Operation Research (Study Material)

2020
OPERATION
RESEARCH
STUDY MATERIAL FOR MBA & PGDM
Dr. Soumendra Kumar Patra

Department of Business Administration
Ravenshaw University, Cuttack
Department of Business Administration, Ravenshaw University
TABLE OF CONTENTS
Chapter 1: An Overview on Operation research
1.1. Historical Background and Development of OR

1.2. Definition of OR
1.3. Why is OR needed?
1.4. Methodology of Operation Research
1.5. Models in Operation Research
1.6. Applications of Operation Research
1.7. Advantages of OPERATION RESEARCH
1.8. Disadvantages of OPERATION RESEARCH
Page 1
Chapter 1: An Overview on Operation research
1.1. Historical Background and Development of OR
O.R., it is generally accepted that the field originated in England during World
War II. The impetus for its origin was the development of radar defense systems
for the Royal Air Force, and the first recorded use of the term Operations
Research is attributed to a British Air Ministry official named A. P. Rowe who
constituted teams to do "operational researches" on the communication system
and the control room at a British radar station. The studies had to do with
improving the operational efficiency of systems (an objective which is still one of
the cornerstones of modern O.R.). This new approach of picking an "operational"
system and conducting "research" on how to make it run more efficiently soon
started to expand into other arenas of the war. Perhaps the most famous of the
groups involved in this effort was the one led by a physicist named P. M. S.
Blackett which included physiologists, mathematicians, astrophysicists, and even
a surveyor. This multifunctional team focus of an operations research project
group is one that has carried forward to this day. Blackett’s biggest contribution
was in convincing the authorities of the need for a scientific approach to manage
complex operations, and indeed he is regarded in many circles as the original
operations research analyst.
O.R. made its way to the United States a few years after it originated in
England. Its first presence in the U.S. was through the U.S. Navy’s Mine Warfare
Operations Research Group; this eventually expanded into the Antisubmarine
Warfare Operations Research Group that was led by Phillip Morse, which later
became known simply as the Operations Research Group. Like Blackett in
Britain, Morse is widely regarded as the "father" of O.R. in the United States, and
many of the distinguished scientists and mathematicians that he led went on after
the end of the war to become the pioneers of O.R. in the United States.
In the years immediately following the end of World War II, O.R. grew rapidly
as many scientists realized that the principles that they had applied to solve
problems for the military were equally applicable to many problems in the civilian
sector. These ranged from short-term problems such as scheduling and inventory
control to long-term problems such as strategic planning and resource allocation.
George Dantzig, who in 1947 developed the simplex algorithm for Linear
Page 2
Programming (LP), provided the single most important impetus for this growth.
To this day, LP remains one of the most widely used of all O.R. techniques and
despite the relatively recent development of interior point methods as an
alternative approach, the simplex algorithm (with numerous computational
refinements) continues to be widely used. The second major impetus for the
growth of O.R. was the rapid development of digital computers over the next
three decades. The simplex method was implemented on a computer for the first
time in 1950, and by 1960 such implementations could solve problems with about
1000 constraints. Today, implementations on powerful workstations can routinely
solve problems with hundreds of thousands of variables and constraints.
Moreover, the large volumes of data required for such problems can be stored and
manipulated very efficiently.
Once the simplex method had been invented and used, the development of
other methods followed at a rapid pace. The next twenty years witnessed the
development of most of the O.R. techniques that are in use today including
nonlinear, integer and dynamic programming, computer simulation, PERT/CPM,
queuing theory, inventory models, game theory, and sequencing and scheduling
algorithms. The scientists who developed these methods came from many fields,
most notably mathematics, engineering and economics. It is interesting that the
theoretical bases for many of these techniques had been known for years, e.g., the
EOQ formula used with many inventory models was developed in 1915 by Harris,
and many of the queuing formulae were developed by Erlang in 1917. However,
the period from 1950 to 1970 was when these were formally unified into what is
considered the standard toolkit for an operations research analyst and successfully
applied to problems of industrial significance. The following section describes the
approach taken by operations research in order to solve problems and explores
how all of these methodologies fit into the O.R. framework.
1.2. Definition of OR
A common misconception held by many is that O.R. is a collection of

mathematical tools. While it is true that it uses a variety of mathematical
techniques, operations research has a much broader scope. It is in fact a
systematic approach to solving problems, which uses one or more analytical tools
in the process of analysis. Perhaps the single biggest problem with O.R. is its
name; to a layperson, the term "operations research" does not conjure up any sort
of meaningful image! This is an unfortunate consequence of the fact that the name
that A. P. Rowe is credited with first assigning to the field was somehow never
Page 3
altered to something that is more indicative of the things that O.R. actually does.
Sometimes O.R. is referred to as Management Science (M.S.) in order to better
reflect its role as a scientific approach to solving management problems, but it
appears that this terminology is more popular with business professionals and
people still quibble about the differences between O.R. and M.S. Compounding
this issue is the fact that there is no clear consensus on a formal definition for
O.R. For instance, C. W. Churchman who is considered one of the pioneers of
O.R. defined it as the application of scientific methods, techniques and tools to
problems involving the operations of a system so as to provide those in control of
the system with optimum solutions to problems. This is indeed a rather
comprehensive definition, but there are many others who tend to go over to the
other extreme and define operations research to be that which operations
researchers do (a definition that seems to be most often attributed to E. Naddor)!
Regardless of the exact words used, it is probably safe to say that the moniker
"operations research" is here to stay and it is therefore important to understand
that in essence, O.R. may simply be viewed as a systematic and analytical
approach to decision-making and problem-solving. The key here is that O.R. uses
a methodology that is objective and clearly articulated, and is built around the
philosophy that such an approach is superior to one that is based purely on
subjectivity and the opinion of "experts," in that it will lead to better and more
consistent decisions. However, O.R. does not preclude the use of human
judgement or non-quantifiable reasoning; rather, the latter are viewed as being
complementary to the analytical approach. One should thus view O.R. not as an
absolute decision making process, but as an aid to making good decisions. O.R.
plays an advisory role by presenting a manager or a decision-maker with a set of
sound, scientifically derived alternatives. However, the final decision is always
left to the human being who has knowledge that cannot be exactly quantified, and
who can temper the results of the analysis to arrive at a sensible decision.
1.3. Why is OR needed?
OR is needed because it makes sense to make the best use of available

resources. Today’s global markets and instant communications mean that
customers expect high-quality products and services when they need them, where
they need them. Organizations, whether public or private, need to provide these
products and services as effectively and efficiently as possible. This requires
careful planning and analysis – the hallmarks of good OR. This is usually based
on process modeling, analysis of options or business analytics.
Page 4
1.4. Methodology of Operation Research
O.R. represents an integrated framework to help make decisions, it is important

to have a clear understanding of this framework so that it can be applied to a
generic problem. To achieve this, the so-called O.R. approach is now detailed.
This approach comprises the following seven sequential steps:
(1) Orientation,
(2) Problem Definition,
(3) Data Collection,
(4) Model Formulation,
(5) Solution,
(6) Model Validation and Output Analysis, and
(7) Implementation and Monitoring.
Orientation: The first step in the O.R. approach is referred to as problem

orientation. The primary objective of this step is to constitute the team that will
address the problem at hand and ensure that all its members have a clear picture
of the relevant issues. It is worth noting that a distinguishing characteristic of any
O.R. study is that it is done by a multifunctional team. To digress slightly, it is
also interesting that in recent years a great deal has been written and said about
the benefits of project teams and that almost any industrial project today is
conducted by multi-functional teams. Even in engineering education, teamwork
has become an essential ingredient of the material that is taught to students and
almost all academic engineering programs require team projects of their students.
The team approach of O.R. is thus a very natural and desirable phenomenon.
Problem Definition: This is the second, and in a significant number of cases,

the most difficult step of the O.R. process. The objective here is to further refine
Page 5
the deliberations from the orientation phase to the point where there is a clear
definition of the problem in terms of its scope and the results desired. This phase
should not be confused with the previous one since it is much more focused and
goal oriented; however, a clear orientation aids immeasurably in obtaining this
focus. Most practicing industrial engineers can relate to this distinction and the
difficulty in moving from general goals such "increasing productivity" or
"reducing quality problems" to more specific, well-defined objectives that will aid
in meeting these goals.
Data Collection: In the third phase of the O.R. process data is collected with the
objective of translating the problem defined in the second phase into a model that
can then be objectively analyzed. Data typically comes from two sources –
observation and standards. The first corresponds to the case where data is actually
collected by observing the system in operation and typically, this data tends to
derive from the technology of the system. For instance, operation times might be
obtained by time studies or work methods analysis, resource usage or scrap rates
might be obtained by making sample measurements over some suitable interval of
time, and data on demands and availability might come from sales records,
purchase orders and inventory databases. Other data are obtained by using
standards; a lot of cost related information tends to fall into this category. For
instance, most companies have standard values for cost items such as hourly wage
rates, inventory holding charges, selling prices, etc.; these standards must then be
consolidated appropriately to compute costs of various activities. On occasion,
data may also be solicited expressly for the problem at hand through the use of
surveys, questionnaires or other psychometric instruments.
Model Formulation: This is the fourth phase of the O.R. process. It is also a
phase that deserves a lot of attention since modeling is a defining characteristic of
all operations research projects. The term "model" is misunderstood by many, and
is therefore explained in some detail here. A model may be defined formally as a
selective abstraction of reality. This definition implies that modeling is the
process of capturing selected characteristics of a system or a process and then
combining these into an abstract representation of the original. The main idea here
is that it is usually far easier to analyze a simplified model than it is to analyze the
Page 6
original system, and as long as the model is a reasonably accurate representation,

conclusions drawn from such an analysis may be validly extrapolated back to the
original system.
Model Solution: The fifth phase of the O.R. process is the solution of the
problem represented by the model. This is the area on which a huge amount of
research and development in O.R. has been focused, and there is a plethora of
methods for analyzing a wide range of models. It is impossible to get into details
of these various techniques in a single introductory chapter such as this; however,
an overview of some of the more important methods can be found elsewhere in
this handbook. Generally speaking, some formal training in operations research is
necessary in order to appreciate how many of these methods work and the
interested reader is urged to peruse an introductory text on O.R.; the section on
"Further Reading" at the end of the chapter lists some good books. It is also worth
mentioning that in recent years a number of software systems have emerged
which (at least in theory) are "black boxes" for solving various models. However,
some formal education in O.R. methods is still required (or at least strongly
recommended) before using such systems. From the perspective of the
practitioner, the most important thing is to be able to recognize which of the many
available techniques is appropriate for the model constructed. Usually, this is not
a hard task for someone with some rudimentary training in operations research.
The techniques themselves fall into several categories.
Validation and Analysis: Once a solution has been obtained two things need to
be done before one even considers developing a final policy or course of action
for implementation. The first is to verify that the solution itself makes sense.
Oftentimes, this is not the case and the most common reason is that the model
used was not accurate or did not capture some major issue. The process of
ensuring that the model is an accurate representation of the system is called
validation and this is something that (whenever possible) should be done before
actual solution. However, it is sometimes necessary to solve the model to discover
inaccuracies in it. A typical error that might be discovered at this stage is that
some important constraint was ignored in the model formulation - this will lead to
a solution that is clearly recognized as being infeasible and the analyst must then
Page 7
go back and modify the model and re-solve it. This cycle continues until one is
sure that the results are sensible and come from a valid system representation.
Implementation and Monitoring: The last step in the O.R. process is to

