develop the field herself. To do so, she must
contracts with local outfits with expertise in exploration and
development. The initial cost is N100,000 which is lost if no gas is
found. If gas is discovered, however, the landowner estimates a net
profit of N2000,000. Determine the recommended decisions under
(a) Optimistic criterion (b) pessimistic(Wald) criterion
(c) Savage criterion (d) Hurwicz criterion for  = 0.1
(e) Laplace criterion
Solution:
Let the decisions for the landowner be represented by Di, i = 1, 2,
where D1 = accept the offer and D2 = to explore and develop on her
own. The states of nature be represented by Si, i = 1, 2, where S1 =
There is no gas on the land and S2 = there is gas on the land. Then
the payoff table is
30
State of nature
Decision alternative S1 S2
D1 60 660
D2 -100 2000
(a) Using the optimistic criterion, we use the maximax

maximum payoff for each decision alternative

Decision alternative S1 S2 value
D1 60 660 660
D2 -100 2000 2000
Since max {660,2000} = 2000. Therefore, using the optimistic

criterion, D2 is the recommended decision. Hence, the landowner
should explore and develop on her own.
(b) Using the pessimistic (Wald) criterion, the maximin is

employed. The table below is constructed to determine the
minimum payoff for each decision alternative
State of nature minimum

Decision alternative S1 S2 value
D1 60 660 60
D2 -100 2000 -100
31
The max {60, -100} = 60. Therefore, using the Wald criterion, the
decision D1 is recommended. Hence, the landowner under this
criterion should accept the offer.
(c) Using the Savage criterion, we first construct a conditional regret

table. Following the step of the regret criterion, we have the table
below
Table of Regret payoffs

Decision alternative S1 S2 regret
D1 0 1340 1340
D2 160 0 160
The minimum of the maximum regret is obtained by determining the
min {1340. 160} = 160. Therefore, the minimax regret is N160,
which is D2. Hence, using the Savage criterion, it is recommended
that the landowner should explore and develop on her own
(d) Using the Hurwicz criterion for  = 0.1 , the formula for
weighted payoff is employed.
Weighted payoff = α (maximum payoff) + (1 – α) (minimum
payoff).
Therefore, weighted payoff for D1 = 0.1(60) + (0.9)(660)= N 610
Weighted payoff for D2 = 0.1(-100) + (0.9) (2000) =N 1,790
The optimal decision is the alternative with the highest weighted
payoff. Therefore, D2 is the alternative with the maximum of the
weighted payoff. Hence, it is recommended that the landowner
should explore and develop on her own.
32
(e) Using the Laplace criterion, we assign a probability value ½ to
each of the state since there are two states in the problem under
consideration. Thus we have
Expected payoff for D1 = ½ (60 + 660) = N 360
Expected payoff for D2 = ½ (-100 + 2000) = N1,900
The optimal decision is the alternative with the highest expected
payoff. From the calculation max {360, 1900} = 1900 which is the
expected payoff for D2. Therefore, decision D2 is recommended.
2.5 Decision Making under Risk

In decision making under risk, there are more than one states of
nature but the decision maker has sufficient information to allow him
assign probabilities to each of the states. The probabilities could be
obtained from past records or from the subjective judgment of the
decision maker. The payoffs associated with each alternative are
represented by probability distribution, and decision can be based on
the expected value criterion. Under conditions of risk, there exist a
number of decision criteria which can be used. These are:
(i) Expected value Criterion
The expected value criterion seeks the maximization of
expected profit or the minimization of expected cost.
The data of the problem assumes that the payoff (or cost)
associated with each decision alternative is probabilistic.
The criterion requires the calculation of the expected
value of each decision alternative which is the sum of
the weighted payoffs for that alternative, where the
weights are the probabilities assigned to the states of
nature that can happen. Thus, if dij is the decision
alternatives, pi is the probability and V(di) is the expected
value , then
33
n
V (di ) =  pi di j , i = 1, 2, …, n is the number of
i =1
decision alternatives, and

j = 1,2, …, m is the number of states of nature.
It should be noted that the expected value criterion is also known as

expected monetary value (EMV) criterion. Thus V (di ) is also
known as the EMV of the problem. The alternative with the highest
EMV is selected to be the best alternative (maximization of expected
profit or minimization of the expected cost).
Example 2.4
Suppose that you want to invest N10,000 in the stock market by
buying shares in one of two banks: Guarantee trust bank and Zenith
bank. Shares in GT, though risk could yield a 50% return during the
next year. If the stock market conditions are not favourable, the stock
may lose 20% of its value. Zenith bank provides safe investments
with 15% return in a bull market and only 5% in a bear market. All
the publications you have consulted are predicting a 60% chance of a
bull market and 40% for a bear market. How should you invest your
money?
Solution: The problem is summarized in the table below

States of nature
Decision alternative Bull Market Bear market
GT stock 5000 -2000
Zenith stock 1500 500
Probability 0.6 0.4
34
The expected value can be obtained using the above formula for each
of the decision alternative. Therefore, for GT bank, we have,
V(d1) = (5000*0.6) + (-2000*0.4)= 2200
For Zenith bank, we have
V(d2) = (1500*0.6) + (500*0.4)= 1100
Since the GT bank stock has the higher EMV, and then the money
should be invested on GTB stock.
Example 2.5
Using the problem in Example 2.1 above: Advice the institute
investment on the decision to take using the expected value criterion
Solution:
n
Using V (di ) = pd
i =1
i ij , then we have
The expected monetary value for (d1) = (200*0.25) + (100*0.3) +

(400*0.45) = 260
(300*0.45) = 205
(200*0.45) = 285
The best decision alternative = max{260, 205, 285} = 285 = d3.
Therefore, the CIPM investment is advice to build blocks of flats.
(ii) Expected Opportunity Loss or Expected Regret Criterion

The expected opportunity loss (EOL) is an alternative approach to
maximizing EMV. The approach is to minimize expected
opportunity loss (EOL). The expected opportunity loss (or expected
value of regrets) represents the amount by which maximum possible
profit will be reduced under various possible stock actions. The
35
course of action that minimizes these losses or reductions is the
optimal decision alternative. The expected opportunity loss or
expected regret is determined using the following steps:
(i) Identify the maximum for each of the states of nature using the
table of payoffs.
(ii) Obtain the regret or opportunity loss table by using the

expression (regret = maximum payoff – payoff) for each of the states
of nature
(iii) Calculate the expected opportunity loss for each decision

alternative by multiplying the value of the regret in the table
in step b by the associated probabilities and then add the
values.
(iv) Select the alternative that yields the minimum EOL.
Example 2.6
Solve the problem in example 2.1 above using the Expected
opportunity loss criterion
Solution:
Table of payoff
States of nature
(d1)
Probability 0.25 0.3 0.45
36
Steps a and b: From the table of payoff, the regret or opportunity
loss table is constructed and presented below
Regret or Opportunity Loss Table

States of nature
(d1)
Step c: Determine the Expected loss for each decision alternative.

Thus, we have
Expected loss for d1 = (100*0.25) + (300*0.3) + (0 *0.45) = 115
Step d: The decision to be selected is the min{ 115, 170, 90} = 90 =

d3. Therefore, based on the Expected opportunity loss criterion, the
best decision is to advice the CIPM investment to build blocks of
flats.
Decision making under conflict

Situations exist in which two or more opponents with conflicting
objectives try to make decisions with each trying to win at chess,
candidates fighting an election, two enemies planning war tactics,
firms struggling to maintain their market shares etc. These situations
are different since the decision-maker is working against an
intelligent opponent. They are called decision making under conflict
37
or under partial uncertainty. The theory governing these types of
decision problems is called theory of games.
2.6 Decision Tree Approach

A decision tree is a graphical representation of the decision process
indicating decision alternatives, states of nature, probabilities
attached to the states of nature and conditional benefits and losses. It
consists of a network of nodes and branches. These are decision
nodes represented by a square and state of nature node represented
by a circle. Alternative courses of action (strategies) originate from
the decision node as main branches (decision branches). At the end
of each decision branch there is a state of nature node from which
emanates chance events in the form of sub-branches (chance
branches). The respective payoffs and the probabilities associated
with alternative courses and the chance events are shown alongside
these branches. At the terminal of the chance branches are shown the
expected values of the outcome. The general approach used in
decision tree analysis is to work backward through the tree from
right to left, computing the expected value of each chance node.
Thus, the expected value (EV) can be computed using, EV(d) = G(d)
+ (P * L)
Where G is the gain outcome, L is the loss outcome and P is the
probability. The decision node which leads to the chance node with
the highest expected value is chosen to be the best decision
alternative.
Example 2.7
A company wishing to try the possibilities of marketing three
products A, B, C under three market growths S1, S2 and S3 has
obtained the following data to aid its decision making.
38
States of nature
Decision Alternatives S1 S2 S3
A 20 100 300
B -60 200 1000
C -40 400 700
If P(S1) = 0.5, P(S2) = 0.3, and P(S3) = 0.2 and a consultant predicts
that if condition S1 exists then product A will be the optimal
decision; if S2 exists, product B will be the optimal decision and if S3
exists , product C will be the optimal decision. Draw a decision tree
for the problem.
Solution: 0.5 20
A 0.3 100
a 0.2 300
1 a
a 0.5 - 60
B
a 0.3 200
a 0.2 1000
0.5 -40
C 0.3
a
400
a
a 0.2 700
a
a
a
a
a
a
a 39
The expected value for product A = (20*0.5) + (100*0.3) +
(300*0.2) = 100
The expected value for product B = (-60*0.5) + (200*0.3) +
(1000*0.2) = 230
The expected value for product C = (-40*0.5) + (400*0.3) +
(700*0.2) = 240
The decision alternative with the highest expected value is product
C. Therefore, decision C is the optimal decision.
Example 2.8
A company dealing with newly invented telephonic device is faced
with the problem of selecting the following strategies:
(i) Manufacture the device itself
(ii) To be paid on a royalty basis by another manufacturer
(iii) Sell the rights for its invention for a lump sum
The profit in thousands of naira that can be expected in each case and
the probabilities associated with the sales volumes are shown in the
following table:
Event probability Manufacture Royalties Sell the

right
High demand 0.2 100 40 20
Medium 0.3 30 25 20
demand 0.5 -10 15 20
Low demand
(a) Represent the company’s problem in the form of a decision tree

