Chapter 1

Chapter 1
Introduction to Modeling
Introduction
• Today’s business problems tend to be very
complex.
– Businesses turn to algorithms to solve problems.
• Management science models become useful when
common sense and intuition fail to solve the
problems.
• This book describes how quantitative methods can
be used to solve business problems.
• The methods in this book are powerful because
they apply to many problems and environments.
Winston/Albright Practical Management Science, 4e South-Western/Cengage Learning
Thomson/South-Western © 2012
2007 ©
Introduction continued
• The purpose of this book is to demonstrate a variety of
problems that have been solved successfully with
management science methods. Specifically, the book:
– emphasizes both the applied and mathematical aspects
of management science;
– discusses many successful management science
applications;
– leads through the solution procedures of many
interesting and realistic problems;
– uses Excel spreadsheets to solve problems, which
makes the quantitative analysis understandable and
intuitive.
2007 ©
Mathematical model
• A mathematical model is a quantitative
representation, or idealization, of a real problem.
• It is a key to virtually every management science
application.
• It can be phrased in terms of mathematical
expressions (equations and inequalities) or a
series of interrelated cells in a spreadsheet.

2007 ©
Mathematical model continued
• The purpose of a mathematical model is to
represent the essence of a problem in a concise
form, providing several advantages:
– Enables managers to understand the problem better;
• Helps to define the scope of the problem, the possible solutions,
and the data requirements
– Allows analysts to employ a variety of the mathematical
solution procedures that have been developed over the
last 50 years;
– The modeling process itself, if done correctly, often
helps to “sell” the solution to the people who must work
with the system that is eventually implemented.
2007 ©
Chapter outline
1. Example of a relatively simple mathematical model.
2. Discussion of the distinction between modeling and
a collection of models.
3. Discussion of a seven-step modeling process that
is used in most successful management science
applications.
4. Discussion of why the study of management
science is valuable, not only to large corporations,
but also to students who are about to enter the
business world.
2007 ©
Model types
• Descriptive models: models that simply describe
a situation.
• Optimization models: models that suggest a
desirable course of action.
• Example
– Waiting line: Convenience store with a single cash register.
– The manager suspects that excessive waiting times in
lines to the register hurt the business.
– The manager builds a mathematical model to help
understand the problem, and suggest improvements to the
current situation.
2007 ©
Descriptive model
• Waiting line example is a typical queuing problem.
• Two important inputs to the problem:
– The arrival rate of potential customers to the store
– The rate at which customers can be served by a single
cashier
• As the arrival rate increases and/or service rate
decreases, the waiting line will tend to increase,
and customers will wait longer or not enter the line.
– Length of waiting line, time in line per customer, and
fraction of customers who do not enter are referred to as
outputs.
2007 ©
Descriptive model continued
•

2007 ©
• More complex models do not have equations that
relate inputs to outputs, but there may be
mathematical procedures for calculating outputs
from inputs implemented in Excel.
• Convenience store problem:
– Inputs: the arrival rate A,
the service rate S, and the
number in the store, N.
– First two inputs can be
estimated; N can be
assumed.
2007 ©
• Input estimates are entered in the spreadsheet
model.
• Formulas entered into the spreadsheet reflect an
adequate approximation of the convenience store’s
situation.
• This model allows the manager to enter any
sensible values for the inputs in cells B4 through
B6 and observe the resulting outputs in cells B9
through B11.
• The power of the model is that it allows the
manager to ask many what-if questions.
2007 ©
• In reality, the manager would attempt to validate
the spreadsheet model before trusting its answers
to what-if questions.
• At the very least, examine the reasonableness of
the assumptions.
– Is the customer arrival rate constant?
– Check the outputs when the current inputs are used
from the data currently available, and modify the model if
outputs are not corresponding to current data.

2007 ©
Optimization model
• Descriptive models fail to reflect any economic
information, such as the cost of speeding up
service, making customers wait in line, and losing
customers.
• Given the spreadsheet model developed
previously, it is relatively easy to incorporate
economic information and then make rational
choices.