implement the final recommendation and establish control over it. Implementation
entails the constitution of a team whose leadership will consist of some of the
members on the original O.R. team. This team is typically responsible for the
development of operating procedures or manuals and a time-table for putting the
plan into effect. Once implementation is complete, responsibility for monitoring
the system is usually turned over to an operating team. From an O.R. perspective,
the primary responsibility of the latter is to recognize that the implemented results
are valid only as long as the operating environment is unchanged and the
assumptions made by the study remain valid. Thus when there are radical
departures from the bases used to develop the plan, one must reconsider one's
strategy. As a simple example with our production problem, if a sudden strike by
the workforce causes a drastic reduction in the availability of labor (Resource 1,
say), one must reconsider the plan completely to derive an alternative course of
action. As a final word on implementation, it should be emphasized that a major
responsibility of the operations research analyst is to convey the results of the
project to management in an effective fashion. This is something that is
unfortunately not emphasized sufficiently, and there are many instances of a
successful study not being implemented because the details and the benefits are
not conveyed effectively to management. While this is of course true of any
project in general, it is especially significant with O.R. because of its
mathematical content and its potential to not be fully understood by a manager
without a strong quantitative background.
1.5. Models in Operation Research
Models may be broadly classified into four categories:
Physical Models: These are actual, scaled down versions of the original.
Examples include a globe, a scale-model car or a model of a flow line made with
elements from a toy construction set. In general, such models are not very
Page 8
common in operations research, mainly because getting accurate representations

of complex systems through physical models is often impossible.
Analogic Models: These are models that are a step down from the first
category in that they are physical models as well, but use a physical analog to
describe the system, as opposed to an exact scaled-down version. Perhaps the
most famous example of an analogic model was the ANTIAC model (the acronym
stood for anti-automatic-computation) which demonstrated that one could
conduct a valid operations research analysis without even resorting to the use of a
computer. In this problem the objective was to find the best way to distribute
supplies at a military depot to various demand points. Such a problem can be
solved efficiently by using techniques from network flow analysis. However the
actual procedure that was used took a different approach. An anthill on a raised
platform was chosen as an analog for the depot and little mounds of sugar on their
own platforms were chosen to represent each demand point. The network of roads
connecting the various nodes was constructed using bits of string with the length
of each being proportional to the actual distance and the width to the capacity
along that link. An army of ants was then released at the anthill and the paths that
they chose to get to the mounds of sugar were then observed. After the model
attained a steady state, it was found that the ants by virtue of their own tendencies
had found the most efficient paths to their destinations! One could even conduct
some post-optimality analysis. For instance, various transportation capacities
along each link could be analyzed by proportionately varying the width of the
link, and a scenario where certain roads were unusable could be analyzed by
simply removing the corresponding links to see what the ants would then do. This
illustrates an analogic model. More importantly, it also illustrates that while O.R.
is typically identified with mathematical analysis, the use of an innovative model
and problem-solving procedure such as the one just described is an entirely
legitimate way to conduct an O.R. study.
Computer Simulation Models: With the growth in computational power these

models have become extremely popular over the last ten to fifteen years. A
simulation model is one where the system is abstracted into a computer program.
While the specific computer language used is not a defining characteristic, a
number of languages and software systems have been developed solely for the
purpose of building computer simulation models; a survey of the most popular
systems may be found in OR/MS Today (October 1997, pp. 38-46). Typically,
such software has syntax as well as built-in constructs that allow for easy model
development. Very often they also have provisions for graphics and animation
Page 9
that can help one visualize the system being simulated. Simulation models are
analyzed by running the software over some length of time that represents a
suitable period when the original system is operating under steady state. The
inputs to such models are the decision variables that are under the control of the
decision-maker. These are treated as parameters and the simulation is run for
various combinations of values for these parameters. At the end of a run statistics
are gathered on various measures of performance and these are then analyzed
using standard techniques. The decision-maker then selects the combination of
values for the decision variables that yields the most desirable performance.
Mathematical Models: This is the final category of models, and the one that
traditionally has been most commonly identified with O.R. In this type of model
one captures the characteristics of a system or process through a set of
mathematical relationships. Mathematical models can be deterministic or
probabilistic. In the former type, all parameters used to describe the model are
assumed to be known (or estimated with a high degree of certainty). With
probabilistic models, the exact values for some of the parameters may be
unknown but it is assumed that they are capable of being characterized in some
systematic fashion (e.g., through the use of a probability distribution). As an
illustration, the Critical Path Method (CPM) and the Program Evaluation and
Review Technique (PERT) are two very similar O.R. techniques used in the area
of project planning. However, CPM is based on a deterministic mathematical
model that assumes that the duration of each project activity is a known constant,
while PERT is based on a probabilistic model that assumes that each activity
duration is random but follows some specific probability distribution (typically,
the Beta distribution). Very broadly speaking, deterministic models tend to be
somewhat easier to analyze than probabilistic ones; however, this is not
universally true.
Most mathematical models tend to be characterized by three main elements:

decision variables, constraints and objective function(s). Decision variables are
used to model specific actions that are under the control of the decision-maker.
An analysis of the model will seek specific values for these variables that are
desirable from one or more perspectives. Very often – especially in large models
– it is also common to define additional "convenience" variables for the purpose
of simplifying the model or for making it clearer. Strictly speaking, such variables
are not under the control of the decision-maker, but they are also referred to as
decision variables.Constraints are used to set limits on the range of values that
each decision variable can take on, and each constraint is typically a translation of
Page 10
some specific restriction (e.g., the availability of some resource) or requirement

(e.g., the need to meet contracted demand). Clearly, constraints dictate the values
that can be feasibly assigned to the decision variables, i.e., the specific decisions
on the system or process that can be taken. The third and final component of a
mathematical model is the objective function. This is a mathematical statement of
some measure of performance (such as cost, profit, time, revenue, utilization, etc.)
and is expressed as a function of the decision variables for the model. It is usually
desired either to maximize or to minimize the value of the objective function,
depending on what it represents. Very often, one may simultaneously have more
than one objective function to optimize (e.g., maximize profits and minimize
changes in workforce levels, say). In such cases there are two options. First, one
could focus on a single objective and relegate the others to a secondary status by
moving them to the set of constraints and specifying some minimum or maximum
desirable value for them. This tends to be the simpler option and the one most
commonly adopted. The other option is to use a technique designed specifically
for multiple objectives (such as goal programming).
1.6. Applications of Operation Research
Scheduling: of aircrews and the fleet for airlines, of vehicles in supply chains,
of orders in a factory and of operating theatres in a hospital.
Facility planning: computer simulations of airports for the rapid and safe
processing of travellers, improving appointments systems for medical
practice.
Planning and forecasting: identifying possible future developments in

telecommunications, deciding how much capacity is needed in a holiday
business.
Yield management: setting the prices of airline seats and hotel rooms to
reflect changing demand and the risk of no shows.
Credit scoring: deciding which customers offer the best prospects for credit
companies.
Marketing: evaluating the value of sale promotions, developing customer

profiles and computing the life-time value of a customer.
Defence and peace keeping: finding ways to deploy troops rapidly.

Page 11
1.7. Advantages of OPERATION RESEARCH
 More Informed Decision Making:Operations research builds upon collected

knowledge and advanced study of various factors impacting a particular
operation. With this foundation of knowledge, operations research expands the
company's knowledge of and insight into various factors impacting operations,
as well as possible directions to take. With increased knowledge of factors, a
company can make better-informed decisions, which can reduce the margin of
error and possibly lead to increased success.
 Finer-tuned Control of Operations: Operations management can increase and
sharpen a company's control of their operations by providing details relating to
weaknesses and vulnerabilities in operations. By approaching operations
analysis through a quantifiable means, operations research can offer clear
evidence of where weaknesses in operations exist. In addition to ensuring more
control over operations, this can save time by showing trends. This saves
mangers from watching each individual worker, which in turn can save time
and money.
 Cost Reduction: Naturally, better decisions and increased control over
business operations can reduce company costs. However, operations research
can help reduce costs in other ways. By applying the same research techniques,
the advanced mathematical analysis of procedures within the company, as well
as money coming in and leaving the company, can help a business determine
where money is being lost, where it is being gained and how to decrease the
former and increase the latter.
 Team Unification: Because operations research takes an intelligent and
quantifiable look at the internal operations of a company, the company has a
strong foundation for making unified decisions regarding operations. With data
trends that each member of a decision-making committee can see and analyze
for themselves, operational research can allow decisions to unify a team or
company rather than dividing it.
1.8. Disadvantages of OPERATION RESEARCH:
· Dependence on an Electronic Computer: O.R. techniques try to find out an

optimal solution taking into account all the factors. In the modern society, these
factors are enormous and expressing them in quantity and establishing
relationships among these require voluminous calculations that can only be
handled by computers.
· Non-Quantifiable Factors: O.R. techniques provide a solution only when all
Page 12
the elements related to a problem can be quantified. All relevant variables do

not lend themselves to quantification. Factors that cannot be quantified find no
place in O.R. models.
· Distance between Manager and Operations Researcher: O.R. being
specialist’s job requires a mathematician or a statistician, who might not be
aware of the business problems. Similarly, a manager fails to understand the
complex working of O.R. Thus, there is a gap between the two.
· Money and Time Costs: When the basic data are subjected to frequent
changes, incorporating them into the O.R. models is a costly affair. Moreover, a
fairly good solution at present may be more desirable than a perfect O.R.
solution available after sometime.
· Implementation: Implementation of decisions is a delicate task. It must take
into account the complexities of human relations and behavior.
Chapter 2: Linear Programming problem
2.1. Introduction
Businesses use linear programming to understand how to maximize profits

while minimizing operational costs. This process calls for business analysts to study
the variables within certain constraints, since variables, by nature, change and come
up unexpectedly. In turn, analysts must use linear programming to map out how
businesses can come out ahead (output) while keeping their input relativelylow.
2.2. Features
Page 13
Linear programming is mapped out in mathematical equations. Calculations are

used by business analysts to determine input versus output in dollar values. Variables
must be accounted for in the equations, including, but not limited to, workforce wages
and benefits, inventory costs, expenses for research and development, materials,
manufacturingand even marketing.
2.3. Mathematical Formulation of the problem
The concept behind a linear programming problem is simple. It consists for

four basic components:
Decision variables represent quantities to be determined
Objective function represents how the decision variables affect the cost or
value to be optimized (minimized or maximized)
Constraints represent how the decision variables use resources, which are
available in limited quantities
Data quantifies the relationships represented in the objective function and the
constraints
In a linear program, the objective function and

the constraints are linear relationships, meaning that the effect of changing a decision
variable is proportional to its magnitude. While this requirement may seem overly
restrictive, many real-world business problems can be formulated in this manner. That
provides a powerful and robust analytical methodology for supporting fact-based
decision making.
For example: If you want to decide how to supply of each kind of product in
order to minimize your costs, you have to do that within a set of constraints. For
instance you have to be able to produce enough to satisfy the demand on all your
Page 14
various products and you have to do it within the capacity you have, which can
produce units at a given cost.
2.4. Characteristics of Problems
 One or more decisions

 Restrictions or constraints
e.g. Determining the number of products to manufacture
o a limited amount of raw materials

o a limited amount of labor
 Objective
– The production manager will choose the mix of products that
maximizes profits
– Minimizing the total transportation cost
2.5. Steps for formulating an LP
 Define decision variables

 Find objective function
 Find all constraints
 Usually we have to add non-negativity
2.6. Linear Programming (LP)
A linear programming is one in which decision variables appear in the

objective function and in the constraints of an optimization model.
Such that :
 It involves finding values of decision variablessuch that a function,

called objective function(z) is maximized or minimized
 Z is always linear, e.g. z=3x-2y
 constraints (inequality and/or equality type) are obeyed
 Constraints are always linear, e.g. 3x+2y 7
2.7. Example-
Page 15
2.7.1. Product Mix Problem
 Consider a small manufacturer making two products A and B.

 Two resources R1 and R2 are required to make these products.
 Each units of product A requires one unit of R1 and 3 units of R2.
 Each units of product B requires one unit of R1 and 2 units of R2.
 The manufacturer has 5 units of R1and 12 units of R2 available.
 The manufacturer also makes the profit of Rs 6 per unit of product A
sold and Rs 5 per unit of product B sold.
 How many units of product A and product B will be produced to get
maximum profit ?
2.7.2. Solution :
 The manufacturer has to decide on the number of units of products A &

B to produce.
 It is acceptable that the manufacturer would like to make as much profit
as possible and would decide on the production quantities accordingly.
 The manufacturer has to ensure the resources needed to make the
products available.
 Before we attempt to find out the decisions of the manufacturer, let us
redefine the problem in an algebraic form.
2.7.3. To Draw the Table
R1 R2 PROFIT
A 1 3 Rs 6
B 1 2 Rs 5
AVAILABLE 5 12
2.7.4. Formulate the Problem
Page 16
 Let x be the number of units of product A made

 Let y be the number of units of product B made
 So the problem will be
 Profit or maximize Z = 6x+5y
 Subject to x + y ≤ 5
 3x + 2y ≤ 12
 where x, y ≥ 0
2.7.5. The steps for Problem Formulation
 Identifying the decision variables.