(b) Determine the optimal decision for the company
40
Solution:
Let A represent the manufacture strategy, B represent royalty
strategy and C represent the sell the right strategy. Therefore, the
decision tree for the problem is
0.2 100
0.3 30
A 0.5 -10
a 0.2 40
1 a 0.3 25
Ba 0.5 15
a
a 0.2 20
C 0.3 20
a
0.5 20
aa
aa
(b)
aa
aa
The expected value for strategy A = (100*0.2) + (30*0.3) +
a (-10*0.5) = 24
The expected value for strategy B = (40*0.2) + (25*0.3) + (15*0.5)
= 23
The expected value for strategy C = 20(0.2 + 0.3+ 0.5) = 20
The decision alternative with the highest expected value is strategy
A. Therefore, the optimal decision for the company is to manufacture
the telephonic device itself to get the maximum expected profit of
N24,000.
2.7 Summary
• Decision analysis as a scientific course which entails collection
of principles and
• technique and which aim at helping organisation and individuals
to always make the
41
• best decision has been extensively discussed.
• The decision maker uses a specific technique to make an optimal
choice.
• Decision alternatives are the possible courses of actions.
• States of nature are the possible events that can occur in a
decision problem.
• Payoff, is the outcome resulting from specific decision
alternative.
• The maximax criterion is a criterion in which we select the
maximum of all the
• maximum payoffs.
• The maximin criterion is a criterion in which we select the
maximum of the
• minimum payoffs.
• The minimax criterion or regret involves selecting the minimum
of the maximum
• regret or opportunity loss.
• The four states of decision environment are
(i) Decision making under certainty
(ii) Decision making under uncertainty
(iii) Decision making under risk
(iv) Decision making under conflict.

1. A dress buyer for a large department store must place orders
with a dress manufacturer nine months before the dresses are
needed. One decision is as to the number of knee-length
dresses to stock. The ultimate gain to the department store
depends both on this decision and on the fashion prevailing
42
nine months later. The buyer’s estimates of the gain (in
thousands of naira) are given in the table below
States of nature
Alternative decision Knee Knee lengths Knee lengths
lengths are are are not
high acceptable acceptable (S3)
fashion (S1) (S2)
Oder none (D1) -30 0 80
Order a little (D2) -10 30 35
Order moderately (D3) 60 45 -30
Order a lot (D4) 80 40 -45
Determine the recommended decisions under

(a) Optimistic criterion (b) pessimistic(Wald) criterion (c) Savage
criterion (d) Hurwicz criterion for  = 0.5 (e) Laplace
criterion
2. A large steel manufacturing company has three options with

regards to production: (i) produce commercially (ii) build pilot plant
(iii) stop producing steel. The management has estimated that their
pilot plant, if built, has 0.8 chance of high yield and 0.2 chance of
low yield. If the pilot plant does show a high yield, management
assigns a probability of 0.75 that the commercial plant will also have
a high yield. If the pilot plant shows a low yield there is only a 0.1
chance that the commercial plant will show a high yield. Finally,
management’s best assessment of the yield on a commercial –size
plant without building a pilot plant first has a 0.6 chance of high
yield. A pilot plant will cost N300,000. The profits earned under
43
high and low yield conditions are N12,000,000 and N1,200,000
respectively. Find the optimum decision for the company.

Adedayo, O.O.Ojo, O. &Obamiro, J.K. (2006). Operations Research
in decision analysis and production management. Pumark Nigeria
Limited, Lagos
Adekeye, K.S. (2008). Unpublished Lecture Note on Introduction To

Linear Programming.
Akinbade, F. (1996).Basic Operational research techniques.Panaf

Banjoko, S.A. (2000). Production and Operations

Management.SabanPublishers, Lagos.
44
CHAPTER THREE
LINEAR PROGRAMMING

At the end of this chapter, the readers should be able to:
• Define Linear Programming as a tool in Operation Research
• Discuss the main characteristics of Linear Programming
• Formulate correctly a Linear Programming Problem
• Explain simplex (algorithm) solution of a Linear Programming
• Solve two-variable Linear Programming Problem by simplex
algorithm and graphical methods.
3.1 Introduction
This chapter aims to provide decision makers good foundation of the
knowledge and skills that managers and other decision body requires
in formulation of policies and making good decision among various
decision alternatives.
3.2 Definition of Linear programming

Linear programming can be defined in any of the following way:
i. Linear programming is a mathematical method for solving a large

class of special problems where one is attempting either to maximize
benefit while using limited resources or to minimize cost while
meeting certain requirement.
ii. Linear programming is a technique for allocating limited

resources optimally (maximize profit or minimize costs) among a
number of competing demands while operating within the specified
constraint.
45
iii. Linear programming is a technique used to determine the best
utilization of limited resources to reach desired objectives of either
maximizing the benefit (profit) or minimizing the costs.
Linear Programming is one of the most commonly used techniques

in Operations Research. It applies to optimization models in which
the objectives and constraint are strictly linear. The technique is
applicable in a wide range of applications, including, agriculture,
Industry, transportation, economics, behavioral science, social
sciences and military
Managers use a range of mathematical techniques in performance

management, risk analysis, financial management, decision-making,
policy-making and formulation among others. In most businesses,
there are insufficient resources available to do as many things as
management would wish, and the problem is to decide how the
resources should be allocated to obtain best results. To achieve this,
linear programming technique can be used.
Linear programming (LP) is a tool for solving optimization

problems. It is a mathematical modeling “system” which has found
widespread uses in providing decision making with an efficient
means for resolving complex operational alternatives. Linear
programming is applicable to the general category of problems that
require the optimization of a linear objective function subject to
linear constraints. This constraint exists because the activities under
consideration usually compete for scarce resources. Optimization
may require minimization of cost, time, resources, etc, or it may
require the maximization of profit, yield or other desirable output
measure(s) depending on the situation under study.
46
3.3 Characteristics of Linear Programming Problem
i. The objective function must be well defined. The objective
function is a function of the decision variables subject to
satisfying the constraints. There must be alternatives courses of
action.
ii. Alternative courses of action: There must be alternatives courses

of action, one of which achieves the objectives.
iii. Additivity of resources and activities: The sum of the resources

used by different activities must be equal to the total quantity of
resources used by each activity for all the resources individually
and collectively.
iv. Linearity of the objective function and constraints: The objective

function and its constraints must be expressed as a mathematical
equation or inequalities and these must be linear equation or
inequalities.
v. Non-negativity of decision variables: All decision variables

should be non-negative.
vi. Single Valued Expectation: Resources and activities are known

with certainty, thus a deterministic programming model is
obtained.
3.4 Basic Assumptions of Linear Programming Problem (LPP)

i. Certainty: The co-efficient of the decision variables in linear
programming are assumed with certainty. Such as profit,
contribution and the amount of resources require per unit of are
known constraint.
47
ii. Divisibility: it should be noted that the decision variables can take
fractional values. It is feasible to have fractional value in the
resources and production activities in linear programming models.
iii. Non-negativity: The decision variable cannot have negative

values. It is not possible for a company or an establishment to
produce negative items.
iv. Additivity: This means that the total of all activities equal the
sum of each individual activity.
v. Proportionality: We are sure that proportionality exists in the

objectives and the constraints. This means that, if production of one
unit of product used two of a particular scare resource, then making
five units of that product uses ten resources.
3.5 Application Areas of Linear Programming

Linear programming is widely used in different areas such as:
1. Product mix problem
2. The diet problem
3. Advertising/promotion planning i.e. product promotion
4. Investment planning
5. Production/Inventory planning
6. Optimal cargo shipment
7. Multi period problem with sub-contracting option
8. Strategic/military effectiveness analysis
48
9. Manufacturing
10. Agricultural Application; Farm Economic and Management
11. Military Application
12. Production Management; Production planning, Blending

Problem.
13. Financial Management; Port folio selection and Profit n

planning.
14. Marketing Management; Media Selection, Physical Distribution

and others.
15. Personal management; Starting Problem, Job evaluation and

others.
16. Education
17. Administration
18. Awarding Contracts.
19. Capital Budgeting and others.
3.6 Some Important Concepts in Linear Programming

The following are some of the concepts that are commonly used in
the application of linear programming.
1. Feasible solution
This is defined as a set of values of decision variables which satisfy
all the constraints and non-negativity conditions of a linear
programming problem simultaneously.
49
2. Infeasible solution
This is defined as a set of values of decision variables which do not
satisfy all the constraints and non-negativity conditions of a linear
programming problem simultaneously.
3. Basic solution
For a set of m simultaneous equation in n variables (n  m), a
solution obtained by setting (n − m) variables equal to zero and
solving for remaining m equations in m variables is called a basic
solution.
4. Basic feasible solution

A basic feasible solution is a solution in which all basic variables
have non-negative values. Basic feasible solution is of two types:
(a) Degenerate: A basic feasible solution is called degenerate if value

of at least one basic variable is zero.
(b) Non-degenerate: A basic feasible solution is called non-

degenerate if values m − basic variables are non-zero and positive.
5. Optimum Basic feasible solution

A basic feasible solution which optimizes (minimum/maximum) the
objective function value of the given linear programming problem
(LPP) is called an optimum basic feasible solution.
6. Unbounded solution
A solution which can increase or decrease the value of objective
function of the linear programming problem (LPP) indefinitely is
called unbounded solution.
50
3.7 Linear Programming Problem Formulation
To formulate a linear programming problem means to transform a
real life problem into a standardized format consisting of
mathematical equations and inequalities. Linear programming
problem formulation comprises of four components. These are (i)
Objective function (ii) Decision variables (iii) Constraints (iv)
Parameters and (v) Non-negativity constraints
(i) Objective function

