OPERATIONS RESEARCH

Nature, Definition &

characteristics
• Operational Research can be simply formulated as the science
of rational decision-making along with the study of the
synthesis of intricate problematic situations. Thus, the nature
of operations research is purely scientific as it aims at
determining the systematic behavior and hence optimizing the
results.
• “Operations Research is the systematic, method oriented study of the basic
structure, characteristics, functions and relationships of an organization to
provide the executive with a sound, scientific and quantitative basis for
decision making.” – E.L. Arnoff and M.J. Netzorg
• “Operations Research is a scientific approach to problem-solving for
executive management.” – H.M Wagner
Characteristics of
operations research
Methodology in OR
MODELS IN OR
OR & managerial Decision
making
OR techniques
Linear programming
• Linear Programming is widely used in Mathematics and some
other fields such as economics, business, telecommunication,
and manufacturing fields. In this article, let us discuss the
definition of linear programming, its components, and different
methods to solve linear programming problems.
• The main objective of linear programming is to maximize or
minimize the numerical value. It consists of linear
functions which are subjected to the constraints in the form of
linear equations or in the form of inequalities.
• The word “linear” defines the relationship between multiple
variables with degree one. The word “programming” defines the
process of selecting the best solution from various alternatives.
Components of Linear
Programming
• The basic components of the LP are as
follows:
• Decision Variables
• Constraints
• Data
• Objective Functions
Advantages of Linear
Programming
LPP-problem formulation
GRAPHICAL METHOD
CORNER POINT METHOD
 ISO-COST METHOD
Formulate the problem of deciding how much of each product to make in the
current week as a linear program.
Solve this linear program graphically.

Solution
Let
• x be the number of units of X produced in the current week
• y be the number of units of Y produced in the current week
then the constraints are:
• 50x + 24y <= 40(60) machine A time
• 30x + 33y <= 35(60) machine B time
• x >= 75 - 30
• i.e. x >= 45 so production of X >= demand (75) - initial stock (30), which
ensures we meet demand
• y >= 95 - 90
• i.e. y >= 5 so production of Y >= demand (95) - initial stock (90), which
ensures we meet demand
The objective is: maximize (x+30-75) + (y+90-95) = (x+y-50)
i.e. to maximize the number of units left in stock at the end of the week
It is plain from the diagram below that the maximum occurs at the intersection of
x=45 and 50x + 24y = 2400
Solving simultaneously, rather than by reading values off the graph, we have that x=45
and y=6.25 with the value of the objective function being 1.25
 Linear Programming
Simplex Method
• Step 1: Establish a given problem. (i.e.,) write the inequality constraints and objective function.
• Step 2: Convert the given inequalities to equations by adding the slack variable to each inequality
expression.
• Step 3: Create the initial simplex tableau. Write the objective function at the bottom row. Here, each
inequality constraint appears in its own row. Now, we can represent the problem in the form of an
augmented matrix, which is called the initial simplex tableau.
• Step 4: Identify the greatest negative entry in the bottom row, which helps to identify the pivot
column. The greatest negative entry in the bottom row defines the largest coefficient in the
objective function, which will help us to increase the value of the objective function as fastest as
possible.
• Step 5: Compute the quotients. To calculate the quotient, we need to divide the entries in the far
right column by the entries in the first column, excluding the bottom row. The smallest quotient
identifies the row. The row identified in this step and the element identified in the step will be taken
as the pivot element.
• Step 6: Carry out pivoting to make all other entries in column is zero.
• Step 7: If there are no negative entries in the bottom row, end the process. Otherwise, start from
step 4.
• Step 8: Finally, determine the solution associated with the final simplex tableau.
Calculate the maximal and minimal value of z = 5x + 3y for the following constraints.
x + 2y ≤ 14
3x – y ≥ 0
x–y≤2
Solution:
The three inequalities indicate the constraints. The area of the plane that will be marked is
the feasible region.
The optimization equation (z) = 5x + 3y. You have to find the (x,y) corner points that give the
largest and smallest values of z.
To begin with, first solve each inequality.
x + 2y ≤ 14 ⇒ y ≤ -(1/2)x + 7
3x – y ≥ 0 ⇒ y ≤ 3x
x–y≤2⇒y≥x–2
Here is the graph for the above equations.
Now pair the lines to form a system of
linear equations to find the corner points.
y = -(½) x + 7
y = 3x
Solving the above equations, we get the corner points as (2, 6)