 Writing the objective function.
 Writing the constraints.
 Writing the non-negativity restriction.
2.8. Solution of LP problems
The linear programming problem(LPP) can be solved by two methods
a) Graphical Method
b) Algebraic Method (Simplex method)
2.9. Graphical Method
1. Plot model constraint on a set of coordinates in a plane

2. Identify the feasible solution space on the graph where all constraints are
satisfied simultaneously
3. Plot objective function to find the point on boundary of this space that
maximizes (or minimizes) value of objective function
2.9.1. Example: Product Mix Problem
The N. Dustrious Company produces two products: I and II. The raw material
requirements, space needed for storage, production rates, and selling prices for these
products are given in Table .
Page 17
The total amount of raw material available per day for both products is 1575lb.
The total storage space for all products is 1500 ft2, and a maximum of 7 hours per day
can be used for production.
2.9.2. Solution
 The company has decided that it wants to maximize its sale income,
which depends on the number of units of product I and II that it
produces.
 Therefore, the decision variables, x1 and x2can be the number of units of
products I and II, respectively, produced per day.
 The object is to maximize the equation:
Z = 13x1 + 11x2
subject to the constraints on storage space, raw materials, and production

time.
 Each unit of product I requires 4 ft2 of storage space and each unit of
product II requires 5 ft2. Thus a total of 4x1 + 5x2 ft2 of storage space is
needed each day. This space must be less than or equal to the available
storage space, which is 1500 ft2. Therefore,
4X1 + 5X2 1500
 Similarly, each unit of product I and II produced requires 5 and 3 lbs,
respectively, of raw material. Hence a total of 5xl + 3x2lbof raw
materialis used.
 This must be less than or equal to the total amount of raw material
available, which is 1575 Ib. Therefore,
5x1 + 3x2  1575
Page 18
 Prouct I can be produced at the rate of 60 units per hour. Therefore, it

must take 1 minute or 1/60 of an hour to produce 1 unit. Similarly, it
requires 1/30 of an hour to produce 1 unit of product II. Hence a total of
x1/60 + x2/30 hours is required for the daily production. This quantity
must be less than or equal to the total production time available each
day. Therefore,
x1/ 60 + x2 / 30  7
or x1+ 2x2 420
 Finally, the company cannot produce a negative quantity of any product,
therefore x1 and x2must each be greater than or equal to zero.
 The linear programming model for this example can be summarized as:
2.9.3. Graphical Solution to LP Problems
Page 19
 An equation of the form 4x1+ 5x2= 1500 defines a straight line in the x1-
x2plane. An inequality defines an area bounded by a straight line.
Therefore, the region below and including the line 4x1+ 5x2= 1500 in the
Figure represents the region defined by 4x1+ 5x2 1500.
 Same thing applies to other equations as well.
 The shaded area of the figure comprises the area common to all the
regions defined by the constraints and contains all pairs of x1 and x2 that
are feasible solutions to the problem.
 This area is known as the feasible region or feasible solution space. The
optimal solution must lie within this region.
 There are various pairs of x1and x2that satisfy the constraints such as:
 Trying different solutions, the optimal solution will be:
X1 = 270
X2 = 75
Page 20
 This indicates that maximum income of $4335 is obtained by producing

270 units of product I and 75 units of product II.
 In this solution, all the raw material and available time are used, because
the optimal point lies on the two constraint lines for these resources.
 However, 1500- [4(270) + 5(75)], or 45 ft2 of storage space, is not used.
Thus the storage space is not a constraint on the optimal solution; that is,
more products could be produced before the company ran out of storage
space. Thus this constraint is said to be slack.
 If the objective function happens to be parallel to one of the edges of the
feasible region, any point along this edge between the two extreme
points may be an optimal solution that maximizes the objective function.
When this occurs, there is no unique solution, but there is an infinite
number of optimal solutions.
2.10. Simplex method
 When decision variables are more than 2, it is always advisable to use

Simplex Method to avoid lengthy graphical procedure.
 The simplex method is not used to examine all the feasible solutions.
 Itdeals only with a small and unique set of feasible solutions, the set of
vertex points (i.e., extreme points) of the convex feasible space that
contains the optimal solution.
2.10.1. Steps involved:

 Locate an extreme point of the feasible region.
 Examine each boundary edge intersecting at this point to see whether
movement along any edge increases the value of the objective function.
 If the value of the objective function increases along any edge, move
along this edge to the adjacent extreme point. If several edges indicate
improvement, the edge providing the greatest rate of increase is selected.
 Repeat steps 2 and 3 until movement along any edge no longer increases
the value of the objective function.
2.10.2. Example: Product Mix Problem
Page 21
The N. Dustrious Company produces two products: I and II. The raw material
requirements, space needed for storage, production rates, and selling prices for these
products are given below:
The total amount of raw material available per day for both products is 1575lb.
The total storage space for all products is 1500 ft2, and a maximum of 7 hours per day
can be used for production. The company wants to determine how many units of each
product to produce per day to maximize its total income.
2.10.3. Solution
Step 1: Convert all the inequality constraints into equalities by the use of slack
variables. Let:
As already developed, the LP model is:
Page 22
 Introducing these slack variables into the inequality constraints and rewriting
the objective function such that all variables are on the left-hand side of the
equation. Equation can be expressed as:
…..Eq (5)
 Since the coefficients of x1 and x2in Eq. (A1) are both negative, the value of Z
can be increased by giving either x1 or x2some positive value in the solution.
 In Eq. (B1), if x2 = S1 = 0, then x1= 1500/4 = 375. That is, there is only
sufficient storage space to produce 375 units at product I.
 From Eq. (C1), there is only sufficient raw materials to produce 1575/5 = 315
units of product I.
 From Eq. (D1), there is only sufficient time to produce 420/1 = 420 units of
product I.
 Therefore, considering all three constraints, there is sufficient resource to

produce only 315 units of x1. Thus the maximum value of x1is limited by Eq.
(C1).
Step 2: From Equation CI, which limits the maximum value of x1.
…..Eq (6)
Substituting this equation into Eq. (5) yields the following new formulation of the
model.
Page 23
…..Eq (7)
 It is now obvious from these equations that the new feasible solution is:
x1 = 315, x2 = 0, S1 = 240, S2 = 0, S3 = 105, and Z = 4095
 It is also obvious from Eq.(A2) that it is also not the optimum solution. The
coefficient of x1in the objective function represented by A2 is negative ( -16/5),
which means that the value of Z can be further increased by giving x2some
positive value.
 Following the same analysis procedure used in step 1, it is clear that:
 In Eq. (B2), if S1 = S1 = 0, then x2= (5/13)(240) = 92.3.
 From Eq. (C2), x2can take on the value (5/3 )(315) = 525 if x1= S2 = 0
 From Eq. (D2), x2can take on the value (5/7)(105) = 75 if S2 = S3 = 0
 Therefore, constraint D2limits the maximum value of x2 to 75. Thus a new

feasible solution includes x2= 75, S2 = S3 = 0.
Step 3: From Equation D2:
Substituting this equation into Eq. (7) yield:
Page 24
From these equations, the new feasible solution is readily found to be: x1 = 270, x2 =
75, S1 = 45, S2 = 0, S3 = 0, Z = 4335.
Because the coefficients in the objective function represented by Eq. (A3) are all
positive, this new solution is also the optimum solution.
Chapter 3: Transportation Problem
3.1. Introduction
The transportation problem is a special case of an LP problem. Because of its

characteristics, the transportation problem can be solved very efficiently with a special
algorithm called the transportation algorithm. The problem is concerned with
specifying how to disposition a single product from several sources to several
destinations at minimum cost.
3.2. The Transportation Model
Page 25
3.2.1. Characteristics
A product is transported from a number of sources to a number of destinations

at the minimum possible cost.
Each source is able to supply a fixed number of units of the product, and each
destination has a fixed demand for the product.
The linear programming model has constraints for supply at each source and
demand at each destination.
All constraints are equalities in a balanced transportation model where supply

equals demand.
Constraints contain inequalities in unbalanced models where supply does not

equal demand.
Transportation modelling is an iterative procedure for solving problems that

involve minimizing the cost of shipping products from a series of sources to a
series of destinations.
 Origin Points (or sources) can be factories, warehouses, car rental agencies
like AVIS or any other points from which goods are shipped.
 Destinations are any points that receive goods.
Transportation models are useful when considering alternative facility

locations. The choice of a new location depends on which will yield the
minimum cost for the entire system
To use the transportation model we need to know the following:
 The origin points and the capacity or supply per period at each
 The destination points and the demand per period at each
 The cost of shipping one unit from each origin to each destination
3.2.2. General transportation problem
Page 26
 The transportation problem can be regarded as a generalization of the

assignment problem. In an assignment problem we have a number of
origins each processing one item, and the same number of destinations
each requiring one item and are asked to empty the origins and fill the
destinations in such a way the total effectiveness is optimized. In a
transportation problem we have “m” origins, with origin “i” processing
“ai” items and “n” destinations (possibly different number from “m”)
with destination “j” requiring “bj” items, and with
ai = bj.
 We are given the m.n costs associated with shipping one item from any origin
to any destination, and are asked to empty the origins and fill the destinations in
such a way that the total cost is minimized.
 The assignment problem is seen to be a special case of transportation problem

in which m = n, all the aiand bjare unity.
 The iterative routine to be presented as the mode of the solution of the

transportation problem involves a succession of “feasible solutions” of
gradually diminishing cost; eventually the minimum achievable cost is reached,
and the corresponding feasible solution is optimal.
Transportation models deal can be formulated as a standard LP problem.

Typical situation shown in the manufacturer example
 Manufacturer has three plants P1, P2, P3 producing same products.

 From these plants, the product is transported to three warehouses W1,
W2 and W3.
 Each plant has a limited capacity, and each warehouse has specific
demand. Each plant transport to each warehouse, but transportationcost
vary for different combinations.
The problem is to determine the quantity each warehouse in order to minimize

total transportation costs.
Page 27
3.2.3. Solution Procedure for Transportation Problem
Conceptually, the transportation is similar to simplex method.
Begin with an initial feasible solution.
This initial feasible solution may or may not be optimal. The only way you can
find it out is to test it.
If the solution is not optimal, it is revised and the test is repeated. Each iteration
should bring you closer to the optimal solution.
The format followed in the above table will be used throughout the unit.
Each row corresponds to a specific plant and each column corresponds to a

specific warehouse.
Plant supplies are shown to the right of the table and warehouse requirements
are shown below the table.
Page 28
The larger box (also known as cells) at the intersection of a specific row and
column will contain both quantity to be transported and per unit transportation
cost.
The quantity to be transported will be shown in the centre of the box and will
be encircled and the per unit transportation cost is shown in the smaller
rectangular box at the left hand side corner.
3.3. Finding an Initial Feasible Solution
There are a number of methods for generating an initial feasible solution for a
transportation problem.
Consider three of the following
(i) North West Corner Method
(ii) Least Cost Method
(iii) Vogel’s Approximation Method
3.3.1. North West Corner Method (NWCM)
The simplest of the procedures used to generate an initial feasible solution is