This simply refers to a mathematical equation that relates the
decision variables in a linear form. After the decision variables have
been identified, the next thing is to identify the objective of the
decision maker and thereafter represent it in a mathematical equation
that relates the decision variables in a linear form. In linear
programming, there are two types of objective function. These are
maximization and minimization. Maximization problem might
involve profits, revenues, efficiency or rate of return. On the other
hand, minimization problem involves cost time, distances travelled
and so on. The profit, cost, etc. per unit of output or input is
summarized by an objective function. For example, objective
function can be Maximize P = 6 x + 9 y , where P is the profit, x is
the quantity of product 1 and y is the quantity of product 2
OR
Minimize C = 12.5x + 7 y , where C is the cost, x is the quantity of

product 1 and y is the quantity of product 2.
(ii) Decision variables

These represent choices available to the decision maker in terms of
amount of either inputs or outputs. For example, some problems
51
involve a combination of inputs that will minimize total costs while
others involve selecting a combination of outputs that will maximize
profits or revenues. In the above example, x and y are the decision
variables.
(iii) The Constraints

The constraints are classified as either structural or technical and
non-negative. A structural constraint relates the amount of a
particular resources used to the amount of resources available. The
structural constraints of LPPs are mathematical statements of the
limitations placed on the decision maker in the problem setting.
There are three types of constraints:
Less or equal to (≤), Greater or equal to ( ≥) and Equal to (=) where,
 Constraint implies an upper limit on the amount of scarce

resources (e.g. machine hours, labour hours, raw materials)
 Constraint specifies a lower bound that must be achieved in the

final solution.
= Constraint specifies exactly what a decision variable should equal.
(iv) Parameters
The coefficients in the objective function or the coefficients in the
functional constraints and the right-hand sides of the functional
constraints are known as the parameters.
Hence, the general linear programming problem is in the form:
Optimize
52
Z = C1 X 1 + C2 X 2 + +C (1)
Subject to:
a11 X 1 + a12 X 2 + + a1n X n  b1

a2i X 1 + a22 X 2 + + a2 n X n  b2 (2)
am1 X 1 + am 2 X 2 + + amn X n  bm
X1 , X 2 , , X n  0 (3)
It should be noted in equation (2) that,  can be ,  and = . Also
mn
In the above expression, equation (1) is the objective function which

could be either maximize or minimize, equation (2) are the
constraints equation while equation (3) is the non-negative
constraints. The non-negativity requirements serve to guarantee
economically meaningful solutions.
Equation (2) and (3) above can be written in matrix form as:
AX  b,
 a11 a12 a1n   X1   b1 

a a22 
a2 n  X  b 
where, A =  21 , X =  2 ,  2
     
     
 am1 am 2 amn  Xn  bm 
aii and bi are unknown coefficients and X’s are unknown decision
variables.
53
Example 3.1 (Maximization Problem)
The NDE Plastics Company has a government contract to produce

three different plastic valves. These valves must be highly heated and
pressure resistant and the company has developed a three-stage
production process that will provide the valves with the necessary
properties involving work in three different chambers. Chamber A
provides the necessary pressure resistance and can process valves for
1200 minutes each week. Chamber B provides heat resistance and
can process valves for 900 minutes a week. Chamber C tests the
valves and can work for 1300 minutes a week. The three valves and
the time in minutes required in each Chamber are tabulated in the
table below:
Types of Chamber A Chamber B Chamber C

Valves
Exhaust 5 7 4
Intake 3 2 10
By-pass 2 4 5
The government will buy all the valves that can be produced and the
company will receive the following profit margin on each valve:
Exhaust N1.50, Intake N1.35 and By-pass N1.00. Formulate a linear
programming model to determine how many valves of each type the
company should produce each week in order to maximize profit.
Solution:
1. The decision variables are: X 1 for the number of exhaust valve
X 2 for the number of intake valve
54
X 3 for the number of by-pass valve.
2. The constraints and parameters are
5 X 1 + 3 X 2 + 2 X 3  1200
7 X 1 + 2 X 2 + 4 X 3  900
4 X 1 + 10 X 2 + 5 X 3  1300
3. The objective function is
Max Z = 1.50 X 1 + 1.35 X 2 + 1.00 X 3
4. Non-negativity constraints are:
X 1  0, X 2  0 and X 3  0
The complete formulation is:
Max Z = 1.50 X 1 + 1.35 X 2 + 1.00 X 3
5 X 1 + 3 X 2 + 2 X 3  1200
Subject to: 7 X 1 + 2 X 2 + 4 X 3  900
4 X 1 + 10 X 2 + 5 X 3  1300
X1 , X 2 X 3  0
₦Example 3.2 (Maximization Problem)
A resourceful home decorator manufactures two types of lamps, say,

A and B. Both lamps go through two techniques, cutter and finisher.
Lamp A requires two hours of cutter’s time and one hour of
55
finisher’s time. Lamp B requires one hour of cutter’s time and two
hours of the finisher’s time. The cutter has 104 hours and finishers
76 hours of available time each month. The profit on one lamp A is
₦6 and the profit on one lamp B is ₦11. Assuming that the
manufacturer sells all the lamps produced and wishes to maximize
his profit, formulate the problem as a linear programming problem.
Solution:
There are two decision variables in the example. These are lamps A
and B. Let X 1 represent the number of lamp A produced and X 2
represent the number of lamp B. Since the profit on lamb A is N6
and the profit on lamp B is ₦11, then the objective function is:
Z = 6 X 1 + 11X 2
The constraints are formulated as follows:
Lamb A requires 2 hours of cutter’s time while lamp B requires 1

hour of cutter’s time of finisher. Thus, the total cutter’s time for lamp
A and B is:
2 X 1 + X 2  104 (Cutter ' time)
Similarly, the total finisher’s time for both lamps is
X 1 + 2 X 2  76 ( Finisher ' s time)
Thus the standard LPP is
56
Max Z = 6 X1 + 11X 2
2 X 1 + X 2  104
Subject to: X 1 + 2 X 2  76
X1 , X 2  0
Example 3.3 (Minimization Problem)

A person requires 10, 12 and 12 units of chemicals A, B and C
respectively for his garden. A liquid product contains 5, 2 and 1 unit
of A, B and C respectively per jar; and a dry product contains 1, 2
and 4 unit of A, B and C respectively, per carton. If the product sells
for ₦300 per jar and the dry products sells for ₦200 per carton.
Formulate the LP model to minimize the cost.
Chemical Unit per jar Unit per Units needed

carton
Chemical A 5 1 10
Chemical B 2 2 12
Chemical C 1 4 12
Cost ₦300 ₦200
Solution:
i. Let X 1 denote the number of jars bought

X 2 the number of cartons
ii. The constraints and the parameters are
57
5 X 1 + X 2  10
2 X 1 + 2 X 2  12
X 1 + 4 X 2  12
non-negativity constraints X 1  0, X 2  0
The complete formulation is:
Min P = 300 X 1 + 200 X 2
Subject to:
5 X 1 + X 2  10
2 X 1 + 2 X 2  12
X 1 + 4 X 2  12
X1 , X 2  0
3.8 Solution of Linear Programming Problem (LPP)

There are various methods that can be used in solving LPP. Some of
which are:
(i) Graphical method
(ii) Simplex method
(iii) Revised Simplex method or Artificial variable technique (Big-M

methods and Two-Phase method).
In this text, we shall discuss and apply the Graphical and Simplex
methods only.
58
3.8.1 Graphical Solution of Linear Programming
In linear programming, the objective is to maximize or minimize
several conditions or constraints. If there are only two decision
variables, we use a graphical method. We start by setting the
inequalities to linear equations. The following are the steps in
solving LPP graphically.
Step 1: Define variables
Step 2: Construct inequalities to represent the constraints
Step 3: Plot the constraints on a graph
Step 4: Identify the feasible region. This is the area that represents
the combinations of X 1 and X 2 that are possible in the light of the
constraints
Step 5: Construct an objective function
Step 6: Identify the values of X 1 and X 2 that lead to the optimum

value of the objective function. This might be a maximization
(highest) value or minimization (minimum) value depending on the
objective.
*Note that in graphical method X 1 is plotted along X- axis while

X 2 is plotted along Y-axis.
Example 3.4
A tailor has the following material available: 16m 2 cotton, 11m2 silk
and 15m2 wool. A suit requires the following: 2m 2 cotton, 1m2 silk
and 1m2 wool. A gown requires the following: 1m2 cotton,
59
2m 2 silk and 3m2 wool. If a suit sells for ₦3000.00 and a gown for
₦5000.00, Formulate LP model for the above problem. How many
of each garment should the tailor make to obtain the maximum
amount of money?
Solution:
Let Suit = X and Y = Gown
Suit ( X ) Gown (Y ) Material

2X Y 16
X 2Y 11
X 3Y 15
Profit Z 3000 5000
LP Model:
Max. Z = 3000 X + 5000 Y

Subject to:
2 X + Y ≤ 16 … (1)
X + 2 Y ≤ 11 … (2)
X + 3 Y ≤ 15 … (3)
X , Y ≥ 0 (non-negativity)
From equation 1, when X = 0, 2(0) + Y = 16
Y =16 (0, 16)
when Y = 0, 2 X + 0 = 16,
X =8 (8, 0)
From equation 2, when, X = 0, 0 +2 Y = 11
60
11
Y = = 5.5 (0, 5.5)
2
when Y = 0, X + 2(0) = 11
X = 11 (11, 0)
From equation 3, when X = 0, 0 + 3 Y = 15
Y =5 (0, 5)
when Y = 0, X + 3(0) = 15
X = 15 (15, 0)
Y LP Graph:
16
15 X Y
10
Eq. (1) 8 16
(11, 5.5) 2x+y<16 Eq. (2) 11 5.5
5.5
5 x+2y<11 Eq. (3) 5 15
FEASIBLE x+3<15
REGION
0
2 4 6 8 10 12 14 16 X
3.8.2 Simplex Method
The simplex method is a more general systematic and efficient

approach that works on all LPP’s regardless of the number of
decision variables. The iterative method can be used where the
graphical approach can no longer produce results or fail or otherwise
61
stated. The simplex method is a procedure for solving a set of such
equations simultaneously. To use this method, the problem has to be
stated in standardized manner. That is, the inequality is converted to
an equation by adding an extra variable called slack variable.
In general, simplex method is a step by step arithmetic method of

solving LP problems whereby one moves progressively from a
position of, say zero production, and therefore zero contribution,
until no further contribution can be made. Each step produces a
feasible solution and each step produces an answer better than the
one before i. e either greater contribution in maximizing problems, or
less cost in minimizing problems.
Definition of basic terms in Simplex Method
(i) Slack Variable: The variable added to the left hand side of the
constraint to make the inequality constraint to be equality. It should
be noted that whenever the constraint has the sign less than or equal
to () , it is mandatory to introduce slack variable to it so as to get
starting solution.
(ii) Surplus Variable: The variable subtracted from the left hand
side of the constraint to make the inequality to become equality. The
surplus variable is introduced whenever the constraint has the sign
greater than or equal to (  ).
3.8.2 Simplex Method Procedure
The steps to follow in this method are as stated below:
62
Step 1: The problem must be expressed in the standard form by
introducing slack variable.
Step 2: Select the original variables to be non-basic variables (equal

to zero) and the slack variables to be the basic variables.
Step 3: To determine the entry basic variable, this is done by

selecting the non-basic variables whose coefficient is largest
negative for maximizing and positive for minimizing on the
objective function.
Step 4: To determine the leaving form variable, it is done by select

the basic variable which have the minimum ratio by dividing the
right hand side by the pivot number.
Step 5: Perform the pivot operation to get a new tableau and the
basic feasible solution.
Step 6: Determine whether the solution is optimal. In a maximize

