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Introduction to OR

OR-Notes
J E Beasley
OR-Notes are a series of introductory notes on topics that fall under the broad heading of the field of operations research (OR). They were originally used by me in an introductory OR course I give at Imperial College. They are now available for use by any students and teachers interested in OR subject to the followingconditions.

Introduction to OR Terminology
The British/Europeans refer to "operational research", the Americans to "operations research" - but both are often shortened to just "OR" (which is the term we will use). Another term which is used for this field is "management science" ("MS"). The Americans sometimes combine the terms OR and MS together and say "OR/MS" or "ORMS". Yet other terms sometimes used are "industrial engineering" ("IE") and "decision science" ("DS"). In recent years there has been a move towards a standardisation upon a single term for the field, namely the term "OR".

Journals
OR is a new field which started in the late 1930's and has grown and expanded tremendously in the last 30 years (and is still expanding). As such the academic journals contain many useful articles that reflect state of the art applications of OR. We give below a selection of the major OR journals. 1. Operations Research 2. Management Science 3. European Journal of Operational Research 4. Journal of the Operational Research Society 5. Mathematical Programming 6. Networks 7. Naval Research Logistics 8. Interfaces The first seven of the above are mainly theoretical whilst the eighth (Interfaces) concentrates upon case studies. If you have access to an appropriate library that stocks these journals have a browse through them to see what is happening in state of the art OR. Note here that my personal view is that in OR, as in many fields, the USA is the country that leads the world both in the practical application of OR and in advancing the theory (for example, the American OR conferences have approximately 2500 participants, the UK OR conference has 300). One thing I would like to emphasise in relation to OR is that it is (in my view) a subject/discipline that has much to offer in making a real difference in the real world. OR can help you to make better decisions and it is clear that there are many, many people and companies out there in the real world that need to make better decisions. I have tried to include throughout OR-Notes discussion of some of the real-world problems that I have personally been involved with.

History of OR
OR is a relatively new discipline. Whereas 70 years ago it would have been possible to study mathematics, physics or engineering (for example) at university it would not have been possible to study OR, indeed the term OR did not exist then. It was really only in the late 1930's that operational research began in a systematic fashion, and it started in the UK. As such I thought it would be interesting to give a short history of OR and to consider some of the problems faced (and overcome) by early OR workers. Whilst researching for this short history I discovered that history is not clear cut, different people have different views of the same event. In addition many of the participants in the events described below are now elderly/dead. As such what is given below is only my understanding of what actually happened. Note: some of you may have moral qualms about discussing what are, at root, more effective ways to kill people. However I cannot change history and what is presented below is essentially what happened, whether one likes it or not.

1936
Early in 1936 the British Air Ministry established Bawdsey Research Station, on the east coast, near Felixstowe, Suffolk, as the centre where all pre-war radar experiments for both the Air Force and the Army would be carried out. Experimental radar equipment was brought up to a high state of reliability and ranges of over 100 miles on aircraft were obtained.

It was also in 1936 that Royal Air Force (RAF) Fighter Command, charged specifically with the air defense of Britain, was first created. It lacked however any effective fighter aircraft - no Hurricanes or Spitfires had come into service - and no radar data was yet fed into its very elementary warning and control system. It had become clear that radar would create a whole new series of problems in fighter direction and control so in late 1936 some experiments started at Biggin Hill in Kent into the effective use of such data. This early work, attempting to integrate radar data with ground based observer data for fighter interception, was the start of OR.

1937
The first of three major pre-war air-defence exercises was carried out in the summer of 1937. The experimental radar station at Bawdsey Research Station was brought into operation and the information derived from it was fed into the general air-defense warning and control system. From the early warning point of view this exercise was encouraging, but the tracking information obtained from radar, after filtering and transmission through the control and display network, was not very satisfactory.

