Introduction to Management Science Part 1

Management Science is a tool used by managers and administrators in the performance of their most
vital task: making crucial decisions. Common management decisions, such as inventory management,
forecasting, project management and operational efficiency require an objective basis when choosing
best solution. Management science which is another term for Operation Research or decision science,
carries an immense option of tools to aid managers when faced with decisions.

-refers to the process of administering and controlling the affairs of the organization by creating an
environment that will contribute to achieving the business goals effectively and efficiently. Managers
should successfully execute the 5 functions of management to attain the level of productivity but it
should be engaged in a multiple decision making.

Definition of Management Science

1. Operation Research is defined as the scientific process of transforming data into insights to make
better decisions.
2. Quantitative analysis is the process of collecting and evaluating measurable and verifiable data,
such as revenues, market shares, and wages to understand the behavior and performance of a
business.
3. According to Lancaster University, management science can be defined as a concept that is
“concerned with developing and applying models and concepts that help to illuminate issues
and solve managerial problems”. The approach is essentially interested in looking at an
organization and finding ways it can manage itself better and improve its productivity.
4. Management science, an approach to decision-making based on the scientific method, makes
extensive use of quantitative analysis.

Special Characteristics of Management Science

 A primary focus on management decision making

 The application of the scientific approach to decision making
 The examination of the decision situation from a broad perspective
 The use of methods and knowledge fromseveral disciplines
 A reliance on formal mathematical models
 The use of technology such as computers, software or applications

The Symbolic relationship between quantitative and qualitative models

Guess, Intuition, Judgement Data, Information, Hypothesis

Q Stable Conditions and well defined simple Probem

Decision Process Decision Process

Unstable Conditions and Unclear Complex Probem

QUALITATIVE APPROACH QUANTITATIVE APPROACH

Development of Management Science

As early as the industrial revolution or even at earlier periods, traces of scientific approach to
management were evident. It was during the 1900s when Frederick W. Taylor initiated the scientific
management revolution that marked the beginning of Industrial engineering. At that time, some
mathematical models were being used, such as Erlang’s work on waiting to line problems, Edison’s work
on war games, and the notable inventory management formula by harris, the Economic Order Quantity
(EOQ).

Modern management science was established during World War II when teams composed of different
disciplines were formed to aid the military with the strategic and tactical problems. Mathematicians,
scientists, and engineers joined together to solve problems using scientific method. After the war, these
teams continued their practice and joined industries, such as oil refineries, steel, and paper mills. These
industries operate on large volumes, resulting in high savings on production expense. The most
significant development post-World War was the discovery of simplex method for solving linear
problems by George Dantzig in 1947.

Areas of Application

 Inventory Control
 Facility Design
 Product-mix determination
 Portfolio analysis for securities
 Scheduling and sequencing
 Transportation planning
 Design of management information systems
 Allocation of scarce resources
 Investment decisions or capital budgeting
 Project management
 New product decisions
 Manpower or sales force decisions
 Market research decisions
 Research and development decisions
 Pricing decisions
 Distribution decisions
 Credit policy analysis
 Machine setup problems in productions
 Research and development effectiveness

Conclusion

With the ever-changing global business environment increasing, and as more traditional businesses are
being disrupted, companies must find ways to increase their operational efficiencies without comprising
the quality of their products/services. Based on research, the main reason for most companies
experiencing unfavorable sales performances or even bankruptcy can be traced to a single faulty
decision. Thus, managers must be knowledgeable of modern techniques, tools and technologies to
ensure the continued success of the organization.
Case Analysis

In 1966, the chairman of a shopping mall company with four branches in Metro Manila was
confronted with a crucial decision regarding the expansion of one of its branches as part of its
competitive strategy. A vacant property located beside the branch along España, Manila was being
offered for sale to all the mall operators.

This shopping mall company started the operations of its fourth branch in December 1997, and
that time, the company had just begun payment for the loans used for its construction. In order to push
through with the expansion in the España branch, the company needs to borrow additional syndicated
loans from the biggest banks in the country.

“If we will not expand, then another mall will buy the property beside the España branch and
would definitely further lower our market share since we are already facing so many big competitors in
the area” was the chairman main concern. However, the majority of the shareholders, fearing that the
company is already overleveraged, did not agree to the expansion plan. After a series of meetings with
the bank officials, who promised to give full financial support, the chairman decided to push through
with the expansion plan. This decision was not fully approved by other stockholders.

Then, during the last quarter of 1997, as the construction of España extension was almost 80%
complete, the Asian Financial Crisis hit the Philippines which resulted in a sharp devaluation of the peso.
The crisis had a severe impact on the company’s cash flow because the company’s monthly amortization
on dollar loans had almost tripled. The banks, foresaw the forthcoming gloomy financial situation of the
company, refused to provide the rest of the loan proceeds. Without the additional funding, the
construction of the expansion area was never completed. The lack of cash flow led the company to file
for bankruptcy.

Questions:

1. Do you think the chairman made a very drastic decision without the proper evaluation of the entire
scenario and the full support of the stockholders? Explain your answer

2. If you were the Chairman, what information or data should you gather prior to the decision for
expansion?