(optimize) problem, a basic variable is spherical it the co-efficient of
the non-basic variable are all negative or zero (positive or zero for
minimize).
The current basic feasible solution is optimal if and only if every

coefficient in the new objective function is non-negative. If it is then
stop, if otherwise go to step 3.
Example 3.4
Using simplex method, solve the following linear programming
problem,
63
Max C = 5 x + 6 y (1)
s.t : 3x + 2 y  120 (2)
4 x + 6 y  260 (3)
x, y  0
Solution:
Objective function max C = 5 x + 6 y will become
max C − 5 x − 6 y = 0
s.t 3x + 2 y + s1 = 120
4 x + 6 y + s2 = 260
x, y, s1 , s2  0 non − negative
Simplex Table
C x y s1 s2 Solution
 L.H.S
C1 +1 −5 −6 0 0 0 coeff .of eq.1

s1 0 3 2 1 0 120 coeff .of eq.2
s2 0 4 (6) 0 1 260 coeff .of eq.3
To determine on entry basic variable, we shall enter through y with

the largest negative on objective function.
64
We can now determine the leaving variable by considering the least
120 260 260
ratio, i.e. the least out of and which is of course , so 6
2 6 6
will serve as our pivot element for table 1.
Simplex Table 2
C x Y s1 s2 Solution

C2 1 −1 0 0 1 260 6 y + c1
s1 0 5 0 1 −2 100 −2 y + s1
 3  3
1 1
s2
y 0 2 1 0 6 130 6
3 3
Since we are left with only x, we need to look for the minimum
ratio, i.e. the least out of
100 5 130 2 100 5

 and  which of course,  = 20.
3 3 3 3 3 3
5
So, will serve as our pivot element.
3
65
c x y s1 s2 solution
C3 1 0 0 3 1 280 x + c2
−
5 5 3
s1
x 0 1 0 3 6 20 5
−
5 5 2
2 29 − x+ y
y 0 0 1 − − 30 3
5 30
Therefore, for the firm to maximize the contribution, 20 of items x
should be produced and 30 of items y should be produced.
Example 3.6
Max Z = 16x1 + 17x2 + 10x3
Subject to:
x1 + x2 + 4x3 ≤ 2000
2x1 + x2 + x3 ≤ 3600
x1+ 2x2 + 2x3 ≤ 2400
x1 ≤ 30
Solution
Z – 16x1 – 17x2 – 10x3 + 0s1 + 0s2 + 0s3 + 0s4 = 0
Subject to
x1+ x2 + 4x3 + s1 = 2000
2x1 + x2 + x3 +s2 = 3600
66
x1+ 2x2 + 2x3 + s3 = 2400
x1 + s4 = 30
x1, x2, x3, s1, s2, s3, s4 ≥ 0
Step 1
Table 1 ( Non-Basic)
Basic Z x1 x2 x3 s1 s2 s3 s4 Solution
Z 1 -16 -17 -10 0 0 0 0 0
s1 0 1 1 4 1 0 0 0 2000
s2 0 2 1 1 0 1 0 0 3600
s3 0 1 2 [2] 0 0 1 0 2400
s4 0 1 O 0 0 0 0 1 30
To determine an entering basic variable, we shall enter through with

the largest negative objective function. We can determine the leaving
2000 3600
variable by considering the least value out of = 2000,
1 1
2400 30 2400
= 3600, = 1200, and = ∞, which is , so (2) will
2 0 2
serve as pivot element for table 1 and S3 is the pivot row.
Step 2
Reduce the coefficient of [2] to [1] by dividing through by 2,

then eliminate s3 from the equation and then use suitable multiple of
x2 equation to get the new table given below:
67
Table 2 Non-Basic
Algorithm Basic Z x1 x2 x3 s1 s2 s3 s4 Solution

17x2 +Z Z 1 15 0 7 0 0 17 0 0
2 2
s1 s1 0 1 0 3 1 0 1 0 800
2 2
s 1 – x2 s2 0 3 0 0 0 1 −1 0 2400
2 2
s3 x3 0 1 1 1 0 0 1 0 1200
2 2 2
s4 0 1 0 0 0 0 0 1 30
Step 3
x1contain the most negative coefficient so x1 is the entering variable,

the ratio are
800 2400 1200 30

=1600 , =1600 , = 2400 2400 and = 30 .
1 3 1 1
2 2 2
Therefore, s4 is the leaving variable [1] and is the pivot element.
68
(Basic) Z x1 x2 x3 s1 s2 s3 S4 Solution
Z 1 0 0 7 0 0 17 15 20625
2 2
s1 0 0 0 3 1 0 1 1 785
− −
2 2
s2 0 0 0 0 0 1 −1 3 2355
−
2 2
x2 0 0 1 1 0 0 1 −1 1185
2 2
x1 0 1 0 0 0 0 0 1 30
Since all the coefficients of Z equation are positive variables, the
solution is optimal. The optimal solution is x1 = 30, x2 = 1185, x3 =
0, s1 = 785, s2 = 2355, s3 = 0.
Therefore, Z =16(30) + 17(1185) + 10(0) = 20625
3.9 Primal and Duality in Linear Programming

Every linear programming problem is associated with another linear
programming problem called the DUAL of the problem. The original
problem is called the Primal, while the inverse of it is called the
DUAL. The optimal solution of either problem reveals information
concerning the optimal solution of the other. If the optimal solution
of either primal or dual is known, the optimal solution of the other is
also available.
The DUAL problem of the LPP is obtained by:

(i) Changing the variable from say X, to any convenient variable
say W.
69
(ii) Transposing the coefficients matrix.
(iii) Interchanging the role of constant terms and the coefficients of

the objective function.
(iv) Reverting the inequality.
(v) Minimizing the objective function instead of maximizing it or

vice-versa.
Consider a PRIMAL general LPP:
Max Z p = C1 X1 + C2 X 2 + + Cn X n
Subject to:
a11 X 1 + a12 X 2 + + a1n X n  b1

a2i X 1 + a22 X 2 + + a2 n X n  b2
am1 X 1 + am 2 X 2 + + amn X n  bm
X1 , X 2 , , X n  0
70
The DUAL problem of the PRIMAL is:
Min Z p = bW
1 1 + b2W2 + + bnWn
Subject to:
a11W1 + a12W2 + + a1nWn  C1

a2iW1 + a22W2 + + a2 nWn  C2
am1W1 + am 2W2 + + amnWn  Cm

W1 ,W2 , ,Wn  0
The solution of the DUAL can be read from the final simplex tableau
of the PRIMAL and vice-versa using the following rules
(i) The optimal value of the primal objective function is equal to

the optimal value of the dual objective function.
(ii) The value of the objective function row (Z) that corresponds to
the slack variables in the final simplex tableau for the primal are
the values of the corresponding optimal dual variables.
Example 3.7
Write the DUAL of the LPP:
Min Z = 3 X 1 + X 2
2 X1 + 3 X 2  2
subject to : X1 + X 2  1
X1 , X 2  0
71
Solution:
The DUAL to the primal LPP is:
Max Z p = 2W1 + W2
subject to:
2W1 + W2  3
3W1 + W2  1
W1 ,W2  0 ---------- non negativity
It should be noted that,
(i) the optimal value of the PRIMAL objective function is equal to

the optimal value of the DUAL objective function i.e.
Max Z p = Min Z D .
(ii) the value of the objective function row that correspond to the
slack variables in the final simplex tableau for the primal are the
values of the corresponding optimal dual variables in the final
simplex tableau.
It should be noted that in formulating the DUAL from the PRIMAL,

a column is made for each limitation and a constraint row for each
element in the objective function.
Example 3.8
A chemical manufacturer processes two chemicals, NAOH and
H2SO4 in varying proportion to produce three products, A, B and C.
He wishes to produce at least 150 units of product A, 200 units of
product B, and 60 units of product C. Each ton of NAOH yields 3
72
units of A, 5 units of B, and 3 unit of C. Similarly, each ton of H2SO4
yields 5 units of A, 5 units of B, and 1 unit of C. If NAOH cost ₦40
per ton and H2SO4 cost ₦50 per ton, advise the manufacturer how to
minimize his cost.
Solution
Let X 1 represent number of tons of NAOH, and X 2 represent the
number of tons of H2SO4. Since the manufacturer is interested in
minimizing his cost, then the LPP is of minimization. The objective
function is Z = 40 X 1 + 50 X 2 . thus, the LPP is
Min Z = 40 X 1 + 50 X 2 .
Subject to,
3 X 1 + 5 X 2  150 Product A constraint
5 X + 5 X 2  200 Product B constraint
3 X 1 + X 2  60 Product C constraint
X1 , X 2  0
Since the problem is minimization, we can formulate the inverse or

DUAL of the problem. This is:
Max Z p = 150 A + 200 B + 60C
Subject to,
73
3 A + 5B + 3C  40
5 A + 5B + C  50
A, B, C  0
Solve the maximization problem in a standard form as follows.
Initial simplex tableau
Basic variable Main variable Slack variable Current Ratio