NWCM. It is so called because we begin with the North West or upper left corner cell
of our transportation table. Various steps of this method can be summarised as under.
Step 1: Select the North West (upper left-hand) corner cell of the transportation
table and allocate as many units as possible equal to the minimum between available
supply and demand requirement i.e., min (S1, D1).
Step 2: Adjust the supply and demand numbers in the respective rows and
columns allocation.
Step 3:
a) If the supply for the first row is exhausted, then move down to the first
cell in the second row and first column and go to step 2.
b) If the demand for the first column is satisfied, then move horizontally to
the next cell in the second column and first row and go to step 2.
Page 29
Step 4: If for any cell, supply equals demand, then the next allocation can be
made in cell either in the next row or column.
Step 5: Continue the procedure until the total available quantity id fully
allocated to the cells as required.
Remark 1: The quantities so allocated are circled to indicated, the value of the
corresponding variable.
Remark 2: Empty cells indicate the value of the corresponding variable as

zero, I.e., no unit is shipped to this cell.
3.3.1.1. To illustrate the NWCM
As stated in this method, we start with the cell (P1, W1) and Allocate the min
(S1, D1) = min (20,21)=20. Therefore we allocate 20 Units this cell which completely
exhausts the supply of Plant P1 and leaves a balance of (21-20) =1 unit of demand at
warehouse W1
Now, we move vertically downward to cell (P2, W1) At this stage the largest
allocation possible is the (S2, D1 –20) =min (28, 1)= 1. This allocation of 1 unit to the
cell (P1 W2). Since the demand of warehouse W2 is 25 units while supply available at
plant P2 is 27 units, therefore, the min (27-5) = 25 units are located to the cell (P1,
W2). The demand of warehouse W2 is now satisfied and a balance of (27-225) = 2
units of supply remain at plant P2. Moving again horizontally, we allocated two units
to the cell (P2, W3) Which Completely exhaust the supply at plant P2 and leaves a
balance of 17 units to this cell (P3, W3).. At this, 17 Units areavailable at plant P3 and
17 units are required at warehouse W3. So we allocate 17 units to this cell (P3, W3).
Hence we have made all the allocation. The initial feasible solution is shown below.
The Total transportation cost for this initial solution is
Total Cost = 20x7 +1 X 5 + 25 x 7 + 2 X 3 + 17 + 8 = Rs. 462
Page 30
3.3.2. Least Cost Method
The allocation according to this method is very useful as it takes into

consideration the lowest cost and therefore,reduce the computation as well as the
amount of time necessary to arrive at the optimal solution.
Step 1:
a) Select the cell with the lowest transportation cost among all the rows or
columns of the transportation table.
b) If the minimum cost is not unique, then select arbitrarily any cell with
this minimum cost.
Step 2:
Allocate as many units as possible to the cell determined in Step 1 and

eliminate that row (column) in which either supply is exhausted or demand is
satisfied.
Repeat Steps 1 and 2 for the reduced table until the entire supply at different
plants is exhausted to satisfied the demand at different warehouses.
Page 31
3.3.3. Vogel’s Approximation Method (VAM)
This method is preferred over the other two methods because the initial feasible
solution obtained is either optimal or very close to the optimal solution.
Step 1:
Compute a penalty for each row and column in the transportation table.
Step 2:
Identify the row or column with the largest penalty.
Step 3:
Repeat steps 1 and 2 for the reduced table until entire supply at plants are
exhausted to satisfy the demand as different warehouses.
Page 32
We need a method, like the simplex method, to check and obtain the optimal
solution
Two methods:
 Stepping-stone method
 Modified distributed method (MODI)
3.4. Stepping-stone method
Let consider the following initial tableau from the Least Cost algorithm
Page 33
There areNon-basic variables
These are basicvariables
Question: How can we introduce a non-basic variable into basic variable?
Introduce a non-basic variable into basic variables
 Here, we can select any non-basic variable as an entry and then using the
“+ and –” steps to form a closed loop as follows:
let consider this

nonbasic variable
Page 34
 
 
The above saying that, we add min value of all –ve cells into cell that has “+”
sign, and subtractsthe same value to the “-ve” cells.
Thus, max –veis min (200,25) = 25, and we add 25 to cell A1 and A3, and
subtract it from B1 and A3
The above tableaus give min cost = 25*6 + 120*10 + 175*11
175*4 + 100* 5 = $4525
We can repeat this process to all possible non-basic cells in that above
Page 35
tableau until one has the min cost.
So for getting optimal solution, we introducing the next algorithm called

Modified Distribution (MODI).
3.5. Modified distributed method (MODI)
 It is a modified version of stepping stone method

 MODI has two important elements:
1. It determines if a tableau is the optimal one
2. It tells you which non-basic variable should be firstly considered as
an entry variable
3. It makes use of stepping-stone to get its answer of next iteration
3.5.1. How it works?
Step 0: let ui,vj, cij variables represent rows, columns, and cost in the
transportation tableau, respectively
Step 1: (a) form a set of equations that uses to represent all basic variables
ui + vj= cij
(b) solve variables by assign one variable = 0
Step2:(a) form a set of equations use to represent non-basic variable (or

empty cell) as such
cij – ui – vj = kij
(b) solve variables by using step 1(b) information
Step 3: Select the cell that has the most –ve value in 2(b).
Step 4: Use stepping-stone method to allocate resource to cell in step 3
Step 5:Repeat the above steps until all cells in 2(a) has no negative value
Consider to this initial tableau:
Page 36
Step 0: let ui, vj, cij variables represent rows, columns, and cost in the
transportation tableau, respectively
C3A
Step 1: (a) form a set of equations that uses to represent all basic variables
ui + vj = cij
Page 37
(b) solve variables by assign one variable = 0
Set one variable = 0
Page 38
Step2: (a & b)
Page 39
Note this may look difficult and complicated, however, we can add these
V=values into the above tableau as well
Step2: (a & b), alternative
Page 40

 2

6-0-7
Step 3: Select the cell that has the most –ve value in 2b

 

Page 41
Select either one, (Why?)
These cells mean, introduce it will reduce the min z to -1 cost unit
Step 4: Use stepping-stone method
 
 
From here we have ….
Page 42
Step 5: we repeat steps 1-4 again for the above tableau, we have
Page 43
All are positive …So stop.
Page 44
Chapter 4: Assignment Problem
4.1. Introduction
Assignment problem is a completely degenerate form of a transportation

problem. The units available at each origin and units demanded at each
destination are all equal to one. That means exactly one occupied cell in each row
and each column of the transportation table i.e. only n occupied cells in place of
the required n+n-1(=2n-1). Here the objective is to assign a number of origins to
the equal number of destinations at a minimum cost(or maximum profit).
4.2. Mathematical formulation of the problem
Let m be the number of jobs as well as the operators, and tij be the processing
time of the job i if it is assigned to the operator j. Here the objective is to assign
the jobs to the operators such that the total processing time is minimized.
Row entity Column entity Cell entity
jobs operators Processing time
Programmer program Processing time
operators machine Processing time
Drivers Routes Travel time
Teachers Subjects Students pass percentage
4.3. Examples of assignment problem
Page 45
m m
Min Z   Cij X ij
i 1 j 1
X
j 1
ij  1 for i  1,....m
X
i 1
ij  1 for j  1,....m
4.4. Types of assignment problems
 As in transportation problems assignment problems also can be balanced (with

equal number of rows and columns) or unbalanced.
 When it is unbalanced the necessary number of row/s or column/s are added to
balance it. That is to make a square matrix.
 The values of the cell entries of the dummy rows or columns will be made
equal to zero.
4.5. Example : Assign the 5 operators to the 5 jobs such that the total processing
time is minimized.
Operator 1 2 3 4 5
job
1 10 12 15 12 8
2 7 16 14 14 11
3 13 14 7 9 9
4 12 10 11 13 10
5 8 13 15 11 15
Page 46
4.6. Solve by Hungarianmethod
Consists of two phases.
 First phase: Row reductions and column reductions are carried out.
 Second phase: The solution is optimized in iterative basis.
o Phase 1: Row and column reductions
 Step 0: Consider the given cost matrix
 Step 1: Subtract the minimum value of each row from the entries of
that row, to obtain the next matrix.
 Step 2: Subtract the minimum value of each column from the entries
of that column, to obtain the next matrix.
 Treat the resulting matrix as the input for phase 2.
o Phase 2: Optimization
 Step3: Draw a minimum number of lines to cover all the zeros of the
matrix.
4.6.1.Procedure for drawing the minimum number of lines:
 Row scanning
– Starting from the first row ,if there’s only one zero in a row mark a square
round the zero entry and draw a vertical line passing through that zero.
Otherwise skip the row.
– After scanning the last row, check whether all the zeros are covered with
lines. If yes go to step 4. Otherwise do column scanning.
 Column scanning.
– Starting from the first column: if there’s only one zero in a column mark a
square round the zero entry and draw a horizontal line passing through that
zero. Otherwise skip the column.
– After scanning the last column, check whether all the zeros are covered with
lines. If yes go to step 4. Otherwise do row scanning.
– Step 4: check whether the number of squares marked is equal to the number of
rows/columns of the matrix.
– If yes go to step 7. Otherwise go to step 5.
Page 47
– Step 5: Identify the minimum value of the undeleted cell values ,say ‘x’.
Obtain the next matrix by the following steps.
5.1 Copy the entries covered by the lines ,but not on the intersection
points.
5.2 Add x to the intersection points
5.3 Subtract x from the undeleted cell values.
– Step 6: go to step 3.
– Step 7: optimal solution is obtained as marked by the squares
4.6.2. Maximization problem
– If the problem is a maximization problem ,convert the problem into a
minimization problem by multiplying by -1.
– Then apply the usual procedure of an assignment problem.
– Example : Assign 4 sales persons to four different sales regions such that the
total sales is maximized.
Salesregion 1 2 3 4
Sales person
1 10 22 12 14
2 16 18 22 10
3 24 20 12 18
4 16 14 24 20
Modified data , after multiplying the cell entries by -1.
Sales region 1 2 3 4
Sales person
1 -10 -22 -12 -14

2 -16 -18 -22 -10
3 -24 -20 -12 -18
Page 48
4 -16 -14 -24 -20
After step 1
Sales person
1 12 0 10 8
2 6 4 0 12
3 0 4 12 6
4 8 10 0 4
After step 2
Sales person
1 12 0 10 4
2 6 4 0 8
3 0 4 12 2
4 8 10 0 0
Phase 2
Sales person
1 12 0 10 4
2 6 4 0 8
3 0 4 12 2
Page 49
4 8 10 0 0
Note that the number of squares is equal to the number of rows of the
matrix. solution is feasible and optimal.
Result:
Salesman Sales Sales
1 2 22
2 3 22
3 1 24
4 4 20
Page 50
Chapter 5: Rules of Network Analysis
5.1. Introduction
One of the most challenging jobs that any manager can take on is the
management of alarge-scale project that requires coordinating numerous activities
throughout the organization. A myriad of details must be considered in planning how
to coordinate all theseactivities, in developing a realistic schedule, and then in
monitoring the progress of the project.
Fortunately, two closely related operations research techniques, PERT

(program evaluation and review technique) and CPM (critical path method), are
available to assist theproject manager in carrying out these responsibilities. These
techniques make heavy useof networks (as introduced in the preceding chapter) to
help plan and display the coordination of all the activities. They also normally use a
software package to deal with all thedata needed to develop schedule information and
then to monitor the progress of the project. Project management software, such as MS
Project in your OR Courseware, now iswidely available for these purposes.
PERT and CPM have been used for a variety of projects, including the
followingtypes.
1. Construction of a new plant
2. Research and development of a new product
3. NASA space exploration projects
4. Movie productions
5. Building a ship
6. Government-sponsored projects for developing a new weapons system
7. Relocation of a major facility
8. Maintenance of a nuclear reactor
9. Installation of a management information system
Page 51
10. Conducting an advertising campaign
PERT and CPM were independently developed in the late 1950s. Ever since,
theyhave been among the most widely used OR techniques.
The original versions of PERT and CPM had some important differences, as we
willpoint out later in the chapter. However, they also had a great deal in common, and
the twotechniques have gradually merged further over the years. In fact, today’s
software packages often include all the important options from both original versions.
5.2. NETWORK
 Graphical portrayal of activities and event
 Shows dependency relationships between tasks/activities in a project
 Clearly shows tasks that must precede (precedence) or follow (succeeding)

other tasks in a logical manner
 Clear representation of plan – a powerful tool for planning and controlling

project
5.3. DEFINITION OF TERMS IN A NETWORK
 Activity: Any portions of project (tasks) whichrequired by project, uses up

resource and consumes time – may involve labor, paper work, contractual
negotiations, machinery operations.Activity on Arrow (AOA) showed as arrow,
AON – Activity on Node.
 Event : Beginning or ending points of one or more activities, instantaneous

point in time, alsocalled ‘nodes’.
 Network: Combination of all project activities and the events
Page 52
Emphasis on Logic in Network Construction
 Construction of network should be based on logical or technical dependencies

among activities
 Example - before activity ‘Approve Drawing’ can be started the activity