1938
In July 1938 a second major air-defense exercise was carried out. Four additional radar stations had been installed along the coast and it was hoped that Britain now had an aircraft location and control system greatly improved both in coverage and effectiveness. Not so! The exercise revealed, rather, that a new and serious problem had arisen. This was the need to coordinate and correlate the additional, and often conflicting, information received from the additional radar stations. With the outbreak of war apparently imminent, it was obvious that something new - drastic if necessary - had to be attempted. Some new approach was needed. Accordingly, on the termination of the exercise, the Superintendent of Bawdsey Research Station, A.P. Rowe, announced that although the exercise had again demonstrated the technical feasibility of the radar system for detecting aircraft, its operational achievements still fell far short of requirements. He therefore proposed that a crash program of research into the operational - as opposed to the technical - aspects of the system should begin immediately. The term "operational research" [RESEARCH into (military) OPERATIONS] was coined as a suitable description of this new branch of applied science. The first team was selected from amongst the scientists of the radar research group the same day.

1939
In the summer of 1939 Britain held what was to be its last pre-war air defence exercise. It involved some 33,000 men, 1,300 aircraft, 110 antiaircraft guns, 700 searchlights, and 100 barrage balloons. This exercise showed a great improvement in the operation of the air defence warning and control system. The contribution made by the OR team was so apparent that the Air Officer Commander-in-Chief RAF Fighter Command (Air Chief Marshal Sir Hugh Dowding) requested that, on the outbreak of war, they should be attached to his headquarters at Stanmore in north London. Initially, they were designated the "Stanmore Research Section". In 1941 they were redesignated the "Operational Research Section" when the term was formalised and officially accepted, and similar sections set up at other RAF commands.

1940
On May 15th 1940, with German forces advancing rapidly in France, Stanmore Research Section was asked to analyse a French request for ten additional fighter squadrons (12 aircraft a squadron - so 120 aircraft in all) when losses were running at some three squadrons every two days (i.e. 36 aircraft every 2 days). They prepared graphs for Winston Churchill (the British Prime Minister of the time), based upon a study of current daily losses and replacement rates, indicating how rapidly such a move would deplete fighter strength. No aircraft were sent and most of those currently in France were recalled. This is held by some to be the most strategic contribution to the course of the war made by OR (as the aircraft and pilots saved were consequently available for the successful air defense of Britain, the Battle of Britain).

1941 onward
In 1941 an Operational Research Section (ORS) was established in Coastal Command which was to carry out some of the most well-known OR work in World War II. The responsibility of Coastal Command was, to a large extent, the flying of long-range sorties by single aircraft with the object of sighting and attacking surfaced U-boats (German submarines). The technology of the time meant that (unlike modern day submarines) surfacing was necessary to recharge batteries, vent the boat of fumes and recharge air tanks. Moreover U-boats were much faster on the surface than underwater as well as being less easily detected by sonar. Amongst the problems that ORS considered were: organisation of flying maintenance and inspection Here the problem was that in a squadron each aircraft, in a cycle of approximately 350 flying hours, required in terms of routine maintenance 7 minor inspections (lasting 2 to 5 days each) and a major inspection (lasting 14 days). How then was flying and maintenance to be organised to make best use of squadron resources? ORS decided that the current procedure, whereby an aircrew had their own aircraft, and that aircraft was serviced by a devoted ground crew, was inefficient (as it meant that when the aircraft was out of action the aircrew were also inactive). They proposed a central garage system whereby aircraft were sent for maintenance when required and each aircrew drew a (different) aircraft when required.