A B C S1 S 2 solution
S1 3 5 3 1 0 40 8
S2 5 5 1 0 1 50 10
ZD 150 200 60 0 0 0
Tableau 2
Basic variable Main variable Slack variable Current Ratio

A B C S1 S2 solution
B 3 3 1 40 13.3
5 0 =8
5 5 5 5
S2 2 0 -2 -1 1 50 5
=10
5
ZD 30 0 60 0 0 -1600
74
Tableau 3
Basic variable Main variable Slack variable Current solution

A B C S1 S2
B 6 1 3 5
0 1 −
5 2 10
−1 1
1 0 -1
A 2 2 5
ZD 0 0 30 -25 -15 -1750
Tableau3 is the optimal solution to the LPP. Thus, we have:
*S1 = -25, which implies purchase of 25 tons of NAOH
S2 = -15, implies purchase of 15 tons of H2SO4.
These two variables have a total cost of ₦1750.
Valuation of constraints: Rows B and A indicate the cost of changing

the limitations of 200B and 150A. If either of these limitations are
changed by one unit, then the total cost will change by ₦5. The -30
under column C indicates an over production of 30 units.
3.10 Summary
The chapter has discussed how to measure of objective function and
constraints in linear programming, formulate linear programming
problems, solving linear programming problems using graphical
problem. Furthermore, the chapter discussed the meaning of the dual
price and the slack, the calculations involved and setting up initial
75
tableau for the simplex method. Also discussed are transforming the
tableau to a situation and Interpretation of the final tableau.

1. A firm manufactures two products each of which must be
processed through departments I and II. Department I produces 3 of
the first product and 2 of the second and it can only produce 120 in a
week. Also department II can produce 300 in a week with 4 of the
first product and 8 of the second. I f the first product cost ₦120 per
carton and the second cost ₦N200 per carton. Express the above
statement in linear programming to maximize the contribution.
2. Kajewole Sawmill has been requested to supply the following

minimum units of planks to GAG Construction Company: 20 units
of grade I planks, 7 units of grade II and 10 units of grade III. The
Saw miller’s vehicle operates from two different locations A and B.
Three number of units delivered on each trip from A and B are as
follows:
Grade I Grade II Grade III

From A 4 1 1
From B 2 1 2
If A and B daily trips are made, from A cost ₦300 and each from B
cost ₦400, find the numbers daily trips from A and B which
minimizes total cost and hence the maximum cost of each Sawmiller
using graphical method.
76
Akingbade, Funso (1996). Based Operational Research Techniques,
Panaf Publishing Inc.Bariga, Lagos, Nigeria.

Management.Saban Publishers, Lagos.
Bronson, R. and Naadimuthu, G. (2004).Schaum’s Outline of Theory

and Problems of Operations research, 2nd Edition, Tata McGraw-Hill
Publishing Company Limited, New Delhi
Carter, M.W. and Price, C.C. (2001). Operations Research, A

Practical Introduction.
Curwin Jon & Slater Roger (2001).Quantitative methods for business
decisions.5th ed., Thomson, Gray publishing Singapore.
Divivedi, D.W. (2002). Management economics 6th Ed. Vikis

Publishing House PVT, newDelhi
Kalavathu, S. (2000).Operational research.vikas publishing House.

PVT Ltd, New Delhi, India.
Lucey, T. (2002). Quantitative Techniques, 6th Edition, BookPower,

London
77
CHAPTER FOUR
TRANSPORTATION MODEL

At the end of this chapter, the readers should be able to:
• Describe the nature of a transportation problem
• Know the technique of solving unbalanced transportation
problem
• Understand the concept of degeneracy
• Find the initial feasible solution using the North West Corner
Rule
• Find the initial feasible solution using the Least Cost Method
4.1 Introduction
Transportation model is a special class of Linear Programming
problem in which the objective is to transport a single commodity or
goods from various sources or origin to different destinations at a
minimum total cost.
The objective is to determine the quantity shipped from each source
to each destination that minimize the total shipping cost while
satisfying both the supply units and the demand requirements.
In the statement of transportation problem, the total supply available
at the origin (ai), the total quantity demanded by the destination (bij)
and the cost (Cij) of transporting or shipping a unit of the commodity
from a known origin to a known destination are given.
Table 4.1: General Pattern of a Transportation Problem
78
Destination
1 2 3 … N Supply
Origin 1 C11 C12 . … . a1
2 C21 .. . … . a2
M . . . … Cmn Am
Demand b1 b2 b3 … bn
An example of a transportation problem is given below:
Balanced Transportation Problem

Destination
1 2 3 4 Supply
Origin 1 23 17 26 23 90
2 28 27 23 29 70
3 23 24 37 24 60
Demand 60 80 40 50 210
From above Mathematical model, it could be seen that a

transportation problem is a special class of a linear programming
problem. Again, a transportation problem is said to be balanced if
m n
 a = b
i =1
i
j =1
j ; otherwise
m n
 ai   b j is said to be unbalance
i =1 j =1
It is a necessary condition that a transportation problem must be

balanced before it could be solvable. That is total supply must be
equal to total demand. This condition is also known as the “Rim
Condition”. But when the problem is an unbalanced one, there is the
79
need to create a dummy origin (row) or destination (column) for the
difference between total supply and demand with zero cost in order
to create the balance.
4.2 Methods of Solving Transportation Problem

The solution to transportation problem involves two phases. The
first phase is to obtain the initial basic feasible solution and the
second phase is obtaining the optimal solution.
There are various methods of obtaining the initial basic feasible

solution. However,
we shall look at,
(i) North West Corner Route
(ii) Least Cost Method
Note: that any of the two methods must satisfy the following
conditions in order to obtain the initial solution:
(a) The problem must be balanced

(b) The number of Cell’s allocation must be equal to m + n – 1,
where m and n are numbers of rows and columns respectively. Any
solution not satisfying the two conditions is called “Degenerate
Solution”.
(i) North West Corner Route (NWCR)

The method is the simplest but does not take into account the
cost of transportation for all the possible alternative routes, hence
it is the most inefficient as it has the highest total transportation
cost compared to other methods.
80
The algorithm needed to solve a transportation problem by
NWCR is:
Step 1: Begin by allocating to the North West Cell of
transportation matrix the allowable minimum of the supply and
demand capacities of that cell (min (a1, b1)).
Step 2: Check if allocation made in the first step is equal to the

supply (demand) available at the first row (column), then cross-
out the exhausted row (column) so that no further assignment
can be made to the said row (column). Move horizontally
(vertically) to the next cell and apply step 1.
In case a1 = b1, move to cell (2, 2) and apply step 1
Step 3: step 2 should be continued until exactly one row or

column is left uncrossed in the transportation matrix. Then,
make allowable allocation to that row or column and stop.
Otherwise, return to step 1.
Example 4.1
A multinational company located in Abuja has 3 plants (A, B, C)
where its goods can be produced with production capacity of 70,
60, 50 per month respectively for a particular product. These
units are to be distributed to 4 points (X, Y, W, Z) of
consumption with the demand of 70, 70, 30 and 10 per month
respectively.
The following table gives the transportation cost (in Nigeria)
from various plants to the various points of consumption.
81
DESTINATION
X Y W Z
Plant A 31 28 37 32
B 29 28 34 30
C 34 35 38 35
Obtain the initial basic feasible solution by NWCR
Solution:
The table given below resulted from the NCWR algorithm
applied to this problem.
DESTINATION
Plant X Y W Z Supply
A 31 28 37 32 70 0
70
B 29 28 34 30 60 0
60
C 34 35 38 35 50 40 10 0
10 30 10
Demand 70 70 30 10 180
0 10 0 0
0
Total cost = N{70 (31) + 60 (28) + 10 (35) + 30 (38) + 10 (35)}

= N5,690
82
Explanation to the above allocation beginning from Cell X11
• Allocate 70 to cell X11 in order to satisfy the minimum
of demand and supply capacities, zero balance is left for
both demand and supply.
Hence, row 1 and column 1 are crossed out
• Move to cell X22 and allocate 60. The supply balance is
zero while the demand balance is 10. Hence, row 2 is
crossed out
• Next, move to cell X32 and allocate 10 giving the balance
of zero for demand and 40 for the supply. Column 2 is
therefore crossed out.
• Then move to cell X33 and allocate 30 to exhaust the
demand and having 10 balance for supply. Hence,
column 3 is crossed out.
• Finally, 10 is allocated to cell X34.
(ii) Least Cost Method (LCM)

In this method the least route is always the focus for
allocation. It is a better method to NWCR because costs are
taken into consideration for allocation. The algorithm is
given below:
Step 1: Assign as much as possible to the smallest unit cost

(ties are broken arbitrarily). Also bear in mind the idea of
allowable minimum of supply and demand capacities as
done in NWCR.
Step 2: Cross out the exhausted row or column accordingly.