‘Prepare Drawing’ must be completed
Common error – build network on the basis of time logic (a feeling for proper
sequence )
5.4. Example 1- A simple network
Consider the list of four activities for making a simple product:
Immediate predecessors for a particular activity are the activities that, when
completed, enable the start of the activity in question.
Sequence of activities
 Can start work on activities A and B anytime, since neither of these activities
depends upon the completion of prior activities.
 Activity C cannot be started until activity B has been completed
 Activity D cannot be started until both activities A and C have been completed.
 The graphical representation (next slide) is referred to as the PERT/CPM

network
Page 53
Network of Four Activities
Example 2
Develop the network for a project with following activities and immediate
predecessors:
Network of first five activities
Page 54
Network of Seven Activities
• Note how the network correctly identifies D, E, and F as the immediate

predecessors for activity G.
• Dummy activities is used to identify precedence relationships correctly and to

eliminate possible confusion of two or more activities having the same starting
and ending nodes
• Dummy activities have no resources (time, labor, machinery, etc) – purpose is

to PRESERVE LOGIC of the network
5.5. Scheduling with activity time
This information indicates that the total time required to complete activities is 51
weeks. However, we can see from the network that several of the activities can be
conducted simultaneously (A and B, for example).
5.5.1. Earliest start & earliest finish time
 We are interested in the longest path through the network, i.e., the critical path.
Page 55
 Starting at the network’s origin (node 1) and using a starting time of 0, we

compute an earliest start (ES) and earliest finish (EF) time for each activity in
the network.
 The expression EF = ES + t can be used to find the earliest finish time for a
given activity.
For example, for activity A, ES = 0 and t = 5; thus the earliest finish time for
activity A is
EF = 0 + 5 = 5
Arc with ES & EF time
Network with ES & EF time
Page 56
Earliest start time rule:
The earliest start time for an activity leaving a particular node is equal to the largest
of the earliest finish times for all activities entering the node.
Activity, duration, ES, EF, LS, LF
5.5.2. Latest start & latest finish time
 To find the critical path we need a backward pass calculation.
 Starting at the completion point (node 7) and using a latest
finish time (LF) of 26 for activity I, we trace back through the
network computing a latest start (LS) and latest finish time
for each activity
 The expression LS = LF – t can be used to calculate latest start
time for each activity. For example, for activity I, LF = 26 and t
= 2, thus the latest start time for activity I is
LS = 26 – 2 = 24
Page 57
Network with LS & LF time
Latest finish time rule:
The latest finish time for an activity entering a particular node is equal to the smallest
of the latest start times for all activities leaving the node.
Slack or Free Time or Float
Slack is the length of time an activity can be delayed without affecting the completion
date for the entire project.
For example, slack for C = 3 weeks, i.e Activity C can be delayed up to 3

weeks
(start anywhere between weeks 5 and 8).
Page 58
Activity schedule for our example
IMPORTANT QUESTIONS
 What is the total time to complete the project?
 26 weeks if the individual activities are completed on schedule.
 What are the scheduled start and completion times for each activity?
 ES, EF, LS, LF are given for each activity.
Page 59
 What activities are critical and must be completed as scheduled in

order to keep the project on time?
 Critical path activities: A, E, F, G, and I.
 How long can non-critical activities be delayed before they cause a

delay in the project’s completion time
 Slack time available for all activities are given.
5.5.3. Importance of Float (Slack) and Critical Path
1. Slack or Float shows how much allowance each activity has, i.e how long it can
be delayed without affecting completion date of project
2. Critical path is a sequence of activities from start to finish with zero slack.
Critical activities are activities on the critical path.
3. Critical path identifies the minimum time to complete project
4. If any activity on the critical path is shortened or extended, project time will be
shortened or extended accordingly
5. So, a lot of effort should be put in trying to control activities along this path, so
that project can meet due date. If any activity is lengthened, be aware that
project will not meet deadline and some action needs to be taken.
6. If can spend resources to speed up some activity, do so only for critical

activities.
7. Don’t waste resources on non-critical activity, it will not shorten the project
time.
8. If resources can be saved by lengthening some activities, do so for non-critical

activities, up to limit of float.
9. Total Float belongs to the path

Page 60
5.6. PERT For Dealing WithUncertainty
 So far, times can be estimated with relative certainty, confidence
 For many situations this is not possible, e.g Research, development, new
products and projects etc.
 Use 3 time estimates
m= most likely time estimate, mode.
a = optimistic time estimate,
b = pessimistic time estimate, and
Expected Value (TE) = (a + 4m + b) /6
Variance (V) = ( ( b – a) / 6 ) 2
Std Deviation (δ) = SQRT (V)
Page 61
The complete network
Page 62
Critical Path Analysis (PERT)
Assume, PM promised to complete the project in the fifty days.
What are the chances of meeting that deadline?
Page 63
Calculate Z, where
Z = (D-S) / V
Example,
D = 50; S(Scheduled date) = 20+15+8 =43; V = (4+25+4) =33
Z = (50 – 43) / 5.745
= 1.22 standard deviations.
The probability value of Z = 1.22, is 0.888
What deadline are you 95% sure of meeting
Z value associated with 0.95 is 1.645
D = S + 5.745 (1.645)
Page 64
= 43 + 9.45
= 52.45 days
Thus, there is a 95 percent chance of finishing the project by 52.45 days.
5.7. Comparison Between CPM and PERT
5.8. BENEFITS OF CPM / PERT NETWORK
Consistent framework for planning, scheduling, monitoring, and controlling

project.
• Shows interdependence of all tasks, work packages, and work units.
Page 65
• Helps proper communications between departments and functions.
• Determines expected project completion date.
• Identifies so-called critical activities, which can delay the project

completion time.
• Identified activities with slacks that can be delayed for specified periods
without penalty, or from which resources may be temporarily borrowed
• Determines the dates on which tasks may be started or must be started if

the project is to stay in schedule.
• Shows which tasks must be coordinated to avoid resource or timing

conflicts.
• Shows which tasks may run in parallel to meet project completion date
Cost consideration in project
• Project managers may have the option or requirement to crash the project, or
accelerate the completion of the project.
• This is accomplished by reducing the length of the critical path(s).
• The length of the critical path is reduced by reducing the duration of the
activities on the critical path.
• If each activity requires the expenditure of an amount of money to reduce its

duration by one unit of time, then the project manager selects the least cost
critical activity, reduces it by one time unit, and traces that change through the
remainder of the network.
• As a result of a reduction in an activity’s time, a new critical path may be

created.
• When there is more than one critical path, each of the critical paths must be
reduced.
• If the length of the project needs to be reduced further, the process is repeated.
Page 66
5.9. Project Crashing
• Crashing
– reducing project time by expending additional resources
• Crash time
– an amount of time an activity is reduced
• Crash cost
– cost of reducing activity time
• Goal
– reduce project duration at minimum cost
5.9.1. Activity crashing
5.9.2. Time-Cost Relationship
 Crashing costs increase as project duration decreases
 Indirect costs increase as project duration increases
 Reduce project length as long as crashing costs are less than indirect costs
Page 67
Time-Cost Tradeoff
5.9.3. Project Crashing example
Page 68
5.9.4. Time Cost data
5.10. Limitations to CPM/PERT
• Clearly defined, independent and stable activities
• Specified precedence relationships
Page 69
• Over emphasis on critical paths
• Deterministic CPM model
• Activity time estimates are subjective and depend on judgment
• PERT assumes a beta distribution for these time estimates, but the actual
distribution may be different
• PERT consistently underestimates the expected project completion time due to

alternate paths becoming critical
Page 70
CHAPTER 6: Game Theory
6.1. INTRODUCTION
Game theory is a mathematical theory that deals with the generalfeatures of

competitive situations like these in a formal, abstract way. It places
particularemphasis on the decision-making processes of the adversaries.
However, the focus in this chapter ison the simplest case, called two-person, zero-
sum games. As the name implies, thesegames involve only two adversaries or players
(who may be armies, teams, firms, and soon). They are called zero-sum games
because one player wins whatever the other oneloses, so that the sum of their net
winnings is zero.
6.2. THE FORMULATION OF TWO-PERSON, ZERO-SUM GAMES
To illustrate the basic characteristics of two-person, zero-sum games, consider the

gamecalled odds and evens. This game consists simply of each player simultaneously
showingeither one finger or two fingers. If the number of fingers matches, so that the
total numberfor both players is even, then the player taking evens (say, player 1) wins
the bet (say, $1)from the player taking odds (player 2). If the number does not match,
player 1 pays $1 toplayer 2. Thus, each player has two strategies: to show either one
finger or two fingers.
The resulting payoff to player 1 in dollars is shown in the payoff table given in
Table.
In general, a two-person game is characterized by
1. The strategies of player 1
2. The strategies of player 2
3. The payoff table
Page 71
Before the game begins, each player knows the strategies she or he has available,
the onesthe opponent has available, and the payoff table. The actual play of the game
consists ofeach player simultaneously choosing a strategy without knowing the
opponent’s choice.
A strategy may involve only a simple action, such as showing a certain number
offingers in the odds and evens game. On the other hand, in more complicated games
involvinga series of moves, a strategy is a predetermined rule that specifies
completelyhow one intends to respond to each possible circumstance at each stage of
the game. Forexample, a strategy for one side in chess would indicate how to make
the next move forevery possible position on the board, so the total number of possible
strategies would beastronomical. Applications of game theory normally involve far
less complicated competitivesituations than chess does, but the strategies involved can
be fairly complex.
The payoff table shows the gain (positive or negative) for player 1 that would
resultfrom each combination of strategies for the two players. It is given only for
player 1 becausethe table for player 2 is just the negative of this one, due to the zero-
sum nature ofthe game.
The entries in the payoff table may be in any units desired, such as dollars,
providedthat they accurately represent the utility to player 1 of the corresponding
outcome. However,utility is not necessarily proportional to the amount of money (or
any other commodity)when large quantities are involved. For example, $2 million
(after taxes) is probablyworth much less than twice as much as $1 million to a poor
Page 72
person. In other words,given the choice between (1) a 50 percent chance of receiving
$2 million rather than nothingand (2) being sure of getting $1 million, a poor person
probably would much preferthe latter. On the other hand, the outcome corresponding
to an entry of 2 in a payoff tableshould be “worth twice as much” to player 1 as the
outcome corresponding to an entryof 1. Thus, given the choice, he or she should be
indifferent between a 50 percent chanceof receiving the former outcome (rather than
nothing) and definitely receiving the latter outcome instead 1.
A primary objective of game theory is the development of rational criteria for

selectinga strategy. Two key assumptions are made:
1. Both players are rational.
2. Both players choose their strategies solely to promote their own welfare (no
compassionfor the opponent).
6.3. SOLVING SIMPLE GAMES
Two politicians are running against each other for the U.S. Senate. Campaign
plans mustnow be made for the final 2 days, which are expected to be crucial because
of the closenessof the race. Therefore, both politicians want to spend these days
campaigning in twokey cities, Bigtown and Megalopolis. To avoid wasting campaign
time, they plan to travelat night and spend either 1 full day in each city or 2 full days
in just one of the cities.
However, since the necessary arrangements must be made in advance, neither

politicianwill learn his (or her)1 opponent’s campaign schedule until after he has
finalized his own.
Therefore, each politician has asked his campaign manager in each of these cities
to assesswhat the impact would be (in terms of votes won or lost) from the various
possiblecombinations of days spent there by himself and by his opponent. He then
wishes to usethis information to choose his best strategy on how to use these 2 days.
Formulation as a Two-Person, Zero-Sum Game
Page 73
To formulate this problem as a two-person, zero-sum game, we must identify the

