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Objectives

To Understand the fundamentals of

mathematical model building process.


To learn different techniques commonly used
in various application areas along with
assumptions and limitations.
To apply such techniques in real life situations
for solving problems.
To develop an insight of scientific decision
making under limited resources.

Course Outline
Linear Programming
Transportation and Assignment Problems
Nonlinear Programming
Project Scheduling-CPM/PERT
Queuing Theory
Simulation

Operations Research
Defined

Operations research is the application of the methods of


science to complex problems in the direction and
management of large systems of men, machines, materials
and money in industry, business, government and defence.
The distinctive approach is to develop a scientific model of
the system incorporating measurements of factors such as
chance and risk, with which to predict and compare the
outcomes of alternative decisions, strategies or controls.
The purpose is to help management in determining its
policy and actions scientifically.
Operational Research Society, UK

Operations research is concerned with scientifically deciding


how to best design and operate manmachine systems
usually requiring the allocation of scarce resources.
Operations Research Society, America

Operations Research
Defined

These two definitions pointed out following characteristics of


operations research:

Use of scientific method


Use of models to represent the complex relationships
Interdisciplinary approach
Provision of a quantitative basis for decision making

Applications of Operations Research


Facilities planning
Manufacturing
Finance and Accounting
Purchasing, Procurement and Exploration
Marketing Management
Personnel management

Methodology of OR

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Linear Programming
Many management decisions involve trying to

make the most effective use of an


Organizations resources.
Resources typically include machinery, labour,
money, time, warehousing space, and raw
materials.
These resources may be used to make
products (such as machinery, furniture, food,
clothing etc.) or services (such as schedules
for airlines, or production, advertising policies,
or investment decisions etc.).

Transportation and
Assignment Problems
The transportation model is a special class of

linear programs that deals with shipping a


commodity from sources (e.g., factories) to
destinations (e.g., warehouses).
Objective is to determine the shipping
schedule that minimizes the total cost while
satisfying supply and demand limits.

Assignment Model
The best person for the job

Project SchedulingCPM/PERT
Most realistic projects that organizations like

Microsoft, General Motors, or DRDO undertake


are large and complex.
How to manage large scale complicated
projects effectively?
It is a difficult problem, and the stakes are
very high.
Millions of dollars in cost overruns are wasted
due to poor planning of projects.
Unnecessary delays have occurred due to
poor scheduling.

CPM/PERT
The first step in planning and scheduling a

project is to develop the work breakdown


structure.
It involves identifying the activities that must
be performed in the project.
There may be varying levels of details, and
each activity may be broken into its basic
components.
The time, cost, resource requirements,
predecessors, and person(s) responsible are
identified for each activity.

CPM/PERT
When this has been done, a schedule for the

project can be developed.


The Critical Path Method and Program
Evaluation and Review Technique are two
popular analytical techniques that help
managers plan, schedule monitor, and control
large and complex projects.

CPM/PERT
CPM was developed by J E Kelly of Remington

Rand and M R Walker of du Pont in 1957.


Originally, it was used to assist in the building
and maintenance of chemical plants at du
Pont.
In 1958, the Special Projects Office of the US
Navy developed the program evaluation and
review technique to plan and control the
polaris missile program.
Statistical concept to be used: Standard
normal probability distribution; Beta

Queuing Theory
Models
The study of waiting lines, called queuing

theory, is one of the oldest and most widely


used analytical techniques.
It affects everybody.
Managers must deal with the trade-off
between the cost of providing good service
and the cost of customer waiting time. The
latter may be hard to quantify.
One of the goals of queuing theory analysis is
finding the best level of service for an
organization.

Queuing Theory
Models
In this topic, we discuss how analytical models

of waiting lines can help managers evaluate


the cost and effectiveness of service systems.
Statistical concept required: Poisson
probability distribution; exponential
probability distribution

Simulation
Simulation is the next best thing to observing

a real system.
It deals with a computerized imitation of the
random behavior of a system for the purpose
of estimating its measure of performance.
Simulation is one of the most widely used
quantitative analysis tools.
Various surveys revealed that over half of the
US corporations use simulation in corporate
planning.

Simulation
To simulate is to try to duplicate the features,

appearance, and characteristics of a real


system.
The idea behind simulation is to imitate a realworld situation mathematically, then to study
its properties and operating characteristics,
and, finally, to draw conclusions and make
action decisions based on the results of the
simulation.

Nonlinear
Programming
Linear programming assumes that a

problems objective function and constraints


are linear.
That means that they contain no nonlinear
terms such as X13, 1/X2, logX3 or X1X2.
Yet in many mathematical problems, the
objective function and/or one or more of the
constraints are nonlinear.
Three categories of nonlinear programming
(NLP) problems are:

Nonlinear
Programming
Nonlinear objective function and linear

constraints
Linear objective function with nonlinear
constraints
Both objective function and constraints are
nonlinear

Linkages with Other


Courses
Business Research Methods
Production and Operations Management
International Trade Logistics
Supply Chain Management
Advanced Analytics for International Business
Financial Risk Management

Historical Perspective
People has been using mathematical tools to

help solve problems for thousands of years.


The formal study and applications of
Operations Research for practical decision
making is largely a product of twentieth
century.

History
Linear Programming was conceptually

developed before World War II by the


outstanding Soviet Mathematician and
Statistician A N Kolmogorov.
Another Russian, Leonard Kantorovich, won
the Nobel prize in Economics in 1975 for
advancing the concept of optimal planning.

History(Contd.)
An early application of LP by Stigler in 1945,

was in the area we today call diet problems.


Major progress in the field, however, took
place in 1947 and later when George D.
Dantzig developed the solution procedure
known as the simplex algorithm.
Dantzig, then an Air Force Mathematician, was
assigned to work on logistics problems. He
noticed that many problems involving limited
resources and more than one demand could
be set up in terms of a series of equations and
inequalities.

History(Contd.)
Although early LP applications were military in

nature, industrial applications rapidly became


apparent with the spread of business
computers.
John Von Neumann developed theory of
duality in 1947.
In 1984, N. Karmarkar developed an algorithm
that appears to be superior to the simplex
method for very large applications.

Shortcomings
Solution to problem often derived by

simplifying assumptions.
Models may not represent the realistic
situations in which decisions are made.
Often the decision maker is not fully aware of
the limitations of the model

Assumptions and
Limitations
It is not enough to know the mathematics of

how a particular OR technique works, you


must also be familiar with the assumptions
and limitations, and specific applicability of
the technique.