Chapter 1

Introduction
1

1.1 What Is Management Science?

Management

Science is the discipline that adapts the

scientific approach for problem solving to help managers
make informed decisions.
The goal of management science is to recommend the
course of action that is expected to yield the best
outcome with what is available.

1.1 What Is Management Science?

The

basic steps in the management science problem

solving process involves

Analyzing business situations and building mathematical

models to describe them;
Solving the mathematical models;
Communicating/implementing recommendations based on the
models and their solutions.

The Management Science Approach

A scientific method of providing executive departments with a

quantitative basis for decisions regarding operations (Philip McCord
Morse).
Logic and common sense are basic components in supporting the
decision making process.
The use of techniques such as (US army pamphlet 660-3):

Statistical inference
Mathematical programming
Probabilistic models
Network and computer science

Management Science Applications

Linear Programming was used by Burger King to find how

to best blend cuts of meat to minimize costs.

Integer Linear Programming model was used by American Air

Lines to determine an optimal flight schedule.

The Shortest Route Algorithm was implemented by the Sony

Corporation to developed an onboard car navigation
system.

Management Science Applications

Project Scheduling Techniques were used by a contractor to

rebuild Interstate 10 damaged in the 1994 earthquake in the Los
Angeles area.

Decision Analysis approach was the basis for the development of

a comprehensive framework for planning environmental policy in
Finland.

Queuing models are incorporated into the overall design plans for
Disneyland and Disney World, which lead to the development of
waiting line entertainment in order to improve customer
satisfaction.

1.3 Mathematical Modeling

Many managerial

decision situations lend themselves to

quantitative analyses.
A constrained mathematical model consists of

An objective
One or more constraints

1.3 Mathematical Modeling

Example

NewOffice Furniture produces three products

Desks (D)
Chairs (C)
Molded steel (M)

7 pounds of per desk

3 pounds of per chair
1.5 pounds per one pound of
molded steel produced.

Net profit is
$50 per desk
$30 per chair
$6 per pound of molded steel
sold

Raw material required

Raw material available

2000 pounds

1.3 Mathematical Modeling

Objective:

Determine production mix that maximizes the

profit under the raw material constraint and other
production requirements (detailed next).
Maximize 50D + 30C + 6 M
Subject to 7D + 3C + 1.5M 2000 (raw steel)
D
100 (contract )
C 500 (cushions available)
D, C, M 0
(Non-negativity)
D and C are integers
9

Classification of Mathematical Models

Classification

by the model purpose

Optimization models
Prediction models

Classification

by the degree of certainty of the data in the

model

10

Deterministic models
Probabilistic (stochastic) models

The Management Science Process

Management

Science is a discipline that adopts the

scientific method to provide management with key
information needed in making informed decisions.
The team concept calls for the formation of (consulting)
teams consisting of members who come from various
areas of expertise.

11

The Management Science Process

The

four-step management science process (for details

click on each button)
Problem definition

Mathematical modeling
Solution of the model

12

Communication/implementation
of results

Chapter 2

Linear and Integer

Programming Models

13

2.1 Introduction to Linear Programming

A Linear

Programming model seeks to maximize or

minimize a linear function, subject to a set of linear
constraints.
The linear model consists of the following
components:

14

A set of decision variables.

An objective function.
A set of constraints.

Introduction to Linear Programming

The Importance of Linear Programming

15

Many real world problems lend themselves to linear

programming modeling.
Many real world problems can be approximated by linear models.
There are well-known successful applications in:
Manufacturing
Marketing
Finance (investment)
Advertising
Agriculture

Introduction to Linear Programming

The Importance of Linear Programming

16

There are efficient solution techniques that solve linear programming models.
The output generated from linear programming packages provides useful
what if analysis.

Introduction to Linear Programming

Assumptions

17

of the linear programming model

The parameter values are known with certainty.

