When do managers use quantitative methods? In England, in the years 1914-1915, F. W.

Lanchester attempted to
treat military operations quantitatively. He derived equations
1. The problem is complex relating the outcome of a battle to both the relative numerical
2. The problem involves many variables strength of the combatants and their relative firepower.
3. There are data which describe the decision environment
4. There are data which describe the value or utility of the  T.A Edison’s Statistics on Submarine Warfare
different possible alternatives
Thomas Alva Edison studied antisubmarine warfare, collecting
5. The goals of the decision-maker or her organization can
statistics and devising a war game. He analyzed zigzagging as a
be described in quantitative terms
merchant ship countermeasure and published findings on waiting
6. Workable models are available for these situations
times and call numbers in an electrical engineer's journal.
This helps managers make better decisions - Management
 A.K Erlang Early work in waiting time
Science/Operations Research

A. K. Erlang's 1917 work, "Solutions of Some Problems in the Theory

Early examples of Industrial Engineering Approaches
1. Jethro – Moses’ father-in-law, credited with a treatise on
organization principles in chapter 18 of the Book of
Exodus
2. Charles Babbage – 1832, On The economy of machinery
and manufacturers
3. Frederick W. Taylor – (late nineteenth century) converted
industrial engineering into a profession; considered the
father of scientific management
4. Henry L. Gantt – scheduling production
of Probabilities of Significance in Automatic Telephone Exchanges,"
introduced crucial waiting-time formulas for telephone traffic
theory.
 F.W HARRIS DEVELOPS THE FIRST INVENTORY
MODEL
The economic lot size models in inventory control have a long
history, with the first published model attributed to Ford W.
Harris in 1915, despite G. D. Babcock's cubic equation.
 W.SHEWART APPLIES STATISTICAL INFERENCE
Probability theory and statistical inference have been part of
management theory since 1924, with Walter Shewhart's
introduction of quality control charts. H. F. Dodge and H. G. Romig
contributed to the development of sampling inspection and
statistical sampling tables, while T. C. Fry contributed to the
statistical foundations of queuing theory through lectures and a
book.
 R.FISHER AND MODERN STATISTICAL METHODS
Sir Ronald Fisher's work on modern statistical methods is crucial in
understanding MS/OR development, forming the basis for most
applied statistical theory today.
 W. LEONTIFF DEVELOPS A LINEAR PROGRAMMING
MODEL
Wassily Leontieff, a Harvard professor, developed a linear
programming model for the U.S. economy, leading to numerous
military and industrial applications.
 H.C LEVINSON DOES MS/OR WORK IN THE DECADE
Horace C. Levinson, an astronomer, pioneered business MS/OR in
the US, applying scientific methods to business problems, studying
advertising-sales relationships, customer income relationships, and
purchasing patterns.

WORLD WAR II
 BLACKETT’S CIRCUS

Professor P. M. S. Blackett led Britain's early MS/OR group,

Early MS/OR -- PRE-WORLD WAR II
 Archimedes and the Siege of Syracuse
212 B.C., when the city of Syracuse employed Archimedes (who was
then a man of 75 years) to devise means of breaking the naval siege
of the city, which was then under attack by the Romans.
 F.W Lanchester’s equation tested
"Blackett's Circus," which included physiologists, mathematicians,
astrophysicists, and military officers. Their mixed-team approach
demonstrated the value of barrage balloon deployment and
"scattering" supply ships to minimize submarine attack damage and
deter aircraft attacks.
 EARLY US OR GROUPS
James B. Conant and Vannevar Bush were key figures in the
development of MS/OR in the US during WWII. They observed
operations analysis groups in England in 1940 and 1942. General
Arnold recommended including operations analysis teams in Air
Force commands, with the first team assigned to England.