If both row and column are exhausted simultaneously, only
one is crossed out (in order to avoid degenerated case).
83
Step 3: Check for the smallest cost in the uncrossed row or
column and assign the allowable quantity. Repeat this
process until left with exactly one uncrossed row or column.
Example 4.2
Use the data in example 4.1 to determine the initial basic
feasible solution using the least cost method.
Solution:
Using the above steps gives the following table below
DESTINATION
Plant X Y W Z Supply
A 31 28 37 32
70 0
70
B 29 28 34 30 60 40 0
40 20
C 34 35 38 35 50 40 10 0
10 30 10
Demand 70 70 30 10 180
10 20 0 0
0 0
Total cost = N{70 (28) + 20 (28) + 40 (29) + 10 (34) + 30
(38) + 10 (35)} = N5,510
84
4.3 Optimality Test
The second phase of solving transportation problem is the
optimality test. In this phase it is also required that obtained
initial solution should be balanced and non–degenerated.
There are two popular methods usually used for
optimization. The stepping stone method and the modified
distribution (MOD 11) method. In this study pack, we shall
look at the stepping stone method.
Stepping Stone Method

The principle of simplex method where the given solution
minimizes the objective function only if the relative cost
coefficients of the non–basic variables are greater than or
equal to zero, is applied in carrying out the optimality test.
The method consists of computing relative cost coefficients
for each non–basic variable. The relative cost coefficient is
obtained by increasing a non-basic variable by one unit and
then computes the resulting change in the total transportation
cost. The most negative of the (m – 1) (n – 1) relative cost
coefficients will be taken as new basic variable.
Example 4.3
Given the following transportation problem:
Source Destination
X Y Z Supply
A 4 6 8 40
B 5 8 12 50
Demand 30 25 35 90
(a) Allocate by NWCR
(b) Obtain the optimal solution from the allocation result in
85
(a) by stepping stone method.
Solution:
(a)
Destination
Source X Y Z Supply
A 4 6 8 40 10 0
30 10
B 5 8 12 50 35 0
15 35
Demand 30 0 25 15 0 35 0 90
Total cost = N{ (30 x 4) + (10 x 6) + (15 x 8) + (35 x 12)}
= N720
(b) Let us increase the non–basic variable X21 from 0 to

1. Then we need to adjust some allocations in order to
satisfy the demand and supply constraints as shown in the
following diagram below:
X Y
A –1 +1
B +1 –1
The relative cost coefficient (Cij) is computed as

C21 = 5 (+1) + 4 (–1) + 6 (+1) + 8 (–1)
= 5–4+6–8=–1
Similarly for the non –basic variable X13, we have
C13 = 8 (+1) + 12 (–1) + 8 (+1) + 6 (–1)
= 8 – 12 + 8 – 6 = – 2
Since C13 is more negatives than C21, X13 becomes new basic
variable by adjusting the quantities in cells X13, X23, X22 and
X12 so that one of the old basic variables becomes non –
basic. The adjustment is as follows:
86
6 8
10 –  +
8 12
15 +  35 – 
 = 10 will make X12 non basic, hence X13 = 10, X22 = 25
and X23 = 25, X12 = 0
These new values in the overall table will yield the following
table below:
Source X Y Z Supply
4 6 8 40
A 30 10
5 8 12 50
B 25 25
Demand 30 25 35 90
New total cost = (30 x 4) + (10 x 8) + (25 x 8) + (25 x 12)

= N700
Again, let us increase non –basic variable X21 by 1 in the

new table, we have
X Y Z
A –1 +1
B +1 –1
C21 = 5 (+1) + 4 (–1) + 8 (+1) + 12 (–1)

= 5 – 4 + 8 – 12 = – 3
87
Similarly, C12 = 6 (+1) + 8 (–1) + 12 (+1) + 8 (–1) = 6–
8 + 12 – 8 = 2
hence, it is X21 that can be made basic variable as follows:

4 8
30 –  10 + 
5 12
+ 25 – 
If  = 30, X11 will become a non–basic variable, hence X21 = 30, X13
= 40, X23 = – 5 and X11 = 0
These new values in the overall table will yield the following
Source X Y Z Supply
4 6 8 40
A 40
5 8 12 50
30
B 25 -5
Demand 30 25 35 90
The total cost here is equal to N(40 x 8) + (30 x 5) + (25 x 8)

+ (12 x -5) = N610
Since the non–basic variable X11 and X12 give positive

relative cost coefficients, the optimal level has been reached
and therefore, iteration stops.
Hence, the optimal solution is N610.
88
4.4 Formulation of Assignment Problem
Assignment problem can be formally defined as: Having n jobs, n
facilities and the effectiveness of each facility for each job, the
optimized measure of effectiveness is based on assigning each
facility to one and only one job.
The mathematical expression of an assignment problem is given by
m n
Minimize Z =  C X
i =1 j =1
ij ij
n
Subject to X
j =1
ij =1 (i=1,2,........n)
X
i =1
ij =1 (j=1,2,........n)
The application areas of this problem are in

i. Assigning various jobs to various heads of department in an
organization
ii. Assigning jobs to various machines
iii. Assigning tractors to trailers in order to pick them up to
centralized depot etc.
4.5 Solution to Assignment Model

The Hungarian method or reduced matrix method is the commonly
used technique in solving assignment problem.
The method consists of the following algorithm
Step 1: Develop a cost table from a given balanced problem. If the
problem is unbalanced, a dummy row or column with zero cost is
used to balance up.
Step 2: Determine the opportunity cost table as follows
89
a. Subtract the lowest entry in each column of the cost table from
all entries in that column.
b. Subtract the lowest entry in each row of the table obtained in
2(a) from all the entries in that row.
Step 3: Determine whether an optimal assignment has been made.

The procedure is to draw straight line vertically or horizontally
through the total opportunity cost in each such a manner as to
minimize the number of lines necessary to cover all zero cells.
An optimal assignment is reached when the number of lines is equal
to the number of rows or columns. If an optimal assignment is not
feasible, we move to next step.
Step 4: (a) Select the smallest number in the table that is not covered
by a straight line and subtract this number from all numbers not
covered by a straight line.
(b) Add the same lowest number selected in 4(a) to the number lying
in the intersection of any two lines.
Step 5: Go to step 3
Example 4.4
A multinational company has just opened four new branches located
at four different locations (A, B, C, D) in Nigeria and wants to assign
branch managers (X, Y, W, Z) who will head these branches. Based
on the following table of cost (in thousand Naira) implications on
each manager, determine the optimal assignment.
90
Branch
Manager A B C D
X 51 55 64 44
Y 90 46 115 64
W 56 46 96 72
Z 70 75 86 71
Solution:
Applying step 2(a) to the problem we have
Table 1
A B C D
X 0 9 0 0
Y 39 0 51 20
W 5 0 32 28
Z 19 29 22 27
Applying step 2(a) to table 1, we have
Table 2
A B C D
X 0 9 0 0
Y 39 0 51 20
W 5 0 32 28
Z 0 10 3 8
Also, applying step 3 led to straight lines drawn on zero cells in table
2.
91
Here, the lines in table 2 are not equal to the number of rows or
columns. Hence, we proceed to step 4.
Table 3
A B C D
X 3 12 0 0
Y 39 0 48 17
W 5 0 29 25
Z 0 10 0 5
Application of step 3 to table 3 resulted to the straight lines. Hence,

we move again to step 4.
Table 4
A B C D
X 3 17 0 0
Y 34 0 43 12
W 0 0 24 20
Z 0 15 0 5
Here, since the number of lines is equal to 4, the problem is optimal.

We can then assign:
Manager X to Branch D
Manager Y to Branch B
Manager W to Branch A
Manager Z to Branch C
Therefore,
Total cost = 44 + 46 + 56 + 86=232
In summary, transportation problem is a special class of linear
programming problem whose structure allows the development of an
92
efficient computational technique. The technique is based on duality
theory. The following methods
(i) The North–West Corner Rule (NWCR)
(ii) Least Cost Method (LCM)
(iii) Vogel’s approximation method (VAM): etc. are the
common methods used to obtained the initial basic feasible
solution for any transportation problem.
The stepping stone method is used to obtain the optimal allocation,
while the Hungarian method is used to solve the assignment
problem.
4.6 The Branch and Bound method

The Branch and Bound method of assignment model uses an
iterative approach to find an optimal assignment of demand to
destinations. This method used an approach similar to the decision
tree method. The optimum solution is reached when the objective
function value is a minimum value.
4.7 Summary
• The transportation problem is a special type of linear
programming problem
• Two methods have been used to find the initial feasible
solution
• (i) the North West Corner Rule (ii) the Least Cost Method
• The objective of the transportation problem is to minimise
total transportation cost
• The number of cells having items allocated to them in the
initial feasible solution must be equal to m + n - 1, where m
and n are the number of rows and columns respectively. If
this criterion is not met then degeneracy occurs.
93
1. The table below shows the supply of tones of Groundnut
from Zaria, Kaduna and Kano and the demand for
Groundnut at Ibadan, Osogbo and Lagos. The figures in the
cells are unit cost (₦) of transporting a tone of groundnut
from source to destination.
Destinations
Sources Ibadan Osogbo Lagos Supply
Zaria 90 25 120 1500
Kaduna 80 60 120 2400
Kano 130 110 150 1100
Demand 800 2900 1300
(a) Determine the initial transportation cost using

(i) North west corner rule (ii) Least cost method
(b) Comment on your results in (i) and (ii) above
2. A civil engineering company in Lagos has just secured a contract
from the federal Government of Nigeria to rehabilitate four
major roads in the Federal Capital city Abuja. The company
wants to assign four site engineers who will supervise the jobs.
Based on the following table of cost in millions of Naira,
determine, using the Hungarian method, the optimal assignment.
Road
Site Engineers A B C D
1 51 55 64 44
2 90 46 115 64
3 56 46 96 72
4 70 75 86 71
94
Adedayo, O.O., Ojo, O. &Obamiro, J.K. (2006). Operations
Research in decision analysis and Production Management. Pumark
Nigeria Limited, Lagos

Linear Programming.
Akinbade, F. (1996).Basic Operational Research Techniques.Panaf

Kambo N.S. (1991). Mathematical programming Techniques.

