Operation

research
Dr. Mohamed K. Hussein
Faculty of Computers and Informatics
Agenda

• Course Objectives

• What is Operation research?

• History of Operation research

• Operation research in organizations

• Quantitative analysis

• Quantitative analysis approach

Book

• QUANTITATIVE ANALYSIS for

MANAGEMENT, Barry Render,

Ralph M. Stair, Jr. Michael, E.

Hanna, Trevor S. Hale, 13th edition.

Course Objectives

• To promote the scientific approach to solve management problems

• To build up capability to construct mathematical models of practical

problems and solve them.

• To acknowledge the role of computer technology in solving problem of

operations research.
 1. Linear Programming

2. Nonlinear Optimization Models

Topics 3. Inventory Models

4. Waiting Line Models

5. Simulation

6. Decision Analysis

7. Multicriteria Decisions

8. Markov Processes

9. Time Series Analysis & Forecasting

10.Dynamic Programming

11.Game Theory
Operation research

• Operation research involves a variety of techniques

that aim to:

• Create mathematical models to describe real or

theoretical systems.

• Solve models for optimal solution to improve

system efficiency and support decision making.

• A scientific approach to make best decisions.

• Usually under conditions requiring limited

resources.
 History of Operation research
• British scientist during WWII.

• Optimal allocation of various supply and operations.

• Deployment of radars

• Bombing missions

• Anti-submarine operations

• Now, became military operation research

• Operation research

• Management science

• Decision science
 Operation research in organizations
• Organizations use Operation research to make better decisions,

operate more efficiently, and generate more profits.

• Taco Bell reported saving over $150 million with better forecasting of demand
and better scheduling of employees.

• NBC television increased advertising revenue by over $200 million by using a

model to help develop sales plans for advertisers.

• Continental Airlines saved over $40 million a year by using mathematical

models to quickly recover from disruptions caused by weather delays and
other factors.
 What is Quantitative Analysis?

• Quantitative analysis is a scientific approach to managerial

decision making in which raw data are processed and
manipulated to produce meaningful information.

Quantitative Meaningful
Raw Data Analysis Information
 Quantitative Analysis
• Quantitative factors are data that can be accurately calculated.
• Interest rate
• Demand
• Material cost
• Labor cost

• Qualitative factors are more difficult to quantify but affect the decision process.
• The weather
• Technological breakthroughs
• Legislations

• In solving a problem, managers must consider both qualitative and quantitative factors.
 Examples
• Considering several different investment alternatives, including certificates of
deposit at a bank, investments in the stock market, and an investment in real
estate.

• Quantitative analysis can determine how much the investment will be worth in the future when
deposited at a bank at a given interest rate for a certain number of years.

• Quantitative analysis can be used in computing financial ratios from the balance
sheets for several companies whose stock we are considering.

• Some real estate companies have developed computer programs that use
quantitative analysis to analyze cash flows and rates of return for investment
property.
 Business Analytics

• Business analytics is a data-driven approach to decision

making to allow companies make better decisions.

• The use of large amounts of data.

• Statistical and quantitative methods are used to analyze the data

and provide useful information to the decision maker.

 Business analytics
• Business analytics is often broken into three categories:
• Descriptive analytics is studying historical data for a business.
• Provide information of how it has performed in the past and how it is performing now.
• Statistical measures such as means and standard deviations
• Predictive analytics is forecasting future outcomes based on patterns in the past data using
statistical and mathematical models.
• Regression models
• Decision analysis and decision trees
• Forecasting
• Markov analysis
• Queuing systems
• Prescriptive analytics uses optimization methods to provide new and better ways to operate
• Linear programming and nonlinear programming
• Integer programming
 Modeling in the real world
Defining the Problem
• Quantitative analysis models
Developing a Model
are used extensively by real
Acquiring Input Data
organizations to solve real
Developing a Solution
problem.
Testing the Solution
• Following the steps of the

quantitative analysis is an Analyzing the Results

important component of success

Implementing the Results
 Problem definition
• Developing a clear and concise statement that gives direction and meaning
to subsequent steps.

• An important step to solve the problem.

• Identify symptoms and true causes.

• Identify problems whose solutions will result in the greatest increase in profits or reduction in costs for
the company.

• Develop specific and measurably objectives.