y = -1/2 x + 7
y=x–2
Solving the above equations, we get the corner points as (6, 4)

y = 3x
y=x–2

Solving the above equations, we get the corner points as (-1, -3)
For linear systems, the maximum and minimum values of the optimization equation lie on
the corners of the feasibility region. Therefore, to find the optimum solution, you only need
to plug these three points in z = 3x + 4y
z = 5(2) + 3(6) = 10 + 18 = 28
z = 5(6) + 3(4) = 30 + 12 = 42
z = 5(-1) + 3(-3) = -5 -9 = -14

Hence, the maximum of z = 42 lies at (6, 4) and the minimum of z = -14 lies at (-1, -3)
 THE BIG M METHOD
The starting point of the big-M method is a basic solution that is feasible to the
artificial problem. This solution allows us to start the Simplex algorithm
expeditiously, but it is not a feasible solution to the original problem. Our goal is to
iterate toward solutions that are inside the original feasible set, assuming that it is
not empty.

If an LP has any > or = constraints, the Big M method or the two-phase simplex method may
be used to solve the problem.
If an LP has only < or = constraints, Simplex method is only used.

The Big - M method is another method of removing artificial variables from the
basis. In this method we assign coefficients to artificial variables, undesirable from
the objective function. If objective function Z is to be minimized, then a very large
positive price (called penalty) is assigned to each artificial variable. Similarly, if Z is
to be maximized, then a very large negative price (also called penalty) is assigned
to each of these variables. The penalty will designated by −M for a maximization
problem and +M for a minimization problem, where M > 0.
Steps of Big-M method of LPP
Step-1: At first we have to express the a Linear
Programming Problem (LPP) to its standard form.
Step-2: Add artificial variable Ri to the left hand side
of all constraints of the form = or ≥ types of original
LP.
Step-3: We continue with the regular steps of
simplex method.
Step-4: While making iterations using simplex
method, one of the following cases may arise-
Case-i: If no artificial variable remains in the positive
levels and the optimality condition is satisfied, then
the solution is optimal.
Case-ii: When big M simplex method terminates with
an optimum table, it is sometimes possible for one
or more artificial variables to remain in the basis as
basic variables. It implies that the original problem is
infeasible.
 Transportation problem
The transportation problem is a special type of linear programming problem where the
objective consists in minimizing transportation cost of a given commodity from a number
of sources or origins (e.g. factory, manufacturing facility) to a number of destinations (e.g.
warehouse, store). Each source has a limited supply (i.e. maximum number of products
that can be sent from it) while each destination has a demand to be satisfied (i.e.
minimum number of products that need to be shipped to it).
 North West Corner Rule
Step 1: Select the upper-left cell, i.e., the north-west corner cell of the
transportation matrix and assign the minimum value of supply or demand, i.e.,
min(supply, demand).

Step 2: Subtract the above minimum value from Oi and Di of the corresponding
row and column. Here, we may get three possibilities, as given below.
If the supply is equal to 0, strike that row and move down to the next cell.
If the demand equals 0, strike that column and move right to the next cell.
If supply and demand are 0, then strike both row and column and move
diagonally to the next cell.

Step 3: Repeat these steps until all the supply and demand values are 0.
Question:

Get an initial basic feasible solution to the given transportation problem using the North-west
corner rule.