The objective function and constraints exhibit constant
returns to scale.
There are no interactions between the decision variables
(the additivity assumption).
The Continuity assumption: Variables can take on any value
within a given feasible range.

The Galaxy Industries Production Problem

A Prototype Example
Galaxy

Space Ray.
Zapper.

Resources are limited to

18

manufactures two toy doll models:

1000 pounds of special plastic.

40 hours of production time per week.

The Galaxy Industries Production Problem

A Prototype Example

Marketing requirement
Total production cannot exceed 700 dozens.

Number of dozens of Space Rays cannot exceed number of

dozens of Zappers by more than 350.

Technological input

Space Rays requires 2 pounds of plastic and

3 minutes of labor per dozen.
Zappers requires 1 pound of plastic and
4 minutes of labor per dozen.

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The Galaxy Industries Production Problem

A Prototype Example

The current production plan calls for:

Producing as much as possible of the more profitable product, Space Ray

($8 profit per dozen).
Use resources left over to produce Zappers ($5 profit
per dozen), while remaining within the marketing guidelines.

The current production plan consists 8(450)

of: + 5(100)

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Space Rays = 450 dozen

Zapper
= 100 dozen
Profit
= $4100 per week

Management is seeking a
production schedule that will
increase the companys profit.

21

A linear programming model

can provide an insight and an
intelligent solution to this problem.
22

The Galaxy Linear Programming Model

Decisions

X1 = Weekly production level of Space Rays (in dozens)

X2 = Weekly production level of Zappers (in dozens).

Objective

23

variables:

Function:

Weekly profit, to be maximized

The Galaxy Linear Programming Model

Max 8X1 + 5X2

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(Weekly profit)

subject to
2X1 + 1X2 1000

(Plastic)

3X1 + 4X2 2400

(Production Time)

X1 + X2 700

(Total production)

X1 - X2 350

(Mix)

Xj> = 0, j = 1,2

(Nonnegativity)

2.3

The Graphical Analysis of Linear

Programming
The set of all points that satisfy all the
constraints of the model is called
a
FEASIBLE REGION

25

Using a graphical presentation

we can represent all the constraints,
the objective function, and the three
types of feasible points.
26

Graphical Analysis the Feasible Region

X2

The non-negativity constraints

X1

27

Graphical Analysis the Feasible Region

X2

The Plastic constraint

2X1+X2 1000

1000
700

Total production constraint:

X1+X2 700 (redundant)

500

Infeasible
Production
Time
3X1+4X2 2400

Feasible
500

28

700

X1

Graphical Analysis the Feasible Region

X2

The Plastic constraint

2X1+X2 1000

1000
700

Total production constraint:

X1+X2 700 (redundant)

500

Production
Time
3X1+4X22400

Infeasible
Production mix
constraint:
X1-X2 350

Feasible
500

700

Interior points. Boundary points. Extreme points.

29

There are three types of feasible points

X1

Solving Graphically for an Optimal

Solution

30

The search for an optimal solution

X2
1000

Start at some arbitrary profit, say profit = $2,000...

Then increase the profit, if possible...
...and continue until it becomes infeasible

700

Profit =$4360

500

X1

31

500

Summary of the optimal solution

Space Rays = 320 dozen

Zappers
= 360 dozen
Profit = $4360

32

This solution utilizes all the plastic and all the production hours.

Total production is only 680 (not 700).

Space Rays production exceeds Zappers production by only 40 dozens.

Extreme points and optimal solutions

33

If a linear programming problem has an optimal solution,

an extreme point is optimal.

Multiple optimal solutions

For multiple optimal solutions to exist, the objective
function must be parallel to one of the constraints
Any weighted average of
optimal solutions is also an
optimal solution.

34

2.4 The Role of Sensitivity Analysis

of the Optimal Solution
Is

the optimal solution sensitive to changes in input

parameters?

Possible reasons

35

for asking this question:

Parameter values used were only best estimates.