two players(obviously the two politicians), the strategies for each player, and the
payoff table.
As the problem has been stated, each player has the following three strategies:
Strategy 1 - spend 1 day in each city.
Strategy 2 - spend both days in Bigtown.
Strategy 3 -spend both days in Megalopolis.
By contrast, the strategies would be more complicated in a different situation

whereeach politician learns where his opponent will spend the first day before he
finalizes hisown plans for his second day. In that case, a typical strategy would be:
Spend the firstday in Bigtown; if the opponent also spends the first day in Bigtown,
then spend the secondday in Bigtown; however, if the opponent spends the first day in
Megalopolis, thenspend the second day in Megalopolis. There would be eight such
strategies, one for eachcombination of the two first-day choices, the opponent’s two
first-day choices, and thetwo second-day choices.
Each entry in the payoff table for player 1 represents the utility to player 1 (or
thenegative utility to player 2) of the outcome resulting from the corresponding
strategiesused by the two players. From the politician’s viewpoint, the objective is to
win votes, and each additional vote (before he learns the outcome of the election) is of
equal valueto him. Therefore, the appropriate entries for the payoff table for politician
1 are the totalnet votes won from the opponent (i.e., the sum of the net vote changes in
the two cities)resulting from these 2 days of campaigning. Using units of 1,000 votes,
this formulationis summarized in Table 14.2. Game theory assumes that both players
are using the sameformulation (including the same payoffs for player 1) for choosing
their strategies.
However, we should also point out that this payoff table would not be appropriate
ifadditional information were available to the politicians. In particular, assume that
theyknow exactly how the populace is planning to vote 2 days before the election, so
that eachpolitician knows exactly how many net votes (positive or negative) he needs
to switch inhis favor during the last 2 days of campaigning to win the election.
Page 74
Consequently, the onlysignificance of the data prescribed by Table 14.2 would be to

indicate which politicianwould win the election with each combination of strategies.
Because the ultimate goal isto win the election and because the size of the plurality is
relatively inconsequential, theutility entries in the table then should be some positive
constant(say, -1)when politician1 wins and -1 when he loses. Even if only a
probability of winning can be determinedfor each combination of strategies, the
appropriate entries would be the probabilityof winning minus the probability of losing
because they then would represent expectedutilities. However, sufficiently accurate
data to make such determinations usually are notavailable, so this example uses the
thousands of total net votes won by politician 1 as theentries in the payoff table.
Variation 1 of the Example
This situation is a rather special one, where the answer can be obtained just by
applyingthe concept of dominated strategies to rule out a succession of inferior
strategiesuntil only one choice remains.
Page 75
A strategy is dominated by a second strategy if the second strategy is always at

least asgood (and sometimes better) regardless of what the opponent does. A
dominated strategycan be eliminated immediately from further consideration.
However, forplayer 1, strategy 3 is dominated by strategy 1 because the latter has

larger payoffs(1 ˃ 0, 2 ˃ 1, 4 ˃-1) regardless of what player 2 does. Eliminating
strategy 3 from furtherconsideration yields the following reduced payoff table:
Because both players are assumed to be rational, player 2 also can deduce that
player1 has only these two strategies remaining under consideration. Therefore, player
2 nowdoes have a dominated strategy—strategy 3, which is dominated by both
strategies 1 and2 because they always have smaller losses for player 2 (payoffs to
player 1) in this reducedpayoff table (for strategy 1: 1 ˂ 4, 1 ˂ 5; for strategy 2: 2 ˂ 4,
0 ˂ 5). Eliminatingthis strategy yields
At this point, strategy 2 for player 1 becomes dominated by strategy 1 because

thelatter is better in column 2 (2 ˃ 0) and equally good in column 1 (1 = 1).
Eliminatingthe dominated strategy leads to
Page 76
Strategy 2 for player 2 now is dominated by strategy 1 (1 ˂ 2), so strategy 2 should

beeliminated.
Consequently, both players should select their strategy 1. Player 1 then will
receivea payoff of 1 from player 2 (that is, politician 1 will gain 1,000 votes from
politician 2).
In general, the payoff to player 1 when both players play optimally is referred
to asthe value of the game. A game that has a value of 0 is said to be a fair game.
Since thisparticular game has a value of 1, it is not a fair game.
The concept of a dominated strategy is a very useful one for reducing the size of
thepayoff table that needs to be considered and, in unusual cases like this one, actually
identifyingthe optimal solution for the game. However, most games require another
approachto at least finish solving, as illustrated by the next two variations of the
example.
Consider player 1. By selecting strategy 1, he could win 6 or could lose as much

as3. However, because player 2 is rational and thus will seek a strategy that will
protecthimself from large payoffs to player 1, it seems likely that player 1 would incur
a loss byplaying strategy 1. Similarly, by selecting strategy 3, player 1 could win 5,
but more probablyhis rational opponent would avoid this loss and instead administer a
loss to player 1which could be as large as 4. On the other hand, if player 1 selects
strategy 2, he is guaranteednot to lose anything and he could even win something.
Therefore, because it providesthe best guarantee (a payoff of 0), strategy 2 seems to
be a “rational” choice forplayer 1 against his rational opponent. (This line of
reasoning assumes that both playersare averse to risking larger losses than necessary,
in contrast to those individuals who enjoygambling for a large payoff against long
odds.)
Now consider player 2. He could lose as much as 5 or 6 by using strategy 1 or

3,butis guaranteed at least breaking even with strategy 2. Therefore, by the same
reasoning ofseeking the best guarantee against a rational opponent, his apparent
choice is strategy 2.
Page 77
If both players choose their strategy 2, the result is that both break even. Thus, in
thiscase, neither player improves upon his best guarantee, but both also are forcing the
opponentinto the same position. Even when the opponent deduces a player’s strategy,
theopponent cannot exploit this information to improve his position.
The end product of this line of reasoning is that each player should play in such
away as to minimize his maximum losses whenever the resulting choice of
strategycannotbe exploited by the opponent to then improve his position. This so-
called minimax criterionis a standard criterion proposed by game theory for selecting
a strategy. In effect,this criterion says to select a strategy that would be best even if
the selection were beingannounced to the opponent before the opponent chooses a
strategy. In terms of the payofftable, it implies that player 1 should select the strategy
whose minimum payoff islargest, whereas player 2 should choose the one whose
maximum payoff to player 1 is thesmallest. This criterion is illustrated in Table ,
where strategy 2 is identified as themaximin strategy for player 1 and strategy 2 is the
minimax strategy for player 2. The resultingpayoff of 0 is the value of the game, so
this is a fair game.
Notice the interesting fact that the same entry in this payoff table yields both the
maximinand minimax values. The reason is that this entry is both the minimum in its
rowand the maximum of its column. The position of any such entry is called a saddle
point.
Page 78
The fact that this game possesses a saddle point was actually crucial in
determininghow it should be played. Because of the saddle point, neither player can
take advantageof the opponent’s strategy to improve his own position. In particular,
when player 2 predictsor learns that player 1 is using strategy 2, player 2 would incur
a loss instead ofbreaking even if he were to change from his original plan of using his
strategy 2. Similarly,player 1 would only worsen his position if he were to change his
plan. Thus, neitherplayer has any motive to consider changing strategies, either to take
advantage of hisopponent or to prevent the opponent from taking advantage of him.
Therefore, since thisis a stable solution (also called an equilibrium solution), players 1
and 2 should exclusivelyuse their maximin and minimax strategies, respectively.
As the next variation illustrates, some games do not possess a saddle point, in
whichcase a more complicated analysis is required.
Suppose that both players attempt to apply the minimax criterion in the same way
asin variation 2. Player 1 can guarantee that he will lose no more than 2 by playing
strategy1. Similarly, player 2 can guarantee that he will lose no more than 2 by
playing strategy 3.
However, notice that the maximin value (-2) and the minimax value (2) do not
coincidein this case. The result is that there is no saddle point.
What are the resulting consequences if both players plan to use the strategies just
derived?
Page 79
It can be seen that player 1 would win 2 from player 2, which would make player2
unhappy. Because player 2 is rational and can therefore foresee this outcome, he
wouldthen conclude that he can do much better, actually winning 2 rather than losing
2, by playingstrategy 2 instead. Because player 1 is also rational, he would anticipate
this switchand conclude that he can improve considerably, from _2 to 4, by changing
to strategy 2.
Realizing this, player 2 would then consider switching back to strategy 3 to

convert a lossof 4 to a gain of 3. This possibility of a switch would cause player 1 to
consider againusing strategy 1, after which the whole cycle would start over again.
Therefore, eventhough this game is being played only once, any tentative choice of a
strategy leaves thatplayer with a motive to consider changing strategies, either to take
advantage of his opponentor to prevent the opponent from taking advantage of him.
In short, the originally suggested solution (player 1 to play strategy 1 and player 2
toplay strategy 3) is an unstable solution, so it is necessary to develop a more
satisfactorysolution. But what kind of solution should it be?
The key fact seems to be that whenever one player’s strategy is predictable, the
opponentcan take advantage of this information to improve his position. Therefore, an
essentialfeature of a rational plan for playing a game such as this one is that neither
playershould be able to deduce which strategy the other will use. Hence, in this case,
rather thanapplying some known criterion for determining a single strategy that will
definitely beused, it is necessary to choose among alternative acceptable strategies on
some kind ofrandom basis. By doing this, neither player knows in advance which of
his own strategieswill be used, let alone what his opponent will do.
This suggests, in very general terms, the kind of approach that is required for
gameslacking a saddle point. In the next section we discuss the approach more fully.
Given thisfoundation, the following two sections will develop procedures for finding
an optimal wayof playing such games. This particular variation of the political
campaign problem willcontinue to be used to illustrate these ideas as they are
developed.
Page 80
CHAPTER 2:
CASE STUDY: NEW FRONTIERS
Rob Richman, president of AmeriBank, takes off his glasses, rubs his eyes in
exhaustion,and squints at the clock in his study. It reads 3 A.M. For the last several
hours,Rob has been poring over AmeriBank’s financial statements from the last three
quartersof operation. AmeriBank, a medium-sized bank with branches throughout
theUnited States, is headed for dire economic straits. The bank, which provides
transaction,savings, and investment and loan services, has been experiencing a steady
declinein its net income over the past year, and trends show that the decline will
continue.
The bank is simply losing customers to nonbank and foreign bank

competitors.AmeriBank is not alone in its struggle to stay out of the red. From his
daily industryreadings, Rob knows that many American banks have been suffering
significantlosses because of increasing competition from nonbank and foreign bank
competitorsoffering services typically in the domain of American banks. Because the
nonbank andforeign bank competitors specialize in particular services, they are able to
better capturethe market for those services by offering less expensive, more efficient,
more convenientservices. For example, large corporations now turn to foreign banks
and commercialpaper offerings for loans, and affluent Americans now turn to money-
marketfunds for investment. Banks face the daunting challenge of distinguishing
themselvesfrom nonbank and foreign bank competitors. Rob has concluded that one
strategy for distinguishing AmeriBank from its competitorsis to improve services that
nonbank and foreign bank competitors do not readilyprovide: transaction services. He
has decided that a more convenient transactionmethod must logically succeed the
automatic teller machine, and he believes that electronicbanking over the Internet
allows this convenient transaction method.
Over theInternet, customers are able to perform transactions on their desktop

computers eitherat home or at work. The explosion of the Internet means that many
Page 81
potential customersunderstand and use the World Wide Web. He therefore feels that if
AmeriBank offersWeb banking (as the practice of Internet banking is commonly
called), the bank willattract many new customers.
Before Rob undertakes the project to make Web banking possible, however,
heneeds to understand the market for Web banking and the services AmeriBank
shouldprovide over the Internet. For example, should the bank only allow customers
toaccessaccount balances and historical transaction information over the Internet, or
shouldthe bank develop a strategy to allow customers to make deposits and
withdrawals overthe Internet? Should the bank try to recapture a portion of the
investment market bycontinuously running stock prices and allowing customers to
make stock transactionsover the Internet for a minimal fee? Because AmeriBank is
not in the business of performing surveys, Rob has decidedto outsource the survey
project to a professional survey company. He has opened theproject up for bidding by
several survey companies and will award the project to thecompany which is willing
to perform the survey for the least cost.
Sophisticated Surveys is one of three survey companies competing for the