Solution:
For the given transportation problem, total supply = 950 and total demand = 950.
Thus, the given problem is the balanced transportation problem.
Now, we can proceed with the North-west corner rule to find the initial feasible solution.
Step 1: Consider the upper-left corner cell, which has the value 11. The minimum value of the
corresponding cell’s supply and demand is 200.
Step 2: The difference between the corresponding cell’s supply and demand from the
minimum value obtained in the previous step is:
Supply = 250 – 200 = 50
Demand = 200 – 200 = 0
As demand is 0, we need to allocate 200 to that cell and strike the corresponding column and
then move right to the next cell, i.e., the cell with the value 13.
Step 3: For the cell with value 13, the minimum of supply and demand is min(50, 225) = 50.
Step 4: The difference between the corresponding cell’s supply and demand from the minimum
value obtained in the previous step is:
Supply = 50 – 50 = 0
Demand = 225 – 50 = 175
As the supply is 0, we need to allocate 50 to that cell and strike the corresponding column and
then move down to the next cell, i.e., the cell with the value 18.
 Step 5: For the cell with value 18, the minimum of supply and demand is min(300, 175) = 175.
Step 6: The difference between the corresponding cell’s supply and demand from the
minimum value obtained in the previous step is:
Supply = 300 – 175 = 125
Demand = 175 – 175 = 0
As demand is 0, we need to allocate 175 to that cell and strike the corresponding column and
then move right to the next cell, i.e., the cell with the value 14.

Step 7: For the cell with value 14, the minimum of supply and demand is min(125, 275) = 125.
Step 8: The difference between the corresponding cell’s supply and demand from the
minimum value obtained in the previous step is:
Supply = 125 – 125 = 0
Demand = 275 – 125 = 150
As the supply is 0, we need to allocate 125 to that cell and strike the corresponding column
and then move down to the next cell, i.e., the cell with the value 13.
Step 9: For the cell with value 13, the minimum of supply and demand is min(400, 150) =
150.
Step 10: The difference between the corresponding cell’s supply and demand from the
minimum value obtained in the previous step is:
Supply = 400 – 150 = 250
Demand = 150 – 150 = 0
As demand is 0, we need to allocate 125 to that cell and then move right to the next cell,
i.e., the cell with the value 10. Here, we don’t get any further cells to strike off.
Also, we can see that the corresponding supply and demand for the left-out cell with the
value 10 are equal. Now allocate the supply or demand value to that cell. Therefore, we
can get 0’s for all supplies and demands.

FINAL TABLE

Now, we should calculate the total minimum cost using the allocated values and the
corresponding cell values.

Here, the transportation path is:

O1 → D1, O1 ​→ D2, O2 → D2, O2 → D3, O3 → D3, O3 → D4

Therefore, the total cost = (200 × 11) + (50 × 13) + (175 × 18) + (125 × 14) + (150 × 13) + (250
× 10)

= 2200 + 650 + 3150 + 1750 + 1950 + 2500 = Rs. 12,200

 LEAST COST METHOD
The Least Cost Method is another method used to obtain the
initial feasible solution for the transportation problem. Here, the
allocation begins with the cell which has the minimum cost. The
lower cost cells are chosen over the higher-cost cell with the
objective to have the least cost of transportation.

QUESTION

A mobile phone manufacturing company has three branches located in three

different regions, say Jaipur, Udaipur and Mumbai. The company has to
transport mobile phones to three destinations, say Kanpur, Pune and Delhi.
The availability from Jaipur, Udaipur and Mumbai is 40, 60 and 70 units
respectively. The demand at Kanpur, Pune and Delhi are 70, 40 and 60
respectively. The transportation cost is shown in the matrix below (in Rs). Use
the Least Cost method to find a basic feasible solution (BFS).
STEP 1: Balance the problem meaning we need to check that if; Σ Supply=Σ Demand.
STEP 2: Select the lowest cost from the entire matrix and allocate the minimum of
supply or demand.

STEP 3: Remove the

row or column
whose supply or
demand is fulfilled
and prepare a new
matrix
Tie in the following step!

→ Transportation cost
​

=(1×40)+(3×40)+(3×20)+(6×30)+(2×
40)
=Rs 480
​

FINAL TABLE
 VOGGAL’S APPROXIMATION METHOD
Below are the steps involved in Vogel’s approximation method of finding the feasible
solution to a transportation problem.