Dynamic environment may cause changes.
What-if analysis may provide economical and operational
information.

Sensitivity Analysis of
Objective Function Coefficients.

Range of Optimality

The optimal solution will remain unchanged as long as

An

objective function coefficient lies within its range of optimality

There are no changes in any other input parameters.

The value of the objective function will change if the

coefficient multiplies a variable whose value is nonzero.

36

Sensitivity Analysis of
Objective Function Coefficients.
1000

X2

500

+5
X1
x8
Ma

M
Ma ax 4
x3
.75 X1 +
X 5X
1 +
5X 2

X2

Max
2X

+ 5X

X1

37

500

800

Sensitivity Analysis of
Objective Function Coefficients.
1000

X2

X2
+5
X1
x8
Ma

Range of optimality: [3.75, 10]

x
Ma
10
X1

X2

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3.7
5

+5

Ma
x

X1

500

+5
X2

400

600

800

X1

Reduced cost
Assuming there are no other changes to the input parameters, the reduced
cost for a variable Xj that has a value of 0 at the optimal solution is:

The negative of the objective coefficient increase of the variable Xj (-Cj)

necessary for the variable to be positive in the optimal solution
Alternatively, it is the change in the objective value per unit increase of Xj.

Complementary slackness
At the optimal solution, either the value of a variable is zero, or its reduced cost
is 0.

39

Sensitivity Analysis of
Right-Hand Side Values

40

In sensitivity analysis of right-hand sides of constraints we are

interested in the following questions:

Keeping all other factors the same, how much would the optimal value of
the objective function (for example, the profit) change if the right-hand side
of a constraint changed by one unit?

For how many additional or fewer units will this per unit change be valid?

Sensitivity Analysis of
Right-Hand Side Values
Any

change to the right hand side of a binding

constraint will change the optimal solution.

Any

change to the right-hand side of a non-binding

constraint that is less than its slack or surplus, will
cause no change in the optimal solution.

41

Shadow Prices
Assuming

there are no other changes to the input

parameters, the change to the objective function value
per unit increase to a right hand side of a constraint is
called the Shadow Price

42

Shadow Price graphical demonstration

The Plastic
constraint

X2

1000

2X 1

Maximum profit = $4360

01
=10
x 2<
00
+1
=10
x 2<
+1

2X 1
500

When more plastic becomes available (the

plastic constraint is relaxed), the right hand
side of the plastic constraint increases.

Maximum profit = $4363.4

Shadow price =
4363.40 4360.00 = 3.40

Production time
constraint

43

X1
500

Range of Feasibility
Assuming

there are no other changes to the input

parameters, the range of feasibility is

The range of values for a right hand side of a constraint, in which the
shadow prices for the constraints remain unchanged.

In the range of feasibility the objective function value changes as follows:

Change in objective value =

[Shadow price][Change in the right hand side value]

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Range of Feasibility

The Plastic
constraint

X2

2X 1
=10
x 2<
+1

1000

00

Production mix
constraint
X1 + X2 700

Increasing the amount of

plastic is only effective until a
new constraint becomes active.

A new active
constraint

500

This is an infeasible solution

Production time
constraint
X1

45

500

Range of Feasibility

The Plastic
constraint

X2

2X 1
0
100
x 2
+1

1000

Note how the profit increases

as the amount of plastic
increases.

500

Production time
constraint
X1

46

500

Range of Feasibility
X2

Infeasible
solution

1000

Less plastic becomes available (the

plastic constraint is more restrictive).

The profit decreases

500

2X1 + 1X2 1100

A new active
constraint
X1

47

500

The correct interpretation of shadow prices

48

Sunk costs: The shadow price is the value of an extra unit

of the resource, since the cost of the resource is not included
in the calculation of the objective function coefficient.

Included costs: The shadow price is the premium value

above the existing unit value for the resource, since the cost
of the resource is included in the calculation of the objective
function coefficient.