2020

Question No. 2.
a) Define the followings:
i) State of nature ii) Opportunity Loss (Regret) iii) Payoff iv) Payoff matrix v) Decision tree
i) State of nature: An outcome or occurrence over which the decision maker has little or no control. They are the uncontrollable,
the given factors, for a specific situation. They are the parameters, perhaps requiring measurement, that influence the evaluation of
each alternative. Some of these factors are budget values, costs, and performance measure values.
ii) Opportunity Loss (Regret): Opportunity loss refers to the difference between the optimal profit or payoff for a given state of
nature and the actual payoff received for a particular decision. In other words, it's the amount lost by not picking the best alternative
in a given state of nature.
iii) Payoff: the act or occasion of receiving money or material gain especially as compensation. It may be the payment of a salary,
debt, wager, or the time at which such payment is made.
iv) Payoff matrix: A payoff matrix is a visual representation of the possible outcomes of a strategic decision. A payoff matrix includes
data for opponents, strategies, and outcomes. A payoff matrix can be used to calculate the aggregate outcome and to predict a
strategy.
v) Decision tree: A graphical representation of a decision-making situation. It is a tree-like model that acts as a decision support
tool, visually displaying decisions and their potential outcomes, consequences, and costs. From there, the "branches" can easily be
evaluated and compared in order to select the best courses of action.
b) Under an employment promotion program, it is proposed to allow sale of newspapers on the buses during off peak
hours. The vendor can purchase the newspapers at a special concessional rate of 25 paisa per copy against the selling
price of 40 paisa. Any unsold copies are however dead loss. A vendor has estimated the following probability distribution
for the number of copies demanded:
Number of copies: 15 16 17 18 19 20
Probability : .04 .19 .33 .26 .11 .07
i. How many copies should he order so that his expected profit will be maximum?
ii. What is the expected value(price) for the decision if perfect information were available?
iii. Find EVPI
Req. i.
Sale value per = 40 paisa
Marginal loss =25 paisa
Marginal Profit =15 paisa
Possible action concerning stock =Earning -loss
supply Possible action (cash inflow) concerning stock
Demanded 15 16 17 18 19 20
15 225 200 175 150 125 100
16 225 240 215 190 165 140
17 225 240 255 230 205 180
18 225 240 255 270 245 220
19 225 240 255 270 285 260
20 225 240 255 270 285 300
EMV
For 15 copies =225× .04+225×.19+225×.33+225×.26+225×.11+225×.07=222.75 paisa
For 16 copies = 236
For 17 copies = 241.65
For 18 copies = 234.10
For 19 copies = 216.55
For 20 copies = 194.60
Decision: The highest EMV is 241.65 corresponding to action of 17 copies. The optimal course of action under the given condition of
risk is to 17 copies of newspaper.
ii. EPPI= 225× .04+240×.19+225×.33+270×.26+285×.11+300×.07 = 251.40
the expected value(price) for the decision if perfect information were available is 251.40 paisa
iii. EVPI =EPPI – max of EMV
= 251.40- 241.65

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 = 9.75 paisa
Question No 3.
a) What are the methods of finding initial basic feasible solution in transportation problem? Which one is the best and
why?
Methods of obtaining initial basic feasible solution:
There are several methods for finding an initial basic feasible solution, out of which three are very important and these are
1. North- West Corner Rule:
This N-W corner rule allocates shipments as possible at the north west corner cell consequently.
2. Least Cost Method:
This method allocates shipments in the as possible at the lowest cost cell consequently
3. Vogel's Approximation Method
VAM is an iterative/recurring (পুনারাবৃ মূরক) procedure such that in each step, we should find the penalties
for each available row and column by taking the least cost and second least cost. Then, we allocate shipments in
that lowest cost cell of row or column having largest penalty or where (for tie of penalty) maximum allocation
can be made in order to minimize cost.