• A problem might be inadequate health care delivery in a hospital. The objectives might be to
increase the number of beds, reduce the average number of days a patient spends in the
hospital, or increase the physician-to-patient ratio.
 Developing a Model

• Quantitative analysis models are realistic, solvable, and understandable

mathematical representations of a situation.

Sales

Advertising

• A mathematical model is a set of mathematical relationships. In most cases, these

relationships are expressed in equations and inequalities.
 Developing a Model
• Models generally contain variables (controllable and uncontrollable)
and parameters.
• Controllable variable are the decision variables.

• How many items should be ordered for inventory.

• Uncontrollable variables are unknown.

• Variables can not control.

• Parameters are known quantities that are a part of the model.

• What is the holding cost of the inventory.

• Parameters are known quantities

 Acquiring Input data

• Input data must be accurate

Garbage
In
Process
Garbage
Out

• Data may come from a variety of sources such as company reports, company
documents, interviews, on-site direct measurements, or statistical sampling.
 Developing a solution
• The best (optimal) solution to a problem is found by manipulating the model
variables until a solution is found that is practical and can be implemented.

• Common techniques:
• Solving equations

• Trial and error – trying various approaches and picking the best the best results.

• Complete enumeration – trying all possible values.

• Using an algorithm – a series of repeating steps to reach a solution.

• The input data and model determine the accuracy of the solution.
 Testing the Solution

• Both the input data and the model should be tested for accuracy before

analysis and implementation.

• New data can be collected to test the model.

• Results should be logical, consistent, and represent the real situation.

 Analyzing the results
• Determine the implications of the solution:

• Implementing results often requires change in the organization.

• The impact of actions or changes needs to be studied or understood before

implementation.

• Sensitivity analysis determines how much the result will changes if

the model or input data changes.

• Sensitivity models should be thoroughly tested.
 Implementing the results

• Implementation incorporate the solution into the company.

• Implantation can be very difficult.

• People may be resistant to changes.

• Quantitative analysis model may fail because a good, workable solution is not properly

implemented.

• Changes occurs over time, so even successful implantation must be monitored to

determine if modifications are necessary.

Developing a Quantitative Analysis Model

• The mathematical model for a business:

• Profit = Revenue – Expenses
• revenue is the selling price per unit × the number of units sold.
• Expenses include fixed and variable costs.
• The variable cost = variable cost per unit × number of units.
• Profit = sX – (f + vX)
• s = selling price per unit
• f = fixed cost
• v = variable cost per unit
• X = number of units sold
 Mathematical Model Example

• A clock shop, buys, sells, and repairs old clocks and clock parts. The shop sells

rebuilt springs for a price per unit of $8. The fixed cost of the equipment to build

the springs is $1,000. The variable cost per unit is $3 for spring material.
• s=8
• f = 1,000
• v=3

• The number of springs sold is X, and the profit model:

• Profit = +8X – (1,000 + (+3)X)
Questions
• In analyzing a problem, you should normally study ……………..
a. The qualitative aspects.
b. The quantitative aspects.
c. All the above.
d. None of the above.

• Which of the following terms is interchangeable with quantitative analysis?

a. Management science
b. Economics
c. Financial analysis
d. Statistics
Questions
• Which of the following is not one of the steps in the quantitative analysis approach?
a. Defining the problem
b. Developing a solution
c. Observing a hypothesis
d. Testing a solution

• The condition of improper data yielding misleading results is referred to as

a. Garbage in, garbage out
b. Break-even point
c. Uncontrollable variable
d. Sensitivity analysis
Questions
• Quantitative analysis is typically associated with the use of …….
a. Schematic models
b. Physical models
c. Mathematical models
d. Scale models

• Sensitivity analysis is most often associated with which step of the quantitative analysis
approach?
a. Defining a problem
b. Acquiring input data
c. Implementing the results
d. Analyzing the results
 Questions
• A set of logical and mathematical operations performed in a specific sequence is
called ………
a. Complete enumeration
b. Diagnostic analysis
c. Algorithm
d. Objective

• A controllable variable is also called a ………

a. parameter.
b. decision variable.
c. mathematical model.
d. measurable quantity.
 Questions
• Which of the following techniques involves the study of historical data for a business and an
industry?
a. Descriptive analytics
b. Prescriptive analytics
c. Predictive analytics
d. Management science

• Expressing profits through the relationship between unit price, fixed costs, and variable costs is
an example of a ……………..
a. Sensitivity analysis model.
b. Quantitative analysis model.
c. Parameter specification model.
d. All the above
Thank
you