Affiliated East-west press private limited, New Delhi, India.
95
CHAPTER FIVE
PROJECT PLANNING AND SCHEDULING

• define some concepts in a Network Analysis
• highlight rules in drawing a Network graph
• discuss extensively maxima flows in Network Analysis
• explain with illustrative examples, the shortest routes in Network
analysis
5.1 Introduction
A network is a graph which consists of a number of nodes or
junction points each joined to some or all of the others by arcs or
links or lines. A network is a graph such that a flow can take place in
the branches of the graph. A network may or may not be oriented
(orientation information, profit etc.) examples of network include
road networks, liquid networks.
On completion of this chapter, the readers should be able to state,

explain and apply network analysis to business-oriented situations as
a way of mapping out the series of tasks that are necessary to
complete a complex project.
Project planning and scheduling techniques, is a set of operations

research techniques needed and useful for planning, scheduling and
controlling large and complex project. The diagrammatical
representation of these techniques, known as network diagram,
consists of arrows (activities) and nodes (events).
96
Some possible areas of application of network analysis include:
i. Preparation of proposals and bids for large project.
ii. Projects such as moving to new house, office/house
renovation etc.
iii. Construction project such as house, bridge, road, highways
and many others.
5.2 Some Basic Terms in Network

a. Activities: an activity represents an action, project operation
which is a time and resource required effort to complete a
particular path of overall project. It has a starting point and a
point where it ends i.e. ( ).
b. Dummy activity: this is an activity which carried zero

duration because it does not consume either time or resource
i.e. (….. ).
c. Event: an event represents the start or completion of an
activity and as such does not consume time and resource. It
is usually represented by a circle (0) as node in the network
diagram.
5.3 Methods of Project Planning and Scheduling Analysis
i. Critical path method (CPM) analysis

ii. Program evaluation review technique (PERT) analysis
5.3.1 Network Calculations

The objective of network calculations is to determine the overall
duration of the project so that either a delivery date can be given to
the customer or so that we can consider what are the alterations
97
necessary for the project to be completed on or before a date to
which we are already committed.
To perform the network calculations, two things are required:
(a) An activity network representing the project
(b) The durations of all the activities in that network.
(c) Earliest Start Time (EST): The earliest start time for each
activity is calculated from the beginning of the network by
totaling all preceding activity durations (d). Where two or
more activities lead into one event, the following activity
cannot begin until the preceding activities are completed.
Consequently, the last of these activities to finish
determines the start time for the subsequent activity.
Therefore, when calculating earliest start time, work from
the beginning of the network and use the largest numbers at
junctions.
(d) Latest Finish Time (LFT): This is calculated from the end
of the project by successively subtracting activities
durations from the project finish time. Where two or more
activities stem from one event, the earliest of the times will
determine the last finish time for previous activities.
Therefore, when calculating latest finish times, begin from
the end of the network and use the smallest numbers at
junctions.
(e) Earliest Finish Time (EFT): The earliest finish time for any
activity is determined by that activity’s earliest start time
and its duration i.e. for any activity: EFT= EST+d
98
(f) Where d = duration.
(g) Latest Start Time (LST): The latest start time for any
activity is determined by that activity’s latest finish time
and its duration, i.e. for any activity: LST= LFT- d
(h) Total Float: The total float is the difference between the
times available for any activity and the time required.
(i) Note: Time available= LFT- EST
(j) Time required= d
(k) Total float= LFT – EST – d
(l) The Critical Path: The critical path is the largest path
through the network. Any delay in the activities on the
critical path will delay the completion of the project,
whereas delay in activities not on the critical path will
initially use up some of the total float on that path and not
affect the project completion time.
5.3.2 Critical Part Review Method (CPM) Analysis

The analysis of identifying the critical path CPM involves three
phases. These phases are:-
i. Forward pass computations,
ii. Backward pass computations, and
iii. Float (slack) computation
5.3.3 Forward Pass Computation

This is also known as computation of earliest time. The
cumulative durations of jobs from the start and to the end of a
99
project are obtained by this computation. Computation starts at
node 1 and advances recursively to the end of the node.
The following steps are required for forward pass.
Step 1: Set to indicate that the project starts at time 0
Step 2: obtain the next by the general formula:
= Maximum of all for all I, j leading to the events
Is earliest expected time at time zero
is earliest expected time of the successor event j
is the expected time of activity ij (i.e. i )
I = 1, 2, 3,… n-1
J = 2, 3, 4,… n
5.3.4 Background Pass Computation

This is known as latest time computation. The computation starts
from the last event (n) and proceed in descending order of the
node to the initial event (i). The following steps are required:
Steps 1: set
Step 2: obtain the next by the general formula
100
= minimum of all for all I, j coming from i
Where is the latest time for event n
is the latest allowable time for event i
is the latest allowable time for event j, and is the expected

time for activity
5.3.5 Float (Slack) computations

Float or slack refers to the amount of time by which a particular
activity or event can be delayed without the time schedule of the
network being affected. The term ‘float’ is used in CPM when
activities are considered, while slack is used in PERT when
events are involved. For the computation, float or slack can be
obtained by taking away the earliest expected latest allowable
time i.e. float (slack) = . The events (activities) with
zero float (slack) will give the expected critical path.
Example 5.1
A renovation project in Lagos has to pass through six tasks. The

duration and the precedence order of these tasks are given below:
Tasks (activity) Predecessor activity Duration in days

A -- 24
B A 50
C A 78
D B 103
E C 130
F D, E 155
101
ii. Construct the network diagram for the project
iii. Determine: (a) the forward pass (b) the backward pass
(c) the critical path
Solution:
3
C E
A 78 130
1 2 F
24 B D 5 155 6
50 103
4
b. (i) the forward passes, using the formula
102
(ii) The backward passes are also obtained by formula:
(iii) The float=
Event Float(slack)
1 0 0 0
2 24 24 0
3 52 50 2
4 54 52 2
5 79 79 0
6 104 104 0
The critical path is 1-2-3-5-6 with activities A-C-E-F
103
The critical length is 24+28+27+25=104 days.
5.4 Project Evaluation Review Technique (PERT)

The duration of activities in PERT are based on three-time
estimate of performance which is probabilistic in nature. The
three-time estimates are:
i. The most optimistic time

ii. The most pessimistic time
iii. The most likely time
Where, ,
Hence, the expected activity time
The variance of time required to complete an activity is given by
2
1 
2 =
6
( t p − to ) 

Example 5.2
A project consists of seven activities whose three-time estimates
are given below.
104
Activity Activity Name Time estimates (days)
1-2 A 3 3 12
1-3 B 3 6 9
1-4 C 6 6 15
2-5 D 3 3 3
2-5 E 6 15 24
4-6 F 6 15 21
5-6 G 9 15 27
a. Find the expected duration and variance for each
activity.
b. Draw a network diagram.
c. What is the expected project length (duration)?
a. Calculate the variance and standard deviation of the project
length.
Solution:
Activity’s Time 2
1 
estimates  =  ( t p − to ) 
2
= 6 
A 3 12 3 4.5
B 3 9 6 6 1
C 6 15 6 7.5
D 3 3 3 3 0
E 6 24 15 15 9
F 6 21 15 14.5
G 9 27 15 16 9
105
(b) The Network diagram
D=3
2 5
A=4.5 G=16
E=15
B=6 6
1 3
C=7.5
F=14.5
4
(c) The critical path: to find the critical path,
The possible routes are:
1-2-5-6, total duration = 4.5+3+16=23.5 days
1-3-5-6, total duration = 6+15+16 = 37 days
1-4-6, total duration = 7.5+14.5 = 22 days
Hence, 1-3-5-6 is the critical path with 37 days.
Therefore, the expected project length is 37 days.
(d) The variance of the project length is 1+9+9 = 19 days
Hence, standard deviation = = 4.36 days
106
As a result, project planning and scheduling is an important concept
that deals with project management and it helps in having an
efficient way of reducing or having low cost of its completion time.
The two well-known methods of project analysis are CPM and
PERT. These are respectively used for activities, which are
deterministic and probabilistic in nature.
Example 5.3
Draw the network diagram for the following problem

Activity Preceding
Activity
1
-
2,3,4 1
5 2
6 3
7 5
8 6
9 7,8
10 3
11 4
12 9,10,11
107
5
2 7
1 3 6 8
9
10 12
11
Example 5.4: (a) Draw the network diagram for the following
problem:
Activity Immediate Predecessor Activity

Durations (Days)
A - 2
B A 3
C A 4
D A 5
E B 6
F C,D 3
G D 4
H B 7
I E,F,G 2
J G 3
108
(b) identify the available paths and determine the critical path.
Solution:
B 3 E H
3 5 6 7
0
A C F I
1 2 4 8
2 4 4 3 36 2
0 2 7 11 14
0 0 D 0 0 J 0
dummy 0 dummy 0
5 3
5 G 73
7 3 11
0 0
(b) The available paths are:
A B H A,B,H
A C F I OR A,C,F,I
A B E I A,B,E,I
A C F I A,D,G,J
109
Hence, the critical path is A D G J, because it is the
longest path i.e
2 + 5 +9 +3 = 19days.
Now that you have drawn the correct logical structure of the
activities, the minimum completion time for the project and have
identified which activities are on the critical path.
Example 5.5: Calculate the Earliest Event Time (EETs) of

example5.2 network diagram drawn above.
B 3 50 E H
3 6 7
A C F I
1 00 2 2 20 4 44 70 3 36 110 2 8 140
D J
dummy 0 dummy 0
5 3
5 70 G 73 11
3 11
0
Explanations
Take your time to understand the following explanations very well

and understand the logic involved in calculating the EETs.
Event 1: The earliest event time is 0(starting time)

Event 2: The earliest event of Activity A and it is the point at which
Activities B, C and D could start. These Activities must take place
110
after activity A. Activity A take 2 days. The earliest that Activities
B,C and D could start is after 2 days.
Event 3: Activity H cannot start until Activity B has been
completed. Activity B can not start until Activity A has been
completed at event 2. Therefore, the earliest that Activity H could
start is the EET at event 2(2 days) plus the activity duration of B (3
days) which is
2+3 =5 days
Similarly, for event 4, EET is 2+5 = 7days, for Event 5, EET is 2+5
= 7 Days and so on.
Example 5.6
Calculate the latest event time (LET) of example 2 network diagram
drawn above.
The latest event time is enter into the segment at the bottom right
hand side of each event circle. This latest event time as previously
defined as the latest time by which the previous activity (or
activities) must finish if the entire project is to be completed in the
minimum possible time. It should be noted here that, the latest time
is the same as the earliest event time for any event on the critical
path. Therefore, the LETs are then entered into the l-network
diagram given below:
111
Explanations:
Event 8: This is the end of the project. The LET = EET = 14days.
Event 7: LET (11 days) is the LET for event 8(14 days) minus the
duration of Activity J (3 days).
Event 6: LET (12 days) is the LET for event 8(14 adys) minus the
duration od Activity I (2 days).
duration od Activity H (7 days).
duration od Activity F (3 days).
Similarly, LETs for event 3,2,1 follows the same procedures.
5.5 Summary
In this chapter, we have learnt the following:
- Explanation and definition of network terminologies: activity,
event, dummy and float.
- Drawing a Network diagram based on Arrow-on-node diagram.
- State and explain the origin of PERT and CPM techniques as aids
to efficient project management.
- List some application of PERT and CPM in project management.
-Identifying all the paths, critical path and critical activities in a

network diagram and calculation.
112
-Explain and evaluate the earliest and latest event times, float times
and project completion times.
-Estimate optimistic, pessimistic and most likely time.
-Calculation of floats and interpretation of their values

1. A project consists of the following activities and time estimates:
Predecessor Successor Most Most Most

event event optimistic likely pessimistic
time time time
1 2 4 3 12
1 3 8 11 12
1 4 8 14 24
2 5 5 9 10
3 4 2 6 8
3 5 2 4 8
4 5 6 10 14
5 6 1 3 6
You are required to:
i. Construct the operational network.
ii. Determine the critical path.
iii. Calculate the mean time of the critical path and standard
deviation of the critical path
iv. Determine the project duration time.
2. The data given below relates o a project as estimated by the

operational manager of a multinational company based in Lagos,
Nigeria.
113
Activities Preceding activities Duration (months)
A - 10
B - 7
C A 6
D B 8
E A 9
F G,D 12
G E 8
H G,F 9
i. Draw an activity-on-arrow diagram to represent the project.
ii. Identify the non-critical activities in the network.
iii. Identify the critical path.
iv. Calculate the critical path duration.