Step 1: Identify the two lowest costs in each row and column of the given cost matrix
and then write the absolute row and column difference. These differences are called
penalties.

Step 2: Identify the row or column with the maximum penalty and assign the
corresponding cell’s min(supply, demand). If two or more columns or rows have the
same maximum penalty, then we can choose one among them as per our
convenience.

Step 3: If the assignment in the previous satisfies the supply at the origin, delete the
corresponding row. If it satisfies the demand at that destination, delete the
corresponding column.

Step 4: Stop the procedure if supply at each origin is 0, i.e., every supply is exhausted,
and demand at each destination is 0, i.e., every demand is satisfying. If not, repeat the
above steps, i.e., from step 1.
What is Modi method introduction?

Modified distribution method reduces the number of steps involved in the

evaluation of empty cells, thereby minimizes the complexity and gives a
straightforward computational scheme through which the opportunity cost of
each empty cell can be determined.

→ In Stepping stone method there are 'm' rows and 'n' columns, so the total number
of unoccupied cell will be equal to m⋅n−(m+n−1).
→ Thus, total number of loops increases, which increases calculation and it will be
more time consuming.
→ Moreover in MODI method, cell evaluations of all the unoccupied cells are
calculated simultaneously and only one closed path for the most negative cell is
traced.
→ Thus, it saves time over Stepping stone method.
Question : Check optimality of the basic feasible solution given below by using MODI
method.

→ Prepare a cost matrix by writing cost in allocated cells.

→ Now, introduce dual variables (u & v) corresponding to supply and demand
constraints.

Note that, here dual variables ui and vj are

such that, ui + vj = cij (where i=1,2,3,…m
& j=1,2,3,…n).
→ As per the note above, we can derive equation as follows:
u1​+v3=1
​u2​+v1=3
​u2​+v3​=3
u3​+v1​=6
u3​+v2​​=2
→ Let, u3 = 0, and then calculating the value of other dual variable, we get;​
v2​= 2
v1​=6
u2​=-3
v3​=6
u1​=​-5​
→ Replacing the values of dual variables in the matrix, we get;

→ Now, let us carry out Vacant Cell Evaluation.

→ Vacant cell evaluation is carried out by taking difference for each unoccupied call.
∴Evaluation of cell=Cij​−(ui​+vj​)
where,Cij​=Value of unoccupied cell.

Remember that (ui​+vj​) is known as Implicit cost.

Implicit cost: It is the summation of dual variables of row and columns for
each unoccupied cell.

→ Vacant cells are to be filled using above formula as follows:

Notes :

In this method after performing vacant cell evaluation, if the values

of the cells are/is :

(i) Positive (+) → then the current basic feasible solution (BFS) is
optimal and stop the procedure. If we alter the present solution, the
solution will become poorer.

(ii) Zero (0) → then also the current basic feasible solution (BFS) is
optimal, but alternate allocation are possible with same
transportation cost.

(iii) Negative (-) → then the obtained solution is not optimal and
further improvement is possible.

→ As all the values in the non-allocated cells are now obtained

positive (+) by using vacant cell evaluation, the present solution is
optimal.
Degenerating
Degeneracy in a linear programming problem is said to occur when a basic feasible
solution contains a smaller number of non-zero variables than the number of
independent constraints when values of some basic variables are zero and the
Replacement ratio is same. In other words, under Simplex Method, degeneracy
occurs, where there is a tie for the minimum positive replacement ratio for
selecting outgoing variable. In this case, the choice for selecting outgoing variable
may be made arbitrarily.
Assignment Problems

Solution of assignment problems (Hungarian Method)

First check whether the number of rows is equal to the

numbers of columns, if it is so, the assignment problem
is said to be balanced.

Step :1 Choose the least element in each row and

subtract it from all the elements of that row.

Step :2 Choose the least element in each column and

subtract it from all the elements of that column. Step 2
has to be performed from the table obtained in step 1.