Among the three Methods for initial solution, Vogel's Approximation Method (VAM) is best. It gives better initial basic
feasible solution with less iterations among the traditional methods. The reasons behind saying it as best are
1.Considering Cost:
VAM considers cost effectively than two others. North west corner method doesn't consider cost. Again, for
unbalanced situation, Least Cost Method cannot work properly due to choosing dummy as least cost (as dummy
cells bear zero cost). VAM uses opportunity cost for assigning shipment.
2.Considering Optimum Solution
One study found that VAM yields an optimum solution in 80% of the sample problems tested. Again, Other two
methods do not follow steps by step rule for obtaining optimal solution.
3.Complexity in considering cost
North-west cost and Lower Cost Method are based on personnel observation that don't follow any systematic
rule. Again, there arises a complexity in Lower Cost Method when three is a tie in the minimum cost.
4.Considering Time
VAM takes more time than others, but it trends to give optimum solution. And finally saves time for optimum
analysis

b) A company has factories F1, F2, F3 which supplies warehouses at WI, W2, and W3. Weekly factories capacities are
200, 160, and 90 units respectively. Weekly warehouse requirements are 180,120,150 respectively. Units shipping costs
(in Tk.) are as follows:
To
W1 W2 W3 Supply
From
F1 16 20 12 200
F2 14 8 18 160
F3 26 24 16 90
Demand 180 120 150 450
Determine the optimum distribution for this company to minimize shipping costs.
1st: Finding Initial Basic solution using VAM method.
To
1 2 3 Supply Penalty
From
16 20 12
F1
140 x 60 200 4 4 4
14 8 18
F2
40 120 x 160 6 4 4
F3 x 26 x 24 90 16 90 8 10
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 Demand 180 120 150
2 12 4
2 4
Penalty
2 6

To
1 2 3 Supply
From
16 20 12
F1
140 x 60 200 U1=0
14 8 18
F2
40 120 x 160 U2=-2
26 24 16
F3
x x 90 90 U3=4
Demand 180 120 150
V1=16 V2=10 V3= 12
For unoccupied cells
∆12 = 10 ∆2 3 = 8 ∆3 1 = 6
∆32 = 10
As all ∆ij ≥ 0 .so the initial basis feasible solution is optimum.
The optimum cost = 140 ×16+60×12+40×14+120×8+90×16 = 5,920
Question No. 5.
a) Consider the given data of normal time & cost and crash time & cost:
Normal Crash
Activity
Time Times
Cost Cost
Days Days
1-2 8 100 6 200
1-3 4 150 2 350
2-4 2 50 1 90
2-5 10 100 5 400
3-4 5 100 1 200
4-5 3 80 1 100
Indirect cost-- Tk. 70 per day
Required:
Draw the network diagram and find the critical path and normal project duration.
Crash the relevant activity so that project duration becomes 12 days. Also find the associated total cost for 12 days.

Available path
Normal crash
1-2-5 = 8+10 =18* 6+5=11
1-2-4-5 =8+2+3=13 6+1+1=8
1-3-4-5 =4+5+3=12 2+1+1=4
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Critical path will be 1-2-5 (1-2, 2-5)
Project duration =18 days
Total project's normal cost= (100+150+50+100+100+80) +18×70=1840
time Maximum cost Cost Crash cost
Activity times to increased per day
normal crash crash Normal crash for
crashing
1-2 8 6 2 100 200 100 50
1-3 4 2 2 150 350 200 100
2-4 2 1 1 50 90 40 40
2-5 10 5 5 100 400 300 60
3-4 5 1 4 100 200 100 25
4-5 3 1 2 80 100 20 10
Available path time
1-2-5 = 18-2=16-4=12
1-2-4-5 =13-2=11
1-3-4-5 =12
Activity Crashed by (days) Increase of cost due to Total cost
crash
1-2 2 100 1840 +100-2×70=1800
2-5 4 240 1800+240-4×70=1760
Total 6 days 340
If we crashed the project into 12 days, the associate total cost of the project will be 500 tk.

b) Define free float and total float.

Float: It is defined as the difference between the latest activity time and earliest activity time. It will be positive value
always. There are four types of floats
i. Total Float: The amount of time by which an activity can be delayed without delaying the project completion
date. It is the difference between latest starting time and earliest starting time.
TF = Lst -Est
Or, = Lft- Eft

ii. Free float: the amount of time by which an activity can be d1elayed without delaying the project's earliest
starting time of any immediate successor activity within the network path.
FF = Total Float – Head Event Slack
c) Distinguish between PERT and CPM.
BASIS PERT CPM
Meaning PERT is a project management technique, used to CPM is a statistical technique of project management
manage uncertain activities of a project. that manages well defined activities of a project.