The advantage of this system is plainly that flying hours should be increased. The disadvantage of this system is that there is a loss in morale as the ties between the aircrew and "their" plane/ground crew and the ground crew and "their" aircrew/plane are broken. In one trial (over 5 months) when flying was organised by ORS the daily operational flying hours were increased by 61% over the previous best achieved with the same number of aircraft. Their system was accepted and implemented. comparison of aircraft type Here the problem was one of deciding, for a particular type of operation, the relative merits of different aircraft in terms of factors such as: miles flown per maintenance man per month; lethality of load; length of sortie; chance of U-boat sighting; etc. improvement of attack kill probability (the probability of attacking and killing a U-boat) Experience showed that it required some 170 man-hours by maintenance and ground staff to produce one hour of operational flying and more than 200 hours of flying to produce one attack on a surfaced U-boat. Hence over 34,000 manhours of effort were necessary just to attack a U-boat. In early 1941 the attack kill probability was 2% to 3% (i.e. between 1.1 million and 1.7 million man-hours were needed by Coastal Command to destroy one U-boat). It is in this area that the greatest contribution was made by OR in Coastal Command and so we shall examine it in more detail. (Note here that we ignore the question of the U-boat being attacked and damaged, but not killed. To include this merely complicates the discussion). Plainly in the above calculation the "weak link" is the low attack kill probability and it is this that really needs to be improved. The main weapon of attack against a surfaced (when spotted) U-boat was depth charges dropped in a stick (typically six 250lb (110kg) depth charges) in a more or less straight line along the direction of flight of the attacking aircraft. After hitting the water a depth charge sinks whilst at the same time being carried forward by its own momentum. After a pre-set time delay, or upon reaching a certain depth, it explodes and any U-boat within a certain distance (the lethal radius) is fatally damaged. Six variables were considered as influencing the kill probability: depth (time) setting for depth charge explosion lethal radius aiming errors in dropping the stick orientation of the stick with respect to the U-boat spacing between successive depth charges in the stick low level bombsights. We consider each in turn. depth (time) setting for depth charge explosion In the first two years of the war depth charges were mainly set for explosion at a depth of 30/45 metres [this figure having being set years ago and never altered since]. Analysis of pilot reports by ORS showed that in 40% of attacks the U-boat was either still visible or had been submerged less than 15 seconds (these are the U-boats that we would expect to have most chance of killing as we have a good idea of their position). Since the lethal radius of a depth charge was around 5-6 metres it was clear that a shallower setting was necessary. Explosion at a depth of 15 metres was initiated and as new fuses became available at 10 metres and then 8 metres. Here we have the issue of historical inertia in decision making - in the dim and distant past someone decided that the standard depth setting should be 30/45 metres and this historical decision has been carried forward - never being questioned/re-examined until ORS came on the scene. lethal radius As mentioned above the standard 250lb depth charge was believed to have a lethal radius of only 5-6 metres. Plainly to increase this radius (within the 250lb limit) the chemical explosive inside the depth charge should be more powerful (e.g. increasing the lethal radius by just 20% increases the lethal volume (sphere) around the depth charge by 72.8%). The best chemical explosive currently available was therefore introduced. Note here that it could be argued (and was) that since a 250lb depth charge had too small a lethal radius a bigger charge (600lb (270kg) was prescribed by the Air Staff) was needed. ORS suggested 100lb (45kg) on the basis that it would be more effective to have many small explosions rather than one large explosion. (As an analogy would you prefer to throw many small balls at a small target or one large ball?). In fact neither alternative ever really preceded past the trial stage due to increasing success with the 250lb depth charge. This illustrates the concept of "tradeoff" which often appears in OR in that, for a given total bomb load we have to make a choice (tradeoff) between bomb size and number of bombs (from one big bomb to many small ones). aiming errors in dropping the stick By the end of 1942 it had become clear that too many pilots were reporting having had "straddled" a target U-boat with a stick of depth charges without sinking it. Either their claims were unduly optimistic (the ORS view) or the lethal radius of a depth charge was much less than currently believed (the Air Staff view). To settle the issue cameras were installed for recording U-boat attacks. Analysis of 16 attacks indicated that ORS were right. This analysis also showed that pilots were following tactical instructions and "aiming off" (aiming ahead of the U-

boat to allow for its forward travel during fall of the depth charges). However analysis also revealed that had they not aimed off 50% more kills would have been recorded. Pilots were therefore instructed not to aim off. orientation of the stick with respect to the U-boat Here the question was whether to attack from the beam, quarter or along the U-boat track. No definite answer was really reached until 1944 when it was concluded that track attacks were more accurate (probably due to the pilot using the U-boat wake to help him line the plane up). spacing between successive depth charges in a stick In the early part of the war this spacing was specified at 12 metres. ORS calculated that increasing this to 33 metres would increase kills by 35% and this was done. low level bombsights For much of the war all low level attacks on U-boats were by the pilot acting as bomb aimer/release. Although pilots (and Air Staff) believed they were accurate photographic evidence did not support this belief and ORS pressed for bombsights to be provided. By late 1943 a low level (Mk.III) sight came into use increasing kills per attack by 35%. The overall effect of all the measures discussed above was such that by 1945 the attack kill probability had risen to over 40% (remember it started out at 2-3%).