Step:3 Check whether there is atleast one zero in each

row and each column and make an assignment as
follows.

(i) Examine the rows successively until a row with

exactly one zero is found. Mark that zero by , that
means an assignment is made there . Cross ( ×) all
other zeros in its column. Continue this until all the
rows have been examined.
Alternative Criteria for Decision-Making Under Uncertainty

1. Maximax
This is for optimists. Examine only the best possible outcome for each
alternative . Choose that alternative with the best possible outcome .
2. Maximin (or Minimax)
This is for pessimists . Examine only the worst possible outcome for each
alternative . Choose that alternative having the best of the worst possible
outcomes.
3. Minimax Regret
This is also for pessimists . Figure out what your maximum "regret"
could be for each alternative . That is, for each alternative, figure out
how much worse, at most, the outcome can be for that alternative
compared to the other alternatives . Choose that alternative with the
minimum regret.
4. Coefficient of Optimism Criterion (Hurwicz Rule)
This allows you to choose how much of an optimist or pessimist you want
to be . Choose a number (r) between 0 (pure pessimist) and 1 (pure
optimist). For each alternative compute a weighted average of the best
and worst outcomes for that alternative :
weighted average = r(best outcome) + (1-r)(worst outcome)
Choose the alternative that has the highest weighted average.
5 . Maximize Average Payoff (Likelihood Criterion)
Average all the possible outcomes for each alternative .
6. Maximize Expected Value
This requires knowing the probability of each chance outcome (state of nature).
Some people refer to this situation as decision-making under risk. This is the criterion
used in analyzing decision trees. Compute the expected value of each alternative by
multiplying, for each outcome, the probability times the payoff, and summing them
all . Choose the alternative with the highest expected value
Decision Tree approach & its
applications
Applications of Decision Trees
1. Assessing prospective growth opportunities
One of the applications of decision trees involves evaluating prospective growth
opportunities for businesses based on historical data. Historical data on sales can be
used in decision trees that may lead to making radical changes in the strategy of a
business to help aid expansion and growth.

2. Using demographic data to find prospective clients

Another application of decision trees is in the use of demographic data to find
prospective clients. They can help streamline a marketing budget and make informed
decisions on the target market that the business is focused on. In the absence of
decision trees, the business may spend its marketing market without a specific
demographic in mind, which will affect its overall revenues.

3. Serving as a support tool in several fields

Lenders also use decision trees to predict the probability of a customer defaulting on a
loan by applying predictive model generation using the client’s past data. The use of a
decision tree support tool can help lenders evaluate a customer’s creditworthiness to
prevent losses.

Decision trees can also be used in operations research in planning logistics and
strategic management.
Advantages of Decision Trees
1. Easy to read and interpret
One of the advantages of decision trees is that their outputs are easy to read and
interpret without requiring statistical knowledge. For example, when using decision
trees to present demographic information on customers, the marketing department
staff can read and interpret the graphical representation of the data without requiring
statistical knowledge.

2.Easy to prepare
Compared to other decision techniques, decision trees take less effort for data
preparation. However, users need to have ready information to create new variables
with the power to predict the target variable. They can also create classifications of
data without having to compute complex calculations. For complex situations, users
can combine decision trees with other methods.

3. Less data cleaning required

Another advantage of decision trees is that there is less data cleaning required once
the variables have been created. Cases of missing values and outliers have less
significance on the decision tree’s data.
PERT & CPM-Introduction
 NETWORK ANALYSIS

CPM/PERT or Network Analysis as the technique is sometimes called,

developed along two parallel streams, one industrial and the other military.
CPM (Critical Path Method) was the discovery of M.R.Walker of E.I.Du Pont
de Nemours & Co. and J.E.Kelly of Remington Rand, circa 1957. The
computation was designed for the UNIVAC-I computer. The first test was
made in 1958, when CPM was applied to the construction of a new chemical
plant. In March 1959, the method was applied to maintenance shut-down at
the Du Pont works in Louisville, Kentucky.