POST-WORLD WAR II
Operations research activity was valued by American military
leaders, leading to its continued use in various branches. The Army,
Navy, and Air Force continued operations research functions,
including the Operations Research Office and Project RAND.
However, it wasn't until bolder companies tried it with success and
word spread about its World War II accomplishments that civilian
MS/OR gained significant momentum.
In 1947, George B. Dantzig developed the simplex solution to the
linear programming problem, which has become the standard
approach for various problems.
Management science/operations research today
MS/OR activities have grown rapidly in business, government, and
private institutions. In the 1950s, the Operations Research Society
of America (ORSA) and The Institute of Management Sciences
(TIMS) were formed in the US. They published journals Operations
Research and Management Science and collaborated on publications
like OR/MS Today. In England, the Operations Research Club
formed the UK, which later launched the European Journal of
Operational Research. MS/OR societies have been formed in many
countries, with the Decision Sciences Institute in 1971.
Opportunities and shortcomings of the quantitative approach
Opportunities
1 MS/OR forces managers to be quite explicit about their
objectives, their assumptions, and their way of seeing constraints.
2 MS/OR quickly points out gaps in the data required to support
workable solutions to problems.
3 MS/OR permits us to examine a situation, change which decisions
are being made, and examine the changes without serious damage or
excessive cost.
4 MS/OR forces managers to be very precise about how the
variables in a problem interact with each other.
5 MS/OR makes managers consider very carefully just what
variables influence decisions.
6 MS/OR lets us find a solution to a complex problem much more
quickly than if we had to compute it by hand and often is the only
way we can solve large complex problems.
7 MS/OR lets us model a problem and its solution so that future
solutions can be done by a computer, thus freeing management time
for decisions that require a more intuitive approach.
Shortcomings
1 Often, MS/OR approaches have to simplify the problem or make
simplifying assumptions to solve it, and thus produce solutions that
have limitations.
2 For problems that a manager must solve only one time,
constructing a complex MS/OR model is often too expensive when
compared with other less sophisticated approaches.
3 Sometimes MS/OR specialists become so enamored with the
model they have built that they forget it doesn't represent the
"real world" in which decisions must be made.
4 Sometimes MS/OR specialists forget to counsel managers on the
limitations of the models they build, including the fact that many of
them have to be combined with judgment and intuition for effective
use.
5 Often, managers forget to include an important constraint or
assign an incorrect value to a constraint.
6 Many MS/OR solutions are so complex that they are difficult to
explain to managers in a way that builds support and confidence.
7 Many "real world" problems just don't have an MS/OR solution.
How do you define a good MS/OR solution?
1 The solution should be technically appropriate. It should produce a
solution that works technically, meets the constraints, and operates
in the problem environment.
2 The solution should be reliable. It should work time after time
under the conditions for which it was designed.
3 The solution should be economically viable. It should produce
value for the organization over what it costs to develop and it
should be seen as a wise investment of MS/OR talent.
4 The solution should be behaviorally appropriate. It should be
viable in its organizational setting, it should have the support of
management, and it must work well within the organization on a long-
term basis.
Quantitative methods to be discussed
Forecasting is an unavoidable responsibility of management. Faced
with uncertainty concerning the future, management looks to past
behavior as an indicator of what is to come. Among the topics
treated are moving averages, exponential smoothing, trend-
adjusted exponential smoothing, trend line fitting, and the
decomposition of seasonal data.
Decision theory is concerned with making sensible decisions both
under conditions of complete uncertainty about future outcomes
and under conditions such that you can make some probability
statements about what you think will happen in the future. Methods
are presented by which probability theory can be coupled with
financial data to generate valuable decision algorithms.
Inventory models make decisions that minimize total inventory
costs; these approaches can successfully reduce the total cost of
purchasing inventory, carrying inventory, and being out of stock of
inventory. Methods useful in dealing with discount evaluation, the
joint ordering of items from the same vendor, and making inventory
decisions in the absence of complete information are also discussed
at some length. Here we also develop a model that suggests that
being intentionally "out of stock" of an item may be a sensible
alternative.
Linear programming is of value when a choice must be made from
alternatives too numerous to evaluate with conventional methods. It
can be used to determine optimal combinations of the resources of
a firm to achieve a given objective or to allocate scarce resources
optimally.
Special-purpose algorithms are linear programming techniques
useful when working with certain specially structured problems. We
illustrate the transportation method and the assignment method,
two approaches that are useful when management is confronted
with problems concerning the best distribution alternative or the
optimal method of assigning operators to machines, accountants to
audit teams, and even students to schools. These two methods are
included in a larger group of techniques known as network
algorithms.
Integer programming, the branch and bound method, dynamic
programming, and goal programming are methods for choosing
among alternatives when answers may have to be found in whole
numbers, when the decision confronting management involves many
consecutive stages, or when organizational objectives have to be
stated in more than simple numerical terms.
Heuristics are sometimes described as "rules of thumb which work."