Discussion
Although scientists had (plainly) been involved in the hardware side of warfare (designing better planes, bombs, tanks, etc) scientific analysis of the operational use of military resources had never taken place in a systematic fashion before the Second World War. Military personnel, often by no means stupid, were simply not trained to undertake such analysis. These early OR workers came from many different disciplines, one group consisted of a physicist, two physiologists, two mathematical physicists and a surveyor. What such people brought to their work were "scientifically trained" minds, used to querying assumptions, logic, exploring hypotheses, devising experiments, collecting data, analysing numbers, etc. Many too were of high intellectual calibre (at least four UK wartime OR personnel were later to win Nobel prizes when they returned to their peacetime disciplines). By the end of the war OR was well established in the armed services both in the UK and in the USA. Following the end of the war OR took a different course in the UK as opposed to in the USA. In the UK many of the distinguished OR workers returned to their original peacetime disciplines. As such OR did not spread particularly well, except for a few isolated industries (iron/steel and coal). In the USA OR spread to the universities so that systematic training in OR for future workers began. A short personal account relating to the history of OR can be found here.

Conclusion
OR started just before World War II in Britain with the establishment of teams of scientists to study the strategic and tactical problems involved in military operations. The objective was to find the most effective utilisation of limited military resources by the use of quantitative techniques. Following the end of the war OR spread, although it spread in different ways in the UK and USA. You should be clear that the growth of OR since it began (and especially in the last 35 years) is, to a large extent, the result of the increasing power and widespread availability of computers. Most (though not all) OR involves carrying out a large number of numeric calculations. Without computers this would simply not be possible.

Basic OR concepts
Basic OR concepts

Definition
So far we have avoided the problem of defining exactly what OR is. In order to get a clearer idea of what OR is we shall actually do some by considering the specific problem below and then highlight some general lessons and concepts from this specific example.

Two Mines Company


The Two Mines Company own two different mines that produce an ore which, after being crushed, is graded into three classes: high, medium and low-grade. The company has contracted to provide a smelting plant with 12 tons of high-grade, 8 tons of medium-grade and 24 tons of low-grade ore per week. The two mines have different operating characteristics as detailed below. Mine Cost per day ('000) Production (tons/day) High Medium Low X 180 6 3 4 Y 160 1 1 6 How many days per week should each mine be operated to fulfil the smelting plant contract? Note: this is clearly a very simple (even simplistic) example but, as with many things, we have to start at a simple level in order to progress to a more complicated level.

Guessing
To explore the Two Mines problem further we might simply guess (i.e. use our judgement) how many days per week to work and see how they turn out. work one day a week on X, one day a week on Y This does not seem like a good guess as it results in only 7 tonnes a week of high-grade, insufficient to meet the contract requirement for 12 tonnes of high-grade a week. We say that such a solution is infeasible. work 4 days a week on X, 3 days a week on Y This seems like a better guess as it results in sufficient ore to meet the contract. We say that such a solution is feasible. However it is quite expensive (costly). Rather than continue guessing we can approach the problem in a structured logical fashion as below. Reflect for a moment though that really we would like a solution which supplies what is necessary under the contract at minimum cost. Logically such a minimum cost solution to this decision problem must exist. However even if we keep guessing we can never be sure whether we have found this minimum cost solution or not. Fortunately our structured approach will enable us to find the minimum cost solution.

Two Mines solution


What we have is a verbal description of the Two Mines problem. What we need to do is to translate that verbal description into an equivalent mathematical description. In dealing with problems of this kind we often do best to consider them in the order: 1. variables 2. constraints 3. objective. We do this below and note here that this process is often called formulating the problem (or more strictly formulating a mathematical representation of the problem). (1) Variables These represent the "decisions that have to be made" or the "unknowns". Let x = number of days per week mine X is operated y = number of days per week mine Y is operated Note here that x >= 0 and y >= 0. (2) Constraints It is best to first put each constraint into words and then express it in a mathematical form. ore production constraints - balance the amount produced with the quantity required under the smelting plant contract Ore High 6x + 1y >= 12 Medium 3x + 1y >= 8 Low 4x + 6y >= 24 Note we have an inequality here rather than an equality. This implies that we may produce more of some grade of ore than we need. In fact we have the general rule:given a choice between an equality and an inequality choose the inequality. For example - if we choose an equality for the ore production constraints we have the three equations 6x+y=12, 3x+y=8 and 4x+6y=24 and there are no values of x and y which satisfy all three equations (the problem is therefore said to be "over-constrained"). For example the (unique) values of x and y which satisfy 6x+y=12 and 3x+y=8 are x=4/3 and y=4, but these values do not satisfy 4x+6y=24.