What is it? A technique of planning and control of time. A method to control cost and time.
Orientation Event-oriented Activity-oriented
Evolution Evolved as Research & Development project Evolved as Construction project
Model Probabilistic Model Deterministic Model
Focuses on Time Time-cost trade-off
Estimates Three-time estimates One time estimate
Appropriate for High precision time estimate Reasonable time estimate
Management of Unpredictable Activities Predictable activities
Nature of jobs Non-repetitive nature Repetitive nature
Critical and Non- No differentiation Differentiated
critical activities
Suitable for Research and Development Project Non-research projects like civil construction, ship
building etc.

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 Crashing concept Not Applicable Applicable

2019
Question No. 2.
a) What are the methods of finding initial basic feasible solution for the transportation problem? Which one is the best
and why?
b) A company has three factories at Amethi, Baghpat and Gwalior; and four distribution centers at Allahabad, Bombay,
Kolkata and Delhi. With the identical cost of production at the three factories the only variable cost involved is
transportation cost. The production at the three factories is 5000 tons, 6000 tons and 2500 tons respectively. The
demand at four distribution centers is 6000 tons, 4000 tons, 2000 tons and 1500 tons respectively. The transportation
costs per ton from different factories to different centers are given below:
Distribution centers
Factory
Allahabad Bombay Kolkata Delhi
Amethi 3 2 7 6
Baghpat 7 5 2 3
Gwalior 2 5 4 5
Suggest the optimum transportation schedule and find the minimum cost of transportation.
Total supply =5000+6000+2500=13500
Total demand =6000+4000+2000+1500=13500
This is a balanced problem. Here, M+n-1= 4+3-1=6
To
From
Allahabad Bombay Kolkata Delhi Supply Penalty
Amethi 3 2 7 6
Baghpat 1000 4000 x x 5000 1 3
Gwalior 7 5 2 3
Amethi 2500 x 2000 1500 6000 1 1 1
2 5 4 5
Baghpat
2500 x x x 2500 2 2 2
Demand 6000 4000 2000 1500
1 3 2 2
1 2 2
Penalty
5 2 2

For occupied cells

To
From
Allahabad Bombay Kolkata Delhi Supply
Amethi 3 2 7 6
Baghpat 1000 4000 x x 5000 U1=-4
Gwalior 7 5 2 3
Amethi 2500 x 2000 1500 6000 U2=0
2 5 4 5
Baghpat
2500 x x x 2500 U3=-5
Demand 6000 4000 2000 1500
V1=7 V2=6 V3=2 V4=3
For unoccupied cells
∆1 3 = 9 ∆1 4 = 7 ∆22 = -1
∆3 2 = 4 ∆3 3 = 7 ∆34 = 7
As there lies negative ∆ij, so, the distribution should be modified. The negative number ∆22 = -1
x= minimum of (2500, 4000)
x= 2500
The Modified Table will be
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 To
From
Allahabad Bombay Kolkata Delhi Supply
Amethi 3 2 7 6
Baghpat 3500 1500 x x 5000 U1=-3
Gwalior 7 5 2 3
Amethi 2500 2000 1500 6000 U2=0
2 5 4 5
Baghpat
2500 x x x 2500 U3=-5
Demand 6000 4000 2000 1500
V1=6 V2=5 V3=2 V4=3
For unoccupied cells
∆1 3 = 8 ∆1 4 = 6 ∆21 = 1
∆3 2 = 5 ∆3 3 = 7 ∆34 = 7
As all ∆ij ≥ 0 .so the initial basis feasible solution is optimum.
The optimum cost =3×3500+2×1500+5×2500+2×2000+3×1500+2×2500 = 39,500
c) What is slack and surplus variable? Explain with example.
Slack and Surplus variables represent the distinction between left and right side of a constraint. It is a variable which is
added to a given problem equation so that less than constraints can be eliminated and the surplus variable is added. The
objective function coefficient of the slack variable is equals to zero. Apart from the simplex maximization problem, it is
used in different problems as well.
In simple words, a slack variable is generally used for less than or equal to constraints, on the other hand, the term
surplus is used for greater than or equal to constraints.