An example of a commonly used heuristic is "Stand in the shortest
line." Although using this rule may not work if everyone in the
shortest line requires extra time, in general, it's not a bad rule to
follow. Many heuristics are very complex, and their formulation
involves a great deal of analysis. Heuristics tend to be effective in
situations in which some of the more formal, mathematical MS/OR
techniques cannot be applied successfully.
Simulation is a procedure that studies a problem by creating a
model of the process involved in that problem and then, through a
series of organized trial-and-error solutions, attempts to determine
the best solution to that problem.
Queuing theory studies random arrivals at a servicing or processing
facility of limited capacity. Models allow management to calculate
the lengths of future limiting lines, the average time spent in line by
a person awaiting future facility additions, and the service level
waiting for costs and operating costs capacity that minimizes the
sum of waiting for costs and operating costs
Network scheduling enables managers to cope with the complexities
involved in large projects; the use of this technique has
significantly reduced the time necessary to plan and produce
complex products. Techniques covered in the time needed include
PERT (Program Evaluation Review Technique), CPM (Critical Path
Method), PERT/Cost, and scheduling with resource limitations.
Markov analysis permits one to predict changes over time when
information about the behavior of a system is known. Although the
best-known use of this technique is in predicting brand loyalties
(the brand behavior of consumers over time), Markov analysis also
has considerable use in other areas.
HUMAN DECISION-MAKERS
 Humans have imagination, creative powers, judgment, and
common sense.
 Human decision-makers can learn from their experiences.
 Human decision-makers are not always accurate;
sometimes their behavior is inconsistent.
 Human decision-makers can see the "overall" problem (the
forest, as it were); they can then see each subproblem as
part of an overall scheme.
 Human decision-makers have flexibility (at least most of
them do); when the road signs change, they can alter their
behavior to optimize under the new situation.
 Most humans have an enormous memory, they forget a lot
and are not very precise in terms of what they do
remember, but they can accommodate a wide variety of
information from bits of data to complete complex
thinking processes.
COMPUTERS
 Computers do only what their programmers tell them to do
in the form of instructions.
 Computers can follow the rules but cannot learn
deductively except in the simplest logical situations.
 Computers react consistently and, give or take electronic
problems, quite accurately.
 Computers can be programmed to follow complex,
interacting sets of rules; but even when the situation
changes, they will continue to follow these rules toward
faulty outcomes.
 Computers have flexibility only if someone has
programmed it in; otherwise, they react identically
regardless of changed road signs.
 Computers never forget; they have enormous memory in
terms of pieces of information, and they are very fast in
retrieving this information.
■HARDWARE is the "computer name" we give to all the electronic
and mechanical HARDWARE devices that make up a computer.
SOFTWARE is a term we use to refer to the instructions we give a
computer to perform. A set of instructions that "tells" a computer
how to perform a particular task is called a program. Any set of
programs that enables the computer to perform its functions is
called software.
CLASSIFYING MANAGEMENT INFORMATION SYSTEMS IN
TERMS OF HOW OR WHERE THE PROCESSING IS DONE
There are at least five ways to classify management information
systems in terms of how or where the processing is done:
1 Batch processing: In batch processing, the work is done
sequentially. Inputs (records, and so forth) are processed through
the system in a predetermined or. der. Because large files are
stored on tape or disk, the groups of transactions to be done must
be gathered together and then sorted in the same order as the in.
formation on the tape prior to processing.
2 Real-time processing: Rather than starting with the first record
to be processed and finishing with the last, a real-time system uses
a nonsequential processing method. It provides access to any piece
of information and finds that piece of information in the same
amount of time as any other piece; however, the response time must
be kept small.
3 Online processing: Online processing refers to equipment that
operates under the control of the central processing unit described
in Figure 1-5. You can locate online processing equipment in the same
location as the central processing unit or in a remote location.
Generally, online processing refers to processing using a terminal
(input) that is remote from the central processing unit. Online
processing can be used for batch processing or real-time
processing. When it is used for batch processing, it is generally
referred to as remote batch processing or remote job entry.
4 Timesharing: Timesharing refers to an information system that 1. Are you a fairly sophisticated investor?
services many clients from one computer, these clients or users are YES
served simultaneously. 2. Is your current cash flow high?
5 Distributed data processing: Although this is not a true YES
distinction based on how the processing is done, it is a separate 3. Do you require a tax-sheltered investment?
category in terms of where it's done. In a distributed data NO
processing system, computing capacity is distributed throughout 4. Are you risk averse?
the organization (to functions, departments, and even individuals) NO
based on information needs.
Recommended decision: Buy high growth stocks.
Decision support systems (DSS) first joined the MS/OR vocabulary
Glossary
about 12 years ago. Different researchers and writers define DSS
differently. Some use a broad definition like "any combination of
Artificial intelligence An attempt to make machines think much like
MS/OR and computers which supports management decision
humans. Batch processing A processing mode in which the work is
making." It is useful, however, to be more specific in thinking of
accomplished sequentially.
DSS; thus, we can establish these characteristics of a DSS:

Blackett's Circus An early British MS/OR group under the

leadership of P. M. S. Blackett of the University of Manchester.
1 A system that provides management with quick access to
information that can be used in their decision-making.
DSI Decision Sciences Institute. Decision support system An
2 A system that has flexible databases.
information system that provides answers to problems and
3 A system that integrates MS/OR models with information
integrates the decision-maker into the system as a component.
processing software.
Expert system A system using MS/OR models that makes decisions
4 A system that helps management deal with unstructured problems
entirely without human intervention.
(problems that cannot be completely solved by an individual MS/OR
model, or by using an information systems report).
Heuristic A rule of thumb that works.
5 A system that improves the impact of management decisions by
extending the capability of managers who make those decisions.
Management information system A computer-based system that
6 A system that accommodates the intuition and judgmental
transforms data into information useful in the support of decision-
capability of management at all stages of decision-making.
making.
DSS, the decision maker makes the decision using the power of
Management science/operations research The systematic study of a
large databases and MS/OR models. In the section that follows, the
problem involves gathering data, building a mathematical model,
system itself makes decisions by itself.
experimenting with the model, predicting future operations, and
getting the support of management for the use of the model.
Artificial intelligence and expert systems

MS/OR Management science/operations research.

Whereas in DSS the system supports decision makers, utilizing
databases and MS/ OR models, the systems we will discuss in this
ORSA Operations Research Society of America.
section make decisions by themselves. Artificial intelligence, a
concept originally advanced by Nobel laureate Herbert A. Simon,
Sensitivity testing Altering the inputs to a model and watching what
can be defined as the attempt to make machines achieve thinking
happens to the output.
capacity much like that of humans. Dr. Simon stated that artificial
intelligence is an attempt to solve problems that:
Symbolic model An abstract model, generally using mathematical
1 Cannot be solved by the mathematics of optimization (standard
symbols.
MS/OR models)
2 Contain parts or components that cannot be quantified
TIMS The Institute of Management Sciences.
3 Involve large knowledge bases (things that are known)
4 Involve the discovery and use of alternatives as a part of the
solution process
5 Involve objectives and constraints that are often difficult to
specify in quantitative terms

■EXPERT SYSTEMS

Expert systems are a subfield of artificial intelligence which

concerns systems that reproduce the behavior of human experts.
Expert systems make decisions as an expert would in her field of
specialization, by mimicking her behavior as she solves the problem.
Many expert systems are written in advanced computer languages
which can handle symbols as well as numerical values.