The reason for this general rule is that choosing an inequality rather than an equality gives us more flexibility in optimising (maximising or minimising) the objective (deciding values for the decision variables that optimise the objective). days per week constraint - we cannot work more than a certain maximum number of days a week e.g. for a 5 day week we have x <= 5 y <= 5 Constraints of this type are often called implicit constraints because they are implicit in the definition of the variables. (3) Objective Again in words our objective is (presumably) to minimise cost which is given by 180x + 160y Hence we have the complete mathematical representation of the problem as: minimise 180x + 160y subject to 6x + y >= 12 3x + y >= 8 4x + 6y >= 24 x <= 5 y <= 5 x,y >= 0 There are a number of points to note here: a key issue behind formulation is that IT MAKES YOU THINK. Even if you never do anything with the mathematics this process of trying to think clearly and logically about a problem can be very valuable. a common problem with formulation is to overlook some constraints or variables and the entire formulation process should be regarded as an iterative one (iterating back and forth between variables/constraints/objective until we are satisfied). the mathematical problem given above has the form o all variables continuous (i.e. can take fractional values) o a single objective (maximise or minimise) o the objective and constraints are linear i.e. any term is either a constant or a constant multiplied by an unknown (e.g. 24, 4x, 6y are linear terms but xy is a non-linear term). o any formulation which satisfies these three conditions is called a linear program (LP). As we shall see later LP's are important.. we have (implicitly) assumed that it is permissible to work in fractions of days - problems where this is not permissible and variables must take integer values will be dealt with under integer programming (IP). often (strictly) the decision variables should be integer but for reasons of simplicity we let them be fractional. This is especially relevant in problems where the values of the decision variables are large because any fractional part can then usually be ignored (note that often the data (numbers) that we use in formulating the LP will be inaccurate anyway). the way the complete mathematical representation of the problem is set out above is the standard way (with the objective first, then the constraints and finally the reminder that all variables are >=0).

Discussion
Considering the Two Mines example given above: this problem was a decision problem we have taken a real-world situation and constructed an equivalent mathematical representation - such a representation is often called a mathematical model of the real-world situation (and the process by which the model is obtained is called formulating the model). Just to confuse things the mathematical model of the problem is sometimes called the formulation of the problem. having obtained our mathematical model we (hopefully) have some quantitative method which will enable us to numerically solve the model (i.e. obtain a numerical solution) - such a quantitative method is often called an algorithm for solving the model. Essentially an algorithm (for a particular model) is a set of instructions which, when followed in a step-by-step fashion, will produce a numerical solution to that model. You will see some examples of algorithms later in this course but note here that many algorithms for OR problems are available in computer packages. our model has an objective, that is something which we are trying to optimise. having obtained the numerical solution of our model we have to translate that solution back into the real-world situation.

On an historical note the Encyclopedia Britannica notes that the word algorithm derives from the Latin translation, Algoritmi de numero Indorum, of the 9th-century Muslim mathematician Abu Ja'far Muhammad ibn Musa AlKhwarizmi who wrote "Al-Khwarizmi Concerning the Hindu Art of Reckoning." Hence we have a definition of OR as: OR is the representation of real-world systems by mathematical models together with the use of quantitative methods (algorithms) for solving such models, with a view to optimising. One thing I wish to emphasise about OR is that it typically deals with decision problems. You will see examples of the many different types of decision problem that can be tackled using OR throughout OR-Notes. We can also define a mathematical model as consisting of: Decision variables, which are the unknowns to be determined by the solution to the model. Constraints to represent the physical limitations of the system. An objective function. A solution (or optimal solution) to the model is the identification of a set of variable values which are feasible (i.e. satisfy all the constraints) and which lead to the optimal value of the objective function.