It is important to note that slack variable does not change the nature of equation, hence by introducing a slack variable
only representation of the equations changes and it does not affect the outcome of the equations in any manner.

Consider the following equation given below:

Where are slack variables

If the inequality constraints hold with the equality at the optimum point, then corresponding slack or surplus value will be
equal to zero. In contrast when inequality constraint does not hold with the equality at the optimum point, then there are
some unutilized or slack resources. Hence the slack variable is nothing but the number of resources which are
represented by less than or equal to constraints.
With the help of slack and surplus, the variable's standard form can be achieved. It is done by adding a slack variable to
less than or equal to constraints and by subtracting surplus variable from greater than or equal to the constraint. It is
reported for each constraint.

Question No 3.
a) Describe the main features of the decision theory. State its limitations.
Decision making is the selection of one course of action from two or more alternative courses of action. It is a choice-making
activity and the choice determines our action or inaction.
Characteristics of Decision Making:
1. Decision-making is a selective process in which only the best possible alternative is chosen.
2. Decision-making involves careful evaluation and analysis of all the possible alter¬natives.
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 3. Decision-making is the responsibility of the management executives at all levels.
4. It is a continuous process which goes on throughout the life of an organisation.
5. It is a mental process which involves deep thinking and foreseeing things.
6. It may be positive to do a certain thing or negative not to do a certain thing.
7. Decisions are normally taken on the basis of past experiences and present circumstances for a future course of action.
8. It is not an end in itself but a means to reach the goal.
9. If necessary, experts and specialists should be consulted before making a particular decision.
10. Decisions exert great influence on the success or failure of an organisation. Therefore, they should not be made in a hurry or
without close security and thinking.

Limitations:
1. Scope: It does not take a total view of management. Its scope is limited.
2. Various Alternatives: Sometimes it is difficult to claim whether a decision finalizes the action or commence the action in
presence of various alternatives.
3. Time Consuming: Individual decisions take a lot of time because the manager has to study the merits and demerits of all
the alternatives.
4. Compromised Decisions: there is a difference of opinion. A compromised decision is made to please all the members. It
may not be a correct and bold decision. The quality of this decision is inferior.
5. Subjective Decisions: decisions depend on the knowledge, education, experience, perception, beliefs, moral, attitude, etc., of
the manager. Subjective decisions are not good decisions.
6. Biased Decisions: Sometimes decisions are biased. That is, the manager makes decisions, which is only beneficial for
himself and his group.
7. Limited Analysis: managers do not analysis because they do not get an accurate date, and they have limited time.
Inexperienced researchers and wrong sampling also result in a limited analysis.
8. Uncontrollable Environmental Factors: The manager has no control over external factors. If these factors change in the
wrong direction, his decisions will also divert and go wrong.
9. Uncertain Future: Decisions are made for the future. However, the future is very uncertain. Therefore, it is very difficult to
take decisions for the future.

b) Briefly explain the different decision rules usually adopted in context of decision making under conditions of
uncertainty.
Decision rules usually adopted in context of decision making under conditions of uncertainty.
When probability of occurrence of each state of nature can be assessed, the EMV or, EOL are usually appropriate. When
probability of data isn't available, the following criteria are apace-
1. Optimistic (Maximax): This selects the alternative with the highest possible return. (Maximum alternative is chosen)
2. Pessimistic (maximin): This alternative maximizes the minimum payoff. It selects the alternative with the best of the worst
possible payoffs. (Maximum alternative is chosen)
3. Criterion of realism (Hurwicz): A decision-making criterion that uses a weighted average of the best and worst possible
payoffs for each alternative. (Maximum alternative is chosen)
Weighted average = α ×max in row + (1-α) ×min in row
4. Equally likely (Laplace): A decision criterion that places an equal weight on all states of nature. (Maximum alternative is
chosen)
5. Minimax regret: A criterion that minimizes the maximum opportunity loss. (Minimum alternative is chosen)
c) A newspaper boy buys paper for Tk.13 each and sells them for Tk.18 each. He cannot return the unsold papers. The
daily demand has the following distribution:
Number of customers 23 24 25 26 27 28 29 30 31
Probability 0.01 0.03 0.06 0.10 0.20 0.25 0.10 0.05 0.05