2007 ©
Optimization model continued
• To incorporate economic information into the
previous example, the manager has three choices:
– Leave the system as it is;
– Hire a second person to help the first cashier, with an
effect of decreasing average service time from 2.5 to 1.8
minutes;
– Lease a new model of cash register to speed up the
service process with an effect of decreasing average
service time from 2.5 to 1.25 minutes.
• Manager’s choice depends on the costs of hiring
or leasing, both of which are probably known.
2007 ©
Optimization model continued
• Optimization model allows to incorporate all the
costs and compare the outputs for all decisions
simultaneously
• The option to lease
the new cash register
is the clear winner
from a cost standpoint
• Entering new values
and checking outputs
is easy with this model
2007 ©
Modeling versus models
• Management science is a collection of
mathematical tools.
– Linear programming models (the transportation model,
the diet model, the shortest route model, etc)
– Inventory models
– Queuing models
• Management science practitioners argue that
majority of real-life management science models
cannot be neatly categorized as one of the handful
of models from the textbook.

2007 ©
Modeling versus models
continued
• Emphasis on specific models has been changing in
the past two decades, and the goal of this book is
to continue this change.
• This book stresses modeling, not models.
– Learning specific models is essentially a memorization
process.
– Modeling is a process where you abstract the essence of
a real problem into a model.
• Successful modelers treat each problem on its own
merits and model it appropriately, using all the
logical, analytical, and spreadsheet skills they
have.
2007 ©
The seven-step modeling
process
• Step 1: Problem definition
– The analyst first defines the organization’s problem.
– Defining the problem includes specifying the
organization’s objectives and the parts of the
organization that must be studied before the problem
can be solved.
• Step 2: Data collection
– After defining the problem, the analyst collects data to
estimate the value of parameters that affect the
organization’s problem.

2007 ©
process continued
• Step 3: Model development
– In the third step, the analyst develops a model of the
problem.
– Models where an equation is used to regulate inputs are
called analytical models.
– Most situations are too complex to be solved with an
equation or a system of equations – they are intractable.
When no tractable analytical model exists, analysts rely
instead on a simulation model, which approximates the
behavior of the actual system.

2007 ©
process continued
• Step 4: Model verification
– The analyst now tries to determine whether the model
developed in the previous step is an accurate
representation of reality.
– A first step in determining how well the model fits reality
is to check whether the model is valid for the current
situation.
– For example, to validate the equation for the waiting time
W, the manager might observe actual customer waiting
times for several hours.

2007 ©
process continued
• Step 5: Optimization and decision making
– Given a model and a set of possible decisions, the
analyst must now choose the decision or strategy that
best meets the organization’s objectives.
– Many optimization models exist, and they will be
discussed throughout the book.

2007 ©
process continued
• Step 6: Model communication to management
– The analyst presents the model and the
recommendations from the previous steps to the
organization.
• Step 7: Model implementation
– If the organization has accepted the validity and
usefulness of the study, the analyst then helps to
implement its recommendations.
– The implemented system must be monitored constantly
(and updated dynamically as the environment changes)
to ensure that the model enables the organization to
meet its objectives.
2007 ©
process continued
• The figure below illustrates the seven-step
process.
• The discussion that follows explores the seven

steps in more detail.

2007 ©
Step 1: Problem definition
• Typically, a management science model is initiated when an
organization believes it has a problem, and calls in a
management scientist (the analyst) to solve it.
• In such cases, the problem has probably already been
defined by the client, and the client hires the analyst to solve
this particular problem.
• The task of the analyst is to do some investigating before
accepting the client’s claim that the problem has been
properly defined.
– Failure to do so could mean solving the wrong problem and wasting
valuable time, money, and energy.
• Volkema (1995) advocates spending as much time thinking
about the problem and defining it properly as modeling and
solving it.
2007 ©
Step 2: Data collection
• This crucial step in the modeling process is often the most
tedious.
• All organizations keep track of various data on their
operations, but the data are often not in the form the analyst
requires.
• One of the analyst’s first jobs is to gather exactly the right data
and put the data into an appropriate and consistent format for
use in the model.
• This typically requires asking questions of key people (such
as the cost accountants) throughout the organization,
studying existing organizational databases, and performing
time-consuming observational studies of the organization’s
processes.
2007 ©
Step 3: Model development
• After defining the client’s problem and gathering the necessary
data, the analyst must develop a model of the problem.
• Several properties are desirable for a good model.