Philosophy
In general terms we can regard OR as being the application of scientific methods/thinking to decision making. Underlying OR is the philosophy that: decisions have to be made; and using a quantitative (explicit, articulated) approach will lead (on average) to better decisions than using nonquantitative (implicit, unarticulated) approaches (such as those used (?) by human decision makers). Indeed it can be argued that although OR is imperfect it offers the best available approach to making a particular decision in many instances (which is not to say that using OR will produce the right decision). Often the human approach to decision making can be characterised (conceptually) as the "ask Fred" approach, simply give Fred ('the expert') the problem and relevant data, shut him in a room for a while and wait for an answer to appear. The difficulties with this approach are: speed (cost) involved in arriving at a solution quality of solution - does Fred produce a good quality solution in any particular case consistency of solution - does Fred always produce solutions of the same quality (this is especially important when comparing different options). You can form your own judgement as to whether OR is better than this approach or not.

Phases of an OR project
Drawing on our experience with the Two Mines problem we can identify the phases that a (real-world) OR project might go through. 1. Problem identification Diagnosis of the problem from its symptoms if not obvious (i.e. what is the problem?) Delineation of the subproblem to be studied. Often we have to ignore parts of the entire problem. Establishment of objectives, limitations and requirements. 2. Formulation as a mathematical model It may be that a problem can be modelled in differing ways, and the choice of the appropriate model may be crucial to the success of the OR project. In addition to algorithmic considerations for solving the model (i.e. can we solve our model numerically?) we must also consider the availability and accuracy of the real-world data that is required as input to the model. Note that the "data barrier" ("we don't have the data!!!") can appear here, particularly if people are trying to block the project. Often data can be collected/estimated, particularly if the potential benefits from the project are large enough. You will also find, if you do much OR in the real-world, that some environments are naturally data-poor, that is the data is of poor quality or nonexistent and some environments are naturally data-rich. As examples of this I have worked on a church location study (a data-poor environment) and an airport terminal check-in desk allocation study (a data-rich environment). This issue of the data environment can affect the model that you build. If you believe that certain data can never (realistically) be obtained there is perhaps little point in building a model that uses such data. 3. Model validation (or algorithm validation) Model validation involves running the algorithm for the model on the computer in order to ensure: the input data is free from errors the computer program is bug-free (or at least there are no outstanding bugs) the computer program correctly represents the model we are attempting to validate the results from the algorithm seem reasonable (or if they are surprising we can at least understand why they are surprising). Sometimes we feed the algorithm historical input data (if it is available and is relevant) and compare the output with the historical result.

4. Solution of the model Standard computer packages, or specially developed algorithms, can be used to solve the model (as mentioned above). In practice, a "solution" often involves very many solutions under varying assumptions to establish sensitivity. For example, what if we vary the input data (which will be inaccurate anyway), then how will this effect the values of the decision variables? Questions of this type are commonly known as "what if" questions nowadays. Note here that the factors which allow such questions to be asked and answered are: the speed of processing (turn-around time) available by using pc's; and the interactive/user-friendly nature of many pc software packages. 5. Implementation This phase may involve the implementation of the results of the study or the implementation of the algorithm for solving the model as an operational tool (usually in a computer package). In the first instance detailed instructions on what has to be done (including time schedules) to implement the results must be issued. In the second instance operating manuals and training schemes will have to be produced for the effective use of the algorithm as an operational tool. It is believed that many of the OR projects which successfully pass through the first four phases given above fail at the implementation stage (i.e. the work that has been done does not have a lasting effect). As a result one topic that has received attention in terms of bringing an OR project to a successful conclusion (in terms of implementation) is the issue of client involvement. By this is meant keeping the client (the sponsor/originator of the project) informed and consulted during the course of the project so that they come to identify with the project and want it to succeed. Achieving this is really a matter of experience. A graphical description of this process is given below.