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If each day's demand is independent of previous day's demand, how many papers should he order on each day?
Given,
Selling Price per = 18
Marginal Cost = 13
Marginal Profit = 5

supply Possible action (cash inflow) concerning stock

Demanded 23 24 25 26 27 28 29 30 31
23 115 102 89 76 63 50 37 24 11
24 115 120 107 94 81 68 55 42 29
25 115 120 125 112 99 86 73 60 47
26 115 120 125 130 117 104 91 78 65
27 115 120 125 130 135 122 109 96 83
28 115 120 125 130 135 140 127 114 101
29 115 120 125 130 135 140 145 132 119
30 115 120 125 130 135 140 145 150 137
31 115 120 125 130 135 140 145 150 155

Calculation of EMV
Order 23 papers = 115×0.01+115×0.03+115×0.06+115×0.10+115×0.20+115×0.25+115×0.10+115×0.05+115×0.05=
97.75
Orders 24 = 101.82
Orders 25 = 105.35
Orders 26 = 107.80
Orders 27 = 108.45
Orders 28 = 105.50
Orders 29 = 98.05
Orders 30= 88.80
Orders 31 = 78.65

Decision: The highest EMV is 108.45 corresponding to action of 27 copies. The optimal course of action under the given condition of
risk is to 27 copies of newspaper.

Question No. 4.
a) Distinguish between PERT and CPM.
b) What is total float and free float? If an activity with total float zero, what does it mean?
Zero float means the activity lies in critical path.
c) The following table gives the activities and other relevant data for the project.
Normal time Crash time Normal cost Crash cost
Activity
(days) (days) (TK.) (TK.)

1-2 4 3 600 800

1-3 2 2 400 400
1-4 5 4 750 900
2-3 7 5 400 600
2-5 7 6 800 1000
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 3-5 2 1 500 650
4-5 5 4 600 850
Indirect cost per day for the project is TK. 200
Instructions:
i Draw the network of the project.
ii. Find the normal duration and cost of the project.
iii. Find the optimum duration and cost of the project.

Req. i

Req. ii
Available path normal time crash time
1. 1-2-5 requires = 4+7= 11 days 3+6=9
2. 1-2-3-5 requires =4+7+2= 13 days 3+5+1=9
3. 1-3-5 requires =2+2=4 days 2+1=3
4. 1-4-5 requires =5+5=10 days 4+4=8
So, critical path will be 1-2-3-5
Normal duration of the project is =13 days costing = 600+400+750+400+800+500+600 +13×200= 6,650
Req. iii
Activity Normal time Crash Maximum times Normal cost Crash Increased cost Cost Slope
time of crash cost due to crash

(days) (days) (TK.) (TK.)

1-2 4 3 1 600 800 200 200
1-3 2 2 0 400 400 0
1-4 5 4 1 750 900 150 150
2-3 7 5 2 400 600 200 100
2-5 7 6 1 800 1000 200 200
3-5 2 1 1 500 650 150 150
4-5 5 4 1 600 850 250 250
Available path normal time
1. 1-2-5 requires = 4+7= 11 -1=10-1=9
2. 1-2-3-5 requires =4+7+2= 13 -1=12-2=10-1=9
3. 1-3-5 requires =2+2=4 -1=3
4. 1-4-5 requires =5+5=10
Activity Crashed by (days) Increase of cost due to crash Total cost
1-2 1 200 6,650+200-1×200=6,650
2-3 2 200 6,650+200-2×200=6,450
3-5 1 150 6450+150-200=6400
2-5 1 200 6400+200-200=6400
Total 5 days 750
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So, the optimum duration will be 9 days costing 4,250 (4500+750-5*200)

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