INTRODUCTION

TO
MANAGEMENT SCIENCE
 Chapter 1- Introduction to Management Science

• The Management Science Approach to Problem Solving

• Model Construction: Production
• Management Science Modeling Techniques
• Breakeven Analysis and Excel Model Example
• Indifference Point Analysis

2 - Chap 01
 Applications of Management Science in Business:
Opening a Fairwood Fast Food Restaurant
Business questions:
1. Is it worth doing? (Break-even analysis,
Forecasting)
2.What seating capacity should we build? (Decision
analysis)
3.How much food material to prepare?
(Forecasting)
4. How to schedule the staff to ensure a certain
customer service level?
(Linear programming, Waiting line management)

3 - Chap 01
 The Management Science Approach

• Management science uses an objective (logical, scientific and mathematical) approach to

solve management problems.
• It is used in a variety of organizations to solve many different types of problems.
– Investment, resource allocation, production mix, marketing, multi-period scheduling etc.

4 - Chap 01
The Management Science Process

The Management Science Process

5 - Chap 01
 Steps in the Management Science Process
• Observation - Identification of a problem that exists in a system
or an organization.
• Definition of the Problem - Problem must be clearly and
consistently defined showing its boundaries and interaction with
the objectives of the organization.
• Model Construction - Development of the functional relationships
that describe the decision variables, objective function and
constraints of the problem.
• Model Solution - Model solved using management science
techniques.
• Model Implementation - Actual use of the model or its solution.

6 - Chap 01
 Example of Model Construction
Problem Definition
Information and Data:
- A bakery makes and sells birthday cakes (Cake A and Cake B)
- Cake A costs $100 to produce, Cake B costs $120
- Cake A sells for $200 while Cake B sells for $250
- Cakes A and B require 0.5 and 0.8 pounds of double cream to make,
respectively
- The bakery has 20 pounds of double cream for each day
Business problem: Assuming all cakes produced can be sold out,
determine the numbers of different cakes to produce to make the most
profit given the limited amount of double cream available.
7 - Chap 01
 Example of Model Construction
Mathematical Model
Decision Variable: x = number of Cake A to produce
y = number of Cake B to produce
Z = total profit
Model: Z = $200x +$250y- $100x - $120y (objective function)

0.5x +0.8y <= 20 lb of double cream (resource constraint)

Parameters: $200, $100, 0.5 lb, 20 lbs (known values)
Formal specification of model:
maximize Z = $200x + $250y - $100x - $120y
subject to 0.5x +0.8y <= 20
x >= 0, y>= 0 8 - Chap 01
 Characteristics of Modeling Techniques
• Linear mathematical programming: clear objective; restrictions on
resources and requirements; parameters known with certainty.
• Probabilistic techniques: results contain uncertainty.
• Network techniques: model often formulated as diagram;
deterministic or probabilistic.
• Forecasting and inventory analysis techniques: probabilistic and
deterministic methods in demand forecasting and inventory
control.
• Other techniques: variety of deterministic and probabilistic
methods for specific types of problems.

9 - Chap 01