Example OR projects
Not all OR projects get reported in the literature (especially OR projects which fail). However to give you an idea of the areas in which OR can be applied we give below some abstracts from papers on OR projects that have been reported in the literature (all US projects drawn from the journal Interfaces). Some other OR projects can be found here. Note here that, at this stage of the course, you will probably not understand every aspect of these abstracts but you should have a better understanding of them by the end of the course. Yield management at American Airlines Critical to an airline's operation is the effective use of its reservations inventory. American Airlines began research in the early 1960's in managing revenue from this inventory. Because of the problem's size and difficulty, American Airlines Decision Technologies has developed a series of OR models that effectively reduce the large problem to three much smaller and far more manageable subproblems: overbooking, discount allocation and traffic management. The results of the subproblem solutions are combined to determine the final inventory levels. American Airlines estimates the

quantifiable benefit at $1.4 billion over the last three years and expects an annual revenue contribution of over $500 million to continue into the future. Yield management is also sometimes referred to as capacity management. It applies in systems where the cost of operating is essentially fixed and the focus is primarily, though not exclusively, on revenue maximisation. For example all transport systems (air, land, sea) operating to a fixed timetable (schedule) could potentially benefit from yield management. Hotels and universities would be other examples of systems where the focus should primarily be on revenue maximisation. To give you an illustration of the kind of problems involved in yield management suppose that we consider a specific flight, say the 4pm on a Thursday from Chicago O'Hare to New York JFK. Further suppose that there are exactly 100 passenger seats on the plane subdivided into 70 economy seats and 30 business class seats (and that this subdivision cannot be changed). An economy fare is $200 and a business class fare is $1000. Then a fundamental question (a decision problem) is :How many tickets can we sell ? One key point to note about this decision problem is that it is a routine one, airlines need to make similar decisions day after day about many flights. Suppose now that at 7am on the day of the flight the situation is that we have sold 10 business class tickets and 69 economy tickets. A potential passenger phones up requesting an economy ticket. Then a fundamental question (a decision problem) is : Would you sell it to them ? Reflect - do the figures given for fares $200 economy, $1000 business, affect the answer to this question or not ? Again this decision problem is a routine one, airlines need to make similar decisions day after day, minute after minute, about many flights. Also note that in this decision problem an answer must be reached quickly. The potential passenger on the phone expects an immediate answer. One factor that may influence your thinking here is consider certain money (money we are sure to get) and uncertain money (money we may, or may not, get). Suppose now that at 1pm on the day of the flight the situation is that we have sold 30 business class tickets and 69 economy tickets. A potential passenger phones up requesting an economy ticket. Then a fundamental question (a decision problem) is : Would you sell it to them ? NETCAP - an interactive optimisation system for GTE telephone network planning

With operations extending from the east coast to Hawaii, GTE is the largest local telephone company in the United States. Even before its 1991 merger with Contel, GTE maintained more than 2,600 central offices serving over 15.7 million customer lines. It does extensive planning to ensure that its $300 million annual investment in customer access facilities is well spent. To help GTE Corporation in a very complex task of planning the customer access network, GTE Laboratories developed a decision support tool called NETCAP that is used by nearly 200 GTE network planners, improving productivity by more than 500% and saving an estimated $30 million per year in network construction costs. Managing consumer credit delinquency in the US economy: a multi-billion dollar management science application

GE Capital provides credit card services for a consumer credit business exceeding $12 billion in total outstanding dollars. Its objective is to optimally manage delinquency by improving the allocation of limited collection resources to maximise net collections over multiple billing periods. We developed a probabilistic account flow model and statistically designed programs to provide accurate data on collection resource performance. A linear programming formulation produces optimal resource allocations that have been implemented across the business. The PAYMENT system has permanently changed the way GE Capital manages delinquent consumer credit, reduced annual losses by approximately $37 million, and improved customer goodwill. Note here that GE Capital also operates in the UK. My Debenhams store card is administered/operated by them.

Operational research example 1987 UG exam

After graduating from Imperial College you find yourself at a business lunch with the managing director of the company employing you. You know that he started as a tea-boy 40 years ago and rose through the ranks of the company (without any formal education) to his present position. He believes that all a person needs to succeed in business are (innate) ability and experience. What arguments would you use to convince him that the decision-making techniques dealt with in this course are of value?