project.Rob provided each survey company with a list of survey requirements to
ensure thatAmeriBank receives the needed information for planning the Web
bankingproject. Because different age groups require different services, AmeriBank
isinterested in surveying four different age groups. The first group encompasses
customers who are18 to 25 years old. The bank assumes that this age group has
limited yearly incomeand performs minimal transactions. The second group
encompasses customers who are26 to 40 years old. This age group has significant
sources of income, performs manytransactions, requires numerous loans for new
houses and cars, and invests in varioussecurities. The third group encompasses
customers who are 41 to 50 years old. Thesecustomers typically have the same level
of income and perform the same number oftransactions as the second age group, but
the bank assumes that these customers areless likely to use Web banking since they
have not become as comfortable with the explosionof computers or the Internet.
Finally, the fourth group encompasses customerswho are 51 years of age and over.
These customers commonly crave security and requirecontinuous information on
retirement funds. The banks believes that it is highlyunlikely that customers in this
age group will use Web banking, but the bank desiresto learn the needs of this age
Page 82
group for the future. AmeriBank wants to interview 2,000customers with at least 20
percent from the first age group, at least 27.5 percent fromthe second age group, at
least 15 percent from the third age group, and at least 15 percentfrom the fourth
agegroup.
Rob understands that the Internet is a recent phenomenon and that some
customersmay not have heard of the World Wide Web. He therefore wants to
ensurethat the sur-vey includes a mix of customers who know the Internet well and
thosethat have lessexposure to the Internet. To ensure that AmeriBank obtains the
correct mix, he wantsto interview at least 15 percent of customers from the Silicon
Valley where Internet useis high, at least 35 percent of customers from big cities
where Internet use is medium,and at least 20 percent of customers from small towns
where Internet use is low.
Sophisticated Surveys has performed an initial analysis of these survey

requirementsto determine the cost of surveying different populations. The costs per
personsurveyed are listed in the following table:
Sophisticated Surveys explores the following options cumulatively.
(a) Formulate a linear programming model to minimize costs while meeting all
surveyconstraintsimposed by AmeriBank.
(b) If the profit margin for Sophisticated Surveys is 15 percent of cost, what bid
willtheysubmit?
(c) After submitting its bid, Sophisticated Surveys is informed that it has the
lowestcost butthat AmeriBank does not like the solution. Specifically, Rob feels that
the selected surveypopulation is not representative enough of the banking customer
Page 83
population. Rob wants atleast 50 people of each age group surveyed in each region.
What is the new bid made bySophisticated Surveys?
(d) Rob feels that Sophisticated Survey oversampled the 18- to 25-year-old
populationand theSilicon Valley population. He imposes a new constraint that no
more than 600 individualscan be surveyed from the 18- to 25-year-old population and
no more than 650 individualscan be surveyed from the Silicon Valley population.
What is the new bid?
(e) When Sophisticated Surveys calculated the cost of reaching and

surveyingparticular individuals,the company thought that reaching individuals in
young populations would be easiest.In a recently completed survey, however,
Sophisticated Surveys learned that this assumptionwas wrong. The new costs for
surveying the 18-to 25-year-old population are listedbelow.
Given the new costs, what is the new bid?
(f) To ensure the desired sampling of individuals, Rob imposes even

stricterrequirements. Hefixes the exact percentage of people that should be surveyed
from each population. The requirementsare listed below:
Page 84
By how much would these new requirements increase the cost of surveying
forSophisticatedSurveys? Given the 15 percent profit margin, what would
SophisticatedSurveys bid?
NEWS ANALYSIS
The Omega Manufacturing Company has discontinuedthe production of a

certain unprofitable product line. This act createdconsiderable excess production
capacity. Management is consideringdevoting this excess capacity to one or more of
three products;call them products 1, 2, and 3. The available capacity on themachines
that might limit output is summarized in the followingtable:
The number of machine hours required for each unit of the

respectiveproductsis…
The sales department indicates that the sales potential forproducts 1 and 2
exceeds the maximum production rate and thatthe sales potential for product 3 is 20
units per week. The unitprofit would be $50, $20, and $25, respectively, on products
1, 2,and 3. The objective is to determine how much of each productOmega should
produce to maximize profit.
(a) Formulate a linear programming model for this problem.
(b) Use a computer to solve this model by the simplex method.
Page 85
CHAPTER 3:
NEWS ANALYSIS
The Versatech Corporation has decided to produce three newproducts.

Fivebranch plants now have excess product capacity. Theunit manufacturing cost of
the first product would be $31, $29,$32, $28, and $29 in Plants 1, 2, 3, 4, and 5,
respectively. The unitmanufacturing cost of the second product would be $45, $41,
$46,$42, and $43 in Plants 1, 2, 3, 4, and 5, respectively. The unit manufacturingcost
of the third product would be $38, $35, and $40 inPlants 1, 2, and 3, respectively,
whereas Plants 4 and 5 do not havethe capability for producing this product. Sales
forecasts indicatethat 600, 1,000, and 800 units of products 1, 2, and 3,
respectively,should be produced per day. Plants 1, 2, 3, 4, and 5 have the capacityto
produce 400, 600, 400, 600, and 1,000 units daily, respectively,regardless of the
product or combination of products involved.
Assume that any plant having the capability and capacityto produce them can
produce any combination of the products inany quantity.
Management wishes to know how to allocate the new productsto the plants to
minimize total manufacturing cost.
(a) Formulate this problem as a transportation problem by constructingthe

appropriate parameter table.
(b) Obtain an optimal solution.
Page 86
CASE STUDY
Alabama Atlantic is a lumber company that has three sources of wood and
fivemarketsto be supplied. The annual availability of wood at sources 1, 2, and 3 is
15, 20,and 15 million board feet, respectively. The amount that can be sold annually at
markets1, 2, 3, 4, and 5 is 11, 12, 9, 10, and 8 million board feet, respectively.
In the past the company has shipped the wood by train. However,
becauseshippingcosts have been increasing, the alternative of using ships to make
some of the deliveriesis being investigated. This alternative would require the
company to invest insome ships. Except for these investment costs, the shipping costs
in thousands of dollarsper million board feet by rail and by water (when feasible)
would be the followingfor each route:
The capital investment (in thousands of dollars) in ships required for

eachmillion boardfeet to be transported annually by ship along each route is given as
follows:
Page 87
Considering the expected useful life of the ships and the time value of
money,theequivalent uniform annual cost of these investments is one-tenth the
amount giveninthe table. The objective is to determine the overall shipping plan that
minimizes the totalequivalent uniform annual cost (including shipping costs).
You are the head of the OR team that has been assigned the task of
determiningthis shipping plan for each of the following three options.
Option 1: Continue shipping exclusively by rail.
Option 2: Switch to shipping exclusively by water (except where only rail

isfeasible).
Option 3:Ship by either rail or water, depending on which is less expensive

forthe particularroute.
Present your results for each option. Compare. Finally, consider the fact
thatthese results are based on current shipping and investmentcosts, so that the
decision on the option to adopt now should take into accountmanagement’s projection
of how these costs are likely to change in the future.
For each option, describe a scenario of future cost changes that would justify
adoptingthat option now.
Page 88
CHAPTER 4:
NEWS ANALYSIS
A contractor, Susan Meyer, has to haul gravel to threebuilding sites. She can
purchase as much as 18 tons at a gravel pitin the north of the city and 14 tons at one in
the south. She needs10, 5, and 10 tons at sites 1, 2, and 3, respectively. The
purchaseprice per ton at each gravel pit and the hauling cost per ton aregiven in the
table below.
Now suppose that trucks (and theirdrivers) need to be hired to do the hauling,
where each truck canonly be used to haul gravel from a single pit to a single site.
Eachtruck can haul 5 tons, and the cost per truck is five times the haulingcost per ton
given earlier. Only full trucks would be used tosupply each site.
(a) Formulate this problem as an assignment problem by constructingthe

appropriate cost table, including identifying theassignees and tasks.
(b) Obtain an optimal solution.
(c) Reformulate this assignment problem as an equivalent

transportationproblem with two sources and three destinations byconstructing the
appropriate parameter table.
(d) Obtain an optimal solution for the problem as formulated inpart (c).
Page 89
CASE STUDY:PROJECT PICKINGS
Tazer, a pharmaceutical manufacturing company, entered the

pharmaceuticalmarket 12years ago with the introduction of six new drugs. Five of the
six drugs were simplypermutations of existing drugs and therefore did not sell very
heavily. The sixth drug,however, addressed hypertension and was a huge success.
Since Tazer had a patent onthe hypertension drug, it experienced no competition, and
profits from the hypertensiondrug alone kept Tazer in business.
During the past 12 years, Tazer continued a moderate amount of research and
development,but it never stumbled upon a drug as successful as the hypertension drug.
One reason is that the company never had the motivation to invest heavily in
innovativeresearch and development. The company was riding the profit wave
generated byits hypertension drug and did not feel the need to commit significant
resources to findingnew drug breakthroughs.
Now Tazer is beginning to fear the pressure of competition. The patent for the
hypertensiondrug expires in 5 years,1 and Tazer knows that once the patent
expires,generic drug manufacturing companies will swarm into the market like
vultures. Historicaltrends show that generic drugs decreased sales of branded drugs by
75 percent.Tazer is therefore looking to invest significant amounts of money in
research anddevelopment this year to begin the search for a new breakthrough drug
that will offerthe company the same success as the hypertension drug. Tazer believes
that if the companybegins extensive research and development now, the probability of
finding a successfuldrug shortly after the expiration of the hypertension patent will be
high.
As head of research and development at Tazer, you are responsible for

choosingpotential projects and assigning project directors to lead each of the projects.
After researchingthe needs of the market, analyzing the shortcomings of current
drugs, andinterviewing numerous scientists concerning the promising areas of medical
Page 90
research,you have decided that your department will pursue five separate projects,
which arelisted below:
Project Up Develop an antidepressant that does not cause serious mood