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in Decision Analysisand Production Management.Pumark Nigeria
Limited, Lagos

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Publishing Inc., Bariga,Lgaos, Nigeria

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Company Ltd., New-Delhi
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Uk
115
CHAPTER SIX
INVENTORY CONTROL AND MANAGEMENT

• Know the concept of inventory control
• Identify different types of inventory
• Understand inventory control terminology
• Understand basic Economic Order Quantity (EOQ) model
and its assumptions
• Describe and solve problems on some other inventory
models.
6.1 Introduction
Inventory is generally described as useable resources that bring in
earnings when it is dynamics. In an organisation various types of
items are usually stored as inventory. Inventories are kept in order to
ensure that shortages of needed goods are averted. It is necessary to
hold adequate stock of materials in a firm or any organization in
order to minimize production hold – ups and win customer
satisfaction. As materials are requested for, there is need for
constant reviews of inventory in order to reduce the capital tied down
without affecting the production and customer goodwill. Hence,
inventory management has received much attention in these modern
days. In short form, the inventory control and management deals
with when and how much to order an inventory item and emphasis is
on the minimization of the total cost associated with inventories.
6.2 Inventory Control Terminology
116
Brief definitions of common inventory control terms are
given below:
i. Lead or procurement time: The period of time,
expressed in days, weeks, months, etc between
ordering and replenishment.
ii. Demand: The amount required by sales, production,
etc. usually expressed as a rate of demand per week,
month, etc.
iii. Economic Ordering Quantity (EOQ): This is a
calculated ordering quantity which minimizes the
balance of costs between inventory holding costs
and re–order costs.
iv. Physical stock: The number of items physically in
stock at a given time.
v. Free stock: Physical stock plus outstanding
replenishment orders minus unfulfilled
requirements.
vi. Buffer stock or Minimum stock or safety stock:
A stock allowance to cover errors in forecasting the
lead time or the demand during the lead time.
vii. Maximum stock: A stock level selected as the
maximum desirable which is used as an indicators to
show when stocks have risen too high.
viii. Re-order level: The level of stock at which a
further replenishment order should be placed.
ix. Re-order quantity: The quantity of the
replenishment order.
6.3 Economic Order Quantity (E.O.Q) Analysis
117
The EOQ has been previously defined as the ordering
quantity minimizes the balance of cost between inventory
holding costs and re–order costs.
To calculate a basic EOQ certain assumptions are necessary

i. That there is a known, constant stock holding cost
ii. That there is a known, constant ordering cost
iii. That rates of demand are known
iv. That there is a known, constant price per unit;
v. That replenishment is made instantaneously
vi. No stockouts allowed
The EOQ formula is given below,
Where Co = ordering cost per order

D = Demand per annum
Cc = Carrying cost per item per annum
The method gives an exact answer and the calculation is
based on estimates of costs, demands etc which are of
course, subject to error.
Example 6.1
A company uses 50,000 certain material per annum which
areN10 each to purchase. The ordering and handling costs
are N150 per order and carrying costs are 15% per annum,
calculate the EOQ.
Solution:
118
here, CO = N150
D = 50,000 materials
Cc =N10 X 15% = N1.5 per material
= 3,162 materials
6.4 EOQ Where Stockouts Are Permitted

The overall objective of stock control is to minimize the
balance of the three main areas of cost i.e. holding costs,
ordering costs and stockout costs.
Stockout costs are difficult to quantify but may be significant
where stockout costs are known than they can be
incorporated into the EOQ formula which thus becomes
Where Cs = stockout costs per item per annum
Example 6.2
Assume the same data as in example 6.1 above except that
stockouts are now permitted. When a stockout occurs and an
order is received for materials the firm has agreed to retain
the order and when replenishment is received, with delivery
cost of N0.75 per material. Other costs associated with
stockouts are estimated as N0.25 per unit. Find the EOQ.
119
Solution:
Co = N150
D = 50,000
Cc = N1.5
Cs = N0.75 + N0.25 = N1
Hence,
= 3162 x 1.58
= 4,996
6.4.1 EOQ with Shortage

Al the assumptions made in section 6.3are upheld. It is also
assumed that shortages are allowed in addition to other
conditions as earlier stated. It is for this reason that more
notations are added to the ones previously used. Therefore,
let t = the total cycle which is equal to t1 +t2
t1 = the time when no shortage exists
t2 = the time when shortage exists
S = the maximum shortage
Sc = shortage cost / penalty cost
Q = the order quantity
M = the remaining quantity when shortage is taken from
order quantity i.e. M = Q – S
Inventory level
120
O
t1 to
O
Time
Maximum
Figure 5.1: The pattern of inventory with shortages
In the figure above, the changes in the inventory level with time can
be seen. However, it should be mentioned that in this inventory,
except from the purchase cost C, which will be fixed, all other types
of costs will be affected by the decision concerning Q and M.
Therefore, to obtain the optimal value of order quantity (Q*) and
optimal stock level (M) along with optimal shortage level S; the
following formulae are given below:
S* = Q* = M*
Other results include:
Example 6.3
A ford and beverage company based in Lagos usually supplies its
product at a constant rate of 2000 units per month. If the company
can supply any amount of its product at any required time with each
121
ordering cost of N500, holding cost of N20 per unit per month and
the penalty cost of delaying supply of N100 per unit per month, find:
i. The EOQ
ii. Optimal stock level
iii. Optimal shortage level
iv. Total cycle time
Solution:
D = 2000 cost per month
K = N500 per order
h = N20 per unit per month
Sc = N100 per unit per month
(i)
(ii)
= 288.7 units
(iii) S* = Q* - M*
= 346.4 – 288.7
= 57.7 units
122
= 0.17 of month
6.5 Summary
The chapter discussed extensively inventory as stock stored for
future use. Also, discussed in the chapter are methods for minimizing
cost of keeping inventory and maintaining prompt supply of goods
are key. Economic Order Quantity (EOQ) which minimizes the cost
of managing the inventory system to determine the optimal order
quantity is equally discussed in the chapter.

1. A particular item has a demand of 9000 units per year. The
cost of one procurement is N100 and the holding cost per
unit is ₦2.40 per year. The replacement is instantaneous and
no shortages are allowed.
Determine:
(i) The number of orders per year
(ii) The time between orders
(iii) The total cost per year if the cost of one unit is ₦10
2. Given the following data for an item of uniform demand,
instantaneous delivery time and back order facility:
Annual demand : 800 units
Cost of an item : ₦40
Ordering cost : ₦800
Inventory carrying cost : 40%
Back order cost : ₦10
Calculate
123
(iii) Minimum cost order quantity
(iv) Maximum inventory level
(v) Maximum number of back orders
(vi) Time between orders
(vii) Total annual cost

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126

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1.0 Learning Objectives

1.2 Origin and Development of Operation Research

The encouraging result achieved by the British operations research

The development of operations research started at the pre-World War

A Danish mathematician Erlang (1917), published his work on the

The progress of industrial operations research in USA was due to the

1.3 Definition (Operations Research)

Operation Research is the application of scientific methods to

i. Application of a model based scientific approach: The basis of

ii. System approach to organizations: An activity by any part of an

iii. The recognition of risk and uncertainty: Operation Research

iv. Assistance to management decision making and control. The

1.4 Procedure for model building in Operations Research

i. Recognize that a problem exists and defining the problem.

ii. Identification of parameter, such as the variables that are under

iii. Examinations of all alternative solutions to the problems, there

1.5 Types of Model Formulation

(ii) Descriptive models: The model explains the various operations

(iii) Predictive models: The model explains or predicts the

(iv) Prescriptive models: The model develops decision rules or

(v) Physical models: The physical models have properties that

(vi) Deterministic models: This is a model where all the variables in

(viii) Static models: They are one-time decision models. In these

1.6 Principle and Steps involved in Modelling

1. Definition of the problem

2. Construction of the model

a. Decision variables and parameter.

c. Objective function: This acts as an indicator for the achievement

3.Solution of the problem

4.Validation of the problem

1.7 Advantages of Model in Operations Research

ii. It is easy to construct the model.

iii. It is easy to study model than the system itself.

iv. Better control.

vi. Better system

1.8 Disadvantages of Model in Operations Research

ii. It cannot be use to study the changes in operation of the system.

iii. It is not possible to make any modification in the model.

iv. Adjustment with changing situation cannot be done in the model.

1.9 Limitations of Operations Research

i. Model is only idealized representation of reality and should not be

ii. The validity of a model for a particular situation can be

1.11 Review Questions

2. Explain different types of model formulation in Operation

3. List and explain principles and steps involved in modelling.

References and Further Readings

Akinbade, F. (1996).Basic Operational research techniques.Panaf

Banjoko, S.A. (2000). Production and operations management.Saban

2.0 Learning Objectives

2.2 Concept of Decision Process and Decision Analysis,

In business, various decisions have to be made. Management

Decision analysis has been described as a scientific technique that

Decision analysis is useful for finding optimal course of actions and

2.2.2 Problems of Decision Analysis

The expected monetary value for (d1) = (2000.25) + (1000.3) +