Solution
The points that we would expect to see in an answer include: OR obviously of value in tactical situations where data well defined an advantage of explicit decision making is that it is possible to examine assumptions explicitly might expect an "analytical" approach to be better (on average) than a person OR techniques combine the ability and experience of many people sensitivity analysis can be performed in a systematic fashion OR enables problems too large for a person to tackle effectively to be dealt with constructing an OR model structures thought about what is/is not important in a problem a training in OR teaches a person to think about problems in a logical fashion using standard OR techniques prevents a person having to "reinvent the wheel" each time they meet a suitable problem OR techniques enable computers to be used with (usually) standard packages and consequently all the benefits of computerised analysis (speed, rapid (elapsed) solution time, graphical output, etc) OR techniques an aid (complement) to ability and experience not a substitute for them many OR techniques simple to understand and apply there have been many successful OR projects (e.g. ...) other companies use OR techniques - do we want to be left behind? ability and experience are vital but need OR to use these effectively in tackling large problems OR techniques free executive time for more creative tasks

Operational research example 1987 UG exam


Discuss the phases that a typical operational research project might go through, with reference to one particular problem of which you are aware.

Solution
The phases that a typical OR project might go through are: 1. 2. 3. 4. 5. problem identification formulation as a mathematical model model validation solution of the model implementation

We would be looking for a discussion of these points with reference to one particular problem.

Other OR projects US projects


For Air Products and Chemicals, Inc., inventory management of industrial gases at customer locations is integrated with vehicle scheduling and despatching. Their advanced decision support system includes on-line data entry functions, customer usage forecasting, a time/distance network with a shortest path algorithm to compute

intercustomer travel times and distances, a mathematical optimization module to produce daily delivery schedules, and an interactive schedule change interface. The optimization module uses a sophisticated Lagrangian relaxation algorithm to solve mixed integer programs with up to 800,000 variables and 200,000 constraints to near optimality. The system, first implemented in October 1981, has been saving between 6% and 10% of operating costs. Note here that the term "decision support system" is one that is becoming increasingly common nowadays. A mini-computer based information system with on-line optimal route planning capability was developed to assist dispatchers on the complex northern portion of Southern Railway's Alabama Division. The routing plan is revised automatically as conditions change. Since implementation in September 1980, train delay has been more than 15 percent lower, reflecting annual savings of $316,000. The dispatching support system is now being expanded to all other Southern Railway operating divisions with $3,000,000 annual savings expected from reduced train delay. An integrated modelling and measurement system, ASSESSOR provides management with forecasts and diagnostic information about the sales potential of new packaged goods before they are test marketed. Over the past decade, Management Decision Systems has applied the methodology to 450 new products. A study indicates that ASSESSOR has helped reduce the failure rate of new products in test market by almost a half and saved the 100 client firms an estimated $120 million.

UK projects
This case study describes an investigation which was undertaken for a local shopkeeper after one of his shop assistants had been convicted of theft. The person concerned had admitted stealing a few pounds on just one occasion, but a series of worsening year-end results over a period of three or four years caused the shopkeeper to suspect that stealing had been taking place on a very large scale over a long period of time. Could this be 'proved' by examining in detail records of the shop's business for the years in question? The analysis undertaken involved principally the number of customers each week and the revenue per customer. The most usual form of theft involves 'understriking' (ringing into the till less than the value of the sale and subsequently taking out the difference). This practice will be expected to reduce the revenue per customer and increase the number of customers (because the incorrect entry is usually disguised by immediately ringing in a no-sale or a zero amount). Clear evidence was found of stealing on a much larger scale than had been admitted. Defence policy-making has to be set against an uncertain - indeed unpredictable - future. Given this uncertainty surrounding future conflict, air forces play an important part because of their inherent flexibility to undertake a variety of roles. This paper describes the assistance given to the Air Staff in deciding what mix of air-delivered weapons should be stockpiled to provide the RAF with this flexibility, subject to budgetary and other constraints. It is a simple application of linear programming with an unusual objective function. A number of alternative approaches are reviewed, and the rather pragmatic way in which various decisions regarding the conduct of the study were made is discussed.