swings.
Project Stable Develop a drug that addresses manic-depression.
Project Choice Develop a less intrusive birth control method for women.
Project Hope Develop a vaccine to prevent HIV infection.
Project Release Develop a more effective drug to lower blood pressure.
For each of the five projects, you are only able to specify the medical ailment
the researchshould address, since you do not know what compounds will exist and be
effectivewithout research.
You also have five senior scientists to lead the five projects. You know
thatscientistsare very temperamental people and will work well only if they are
challenged andmotivated by the project. To ensure that the senior scientists are
assigned to projects theyfind motivating, you have established a bidding system for
the projects. You have giveneach of the five scientists 1000 bid points. They assign
bids to each project, giving ahigher number of bid points to projects they most prefer
to lead. The following table providesthe bids from the five individual senior scientists
for the five individual projects:
You decide to evaluate a variety of scenarios you think are likely.
Page 91
(a) Given the bids, you need to assign one senior scientist to each of the
fiveprojects to maximizethe preferences of the scientists. What are the assignments?
(b) Dr. Rollins is being courted by Harvard Medical School to accept a teaching
position. Youare fighting desperately to keep her at Tazer, but the prestige of Harvard
may lure her away.If this were to happen, the company would give up the project with
the least enthusiasm.
Which project would not be done?
(c) You do not want to sacrifice any project, since researching only four
projects decreases theprobability of finding a breakthrough new drug. You decide that
either Dr. Zuner or Dr.Mickey could lead two projects. Under these new conditions
with just four senior scientists,which scientists will lead which projects to maximize
preferences?
(d) After Dr. Zuner was informed that she and Dr. Mickey are being considered
for two projects,she decided to change her bids. The following table shows Dr.
Zuner’s new bids foreach of the projects:
Under these new conditions with just four scientists, which scientists will lead
which projectsto maximize preferences?
(e) Do you support the assignment found in part (d)? Why or why not?
(f ) Now you again consider all five scientists. You decide, however, that
several scientists cannotlead certain projects. In particular, Dr. Mickey does not have
experience with researchon the immune system, so he cannot lead Project Hope. His
family also has a history ofmanic-depression, and you feel that he would be too
personally involved in Project Stableto serve as an effective project leader. Dr.
Mickey therefore cannot lead Project Stable. Dr.Kvaal also does not have experience
Page 92
with research on the immune systems and cannot leadProject Hope. In addition, Dr.
Kvaal cannot lead Project Release because he does not haveexperience with research
on the cardiovascular system. Finally, Dr. Rollins cannot lead ProjectUp because her
family has a history of depression and you feel she would be too personallyinvolved
in the project to serve as an effective leader. Because Dr. Mickey and Dr.Kvaal cannot
lead two of the five projects, they each have only 600 bid points. Dr. Rollinshas only
800 bid points because she cannot lead one of the five projects. The following
tableprovides the new bids of Dr. Mickey, Dr. Kvaal, and Dr. Rollins:
Which scientists should lead which projects to maximize preferences?
(g) You decide that Project Hope and Project Release are too complex to be led
by only onescientist. Therefore, each of these projects will be assigned two scientists
as project leaders.You decide to hire two more scientists in order to staff all projects:
Dr. Arriaga and Dr. Santos.Because of religious reasons, the two doctors both do not
want to lead Project Choice.
The following table lists all projects, scientists, and their bids.
Which scientists should lead which projects to maximize preferences?
Page 93
(h) Do you think it is wise to base your decision in part (g) only on an optimal
solution for anassignment problem?
CHAPTER 5:
NEWS ANALYSIS ON CPM
You and several friends are about to prepare a lasagna dinner.The tasks to be
performed, their immediate predecessors, andtheir estimated durations are as follows:
There is none in the refrigerator.
(a) Construct the project network for preparing this dinner.
(b) Find all the paths and path lengths through this project network.Which of
these paths is a critical path?
(c) Find the earliest start time and earliest finish time for eachactivity.
(d) Find the latest start time and latest finish time for each activity.
(e) Find the slack for each activity? Which of the paths is a criticalpath?
(f) Because of a phone call, you were interrupted for 6 minuteswhen you should
have been cutting the onions and mushrooms.By how much will the dinner be
Page 94
delayed? If you use your foodprocessor, which reduces the cutting time from 7 to 2
minutes,will the dinner still be delayed?
NEWS ANALYSIS ON PERT
Sharon Lowe, vice president for marketing for the ElectronicToys Company, is
about to begin a project to design an advertisingcampaign for a new line of toys. She
wants the projectcompleted within 57 days in time to launch the advertising
campaignat the beginning of the Christmas season.Sharon has identified the six
activities (labeled A, B, . . . , F)needed to execute this project. Considering the order
in which theseactivities need to occur, she also has constructed the following
projectnetwork.
Using the PERT three-estimate approach, Sharon has obtainedthe following

estimates of the duration of each activity.
(a)Find the estimate of the mean and variance of the durationof each activity.
(b) Find the mean critical path.
Page 95
(c) Use the mean critical path to find the approximate probabilitythat the
advertising campaign will be ready to launchwithin 57 days.
(d) Now consider the other path through the project network. Find the
approximate probability that this path will be completedwithin 57 days.
(e) Since these paths do not overlap, a better estimate of the probabilitythat
theproject will finish within 57 days can be obtainedas follows. The project will finish
within 57 days if bothpaths are completed within 57 days. Therefore, the
approximateprobability that the project will finish within 57 days isthe product of the
probabilities found in parts (c) and (d). Performthis calculation. What does this answer
say about the accuracyof the standard procedure used in part (c)?
CASE STUDY:
”SCHOOL’S OUT FOREVER . . .“
Brent Bonnin begins his senior year of college filled with excitement and a
twinge offear. The excitement stems from his anticipation of being done with it all—
professors,exams, problem sets, grades, group meetings, all-nighters. . . . The list
could go on andon. The fear stems from the fact that he is graduating in December
and has only 4months to find a job.
Brent is a little unsure about how he should approach the job search. During
hissophomore and junior years, he had certainly heard seniors talking about
theirstrategiesfor finding the perfect job, and he knows that he should first visit the
Campus CareerPlanning Center to devise a search plan.
On Sept. 1, the fist day of school, he walks through the doors of the
CampusCareerPlanning Center and meets Elizabeth Merryweather, a recent graduate
overflowingwith energy and comforting smiles. Brent explains to Elizabeth that since
he isgraduating in December and plans to begin work in January, he wants to leave all
ofNovember and December open for interviews. Such a plan means that he has to
haveall his preliminary materials, such as cover letters and résumés, submitted to the
companieswhere he wants to work by Oct. 31. Elizabeth recognizes that Brent has to
follow a very tight schedule, if he wants tomeet his goal within the next 60 days. She
suggests that the two of them sit down togetherand decide the major milestones that
Page 96
need to be completed in the job searchprocess. Elizabeth and Brent list the 19 major
milestones. For each of the 19 milestones,they identify the other milestones that must
be accomplished directly beforeBrent can begin this next milestone. They also
estimate the time needed to completeeach milestone. The list is shown below.
Page 97
Page 98
*An open interview schedule occurs when the company does not select the
candidates that it wants to interview.Any candidate may interview, but since the
company has only a limited number of interview slots, interestedcandidates must bid
points (out of their total allocation of points) for the interviews. The candidates
withthe highest bids win the interview slots.
†Closed interview schedules occur when a company requires candidates to

submit their cover letters,résumés, and test scores so that the company is able to select
the candidates it wants to interview.In the evening after his meeting with Elizabeth,
Brent meets with his buddies atthe college coffeehouse to chat about their summer
endeavors. Brent also tells his friendsabout the meeting he had earlier with Elizabeth.
He describes the long to-do list he andElizabeth developed and says that he is really
worried about keeping track of all themajor milestones and getting his job search
Page 99
organized. One of his friends reminds himof the cool OR class they all took together
in the first semester of Brent’s junior year,and how they had learned about some
techniques to organize large projects. Brent re members this class fondly, since he was
able to use a number of the methods he studiedin that class in his last summer job.
(a) Draw the project network for completing all milestones before the interview
process. If everythingstays on schedule, how long will it take Brent until he can start
with the interviews?
What are the critical steps in the process?
(b) Brent realizes that there is a lot of uncertainty in the times it will take him to
complete someof the milestones. He expects to get really busy during his senior year,
in particular since heis taking a demanding course load. Also, students sometimes
have to wait quite a while beforethey get appointments with the counselors at the
career center. In addition to the list estimatingthe most likely times that he and
Elizabeth wrote down, he makes a list of optimisticand pessimistic estimates of how
long the various milestones might take.
Page 100
How long will it take Brent to get done under the worst-case scenario? How
long will ittake if all his optimistic estimates are correct?
(c) Determine the mean critical path for Brent’s job search process. What is the
variance of theproject duration?
(d) Give a rough estimate of the probability that Brent will be done within 60
days.
(e) Brent realizes that he has made a serious mistake in his calculations so far.
He cannot schedulethe career fair to fit his schedule. Brent read in the campus
newspaper that the fair hasbeen set 24 days from today on Sept. 25. Draw a revised
project network that takes into accountthis complicating fact.
Page 101
(f ) What is the mean critical path for the new network? What is the probability
that Brent willcomplete his project within 60 days?
Page 102
CHAPTER 6:
NEWS ANALYSIS
Consider the following parlor game to be played betweentwo players. Each

player begins with three chips: one red, onewhite, and one blue. Each chip can be used
only once.
To begin, each player selects one of her chips and places iton the table,
concealed. Both players then uncover the chips anddetermine the payoff to the
winning player. In particular, if bothplayers play the same kind of chip, it is a draw;
otherwise, the followingtable indicates the winner and how much she receives fromthe
other player. Next, each player selects one of her two remainingchips and repeats the
procedure, resulting in another payoff accordingto the following table. Finally, each
player plays her oneremaining chip, resulting in the third and final payoff.
Formulate this problem as a two-person, zero-sum game by identifyingthe form

of the strategies and payoffs.
CASE STUDY:
Two politicians soon will be starting their campaignsagainst each other for a
certain political office. Each must now selectthe main issue she will emphasize as the
theme of her campaign.Each has three advantageous issues from which to choose,but
the relative effectiveness of each one would depend upon theissue chosen by the
opponent. In particular, the estimated increasein the vote for politician 1 (expressed as
a percentage of the totalvote) resulting from each combination of issues is as follows:
Page 103
However, because considerable staff work is required to researchand formulate

the issue chosen, each politician must make her ownchoice before learning the
opponent’s choice. Which issue shouldshe choose?
For each of the situations described here, formulate this problemas a two-
person, zero-sum game, and then determine whichissue should be chosen by each
politician according to the specifiedcriterion.
(a) The current preferences of the voters are very uncertain, soeach additional
percent of votes won by one of the politicianshas the same value to her. Use the
minimax criterion.
(b) A reliable poll has found that the percentage of the voters
currentlypreferring politician 1 (before the issues have beenraised) lies between 45
and 50 percent. (Assume a uniform distributionover this range.) Use the concept of
dominated strategies,beginning with the strategies for politician 1.
(c) Suppose that the percentage described in part (b) actually were45 percent.
Should politician 1 use the minimax criterion? Explain.
Which issue would you recommend? Why?
Page 104

Operation Research (Study Material)

Uploaded by

Document Information

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Operation Research (Study Material)

Uploaded by

Copyright:

Available Formats

2020

Dr. Soumendra Kumar Patra

1.1. Historical Background and Development of OR

Chapter 1: An Overview on Operation research

1.1. Historical Background and Development of OR

A common misconception held by many is that O.R. is a collection of

1.3. Why is OR needed?

OR is needed because it makes sense to make the best use of available

1.4. Methodology of Operation Research

O.R. represents an integrated framework to help make decisions, it is important

(2) Problem Definition,

(3) Data Collection,

(4) Model Formulation,

(6) Model Validation and Output Analysis, and

(7) Implementation and Monitoring.

Orientation: The first step in the O.R. approach is referred to as problem

Problem Definition: This is the second, and in a significant number of cases,

original system, and as long as the model is a reasonably accurate representation,

Implementation and Monitoring: The last step in the O.R. process is to

1.5. Models in Operation Research

Models may be broadly classified into four categories:

common in operations research, mainly because getting accurate representations

Computer Simulation Models: With the growth in computational power these

Most mathematical models tend to be characterized by three main elements:

some specific restriction (e.g., the availability of some resource) or requirement

1.6. Applications of Operation Research

Planning and forecasting: identifying possible future developments in

Marketing: evaluating the value of sale promotions, developing customer

Defence and peace keeping: finding ways to deploy troops rapidly.

1.7. Advantages of OPERATION RESEARCH

 More Informed Decision Making:Operations research builds upon collected

1.8. Disadvantages of OPERATION RESEARCH:

· Dependence on an Electronic Computer: O.R. techniques try to find out an

the elements related to a problem can be quantified. All relevant variables do

Chapter 2: Linear Programming problem

Businesses use linear programming to understand how to maximize profits

Linear programming is mapped out in mathematical equations. Calculations are

2.3. Mathematical Formulation of the problem

The concept behind a linear programming problem is simple. It consists for

Decision variables represent quantities to be determined

In a linear program, the objective function and

2.4. Characteristics of Problems

 One or more decisions

e.g. Determining the number of products to manufacture

o a limited amount of raw materials

2.5. Steps for formulating an LP

 Define decision variables

2.6. Linear Programming (LP)

A linear programming is one in which decision variables appear in the

 It involves finding values of decision variablessuch that a function,

2.7.1. Product Mix Problem

 Consider a small manufacturer making two products A and B.

 The manufacturer has to decide on the number of units of products A &

2.7.3. To Draw the Table

2.7.4. Formulate the Problem

 Let x be the number of units of product A made

2.7.5. The steps for Problem Formulation

 Identifying the decision variables.

2.8. Solution of LP problems

The linear programming problem(LPP) can be solved by two methods

b) Algebraic Method (Simplex method)

2.9. Graphical Method

1. Plot model constraint on a set of coordinates in a plane

2.9.1. Example: Product Mix Problem

The above tableaus give min cost = 256 + 12010 + 175*11

1754 + 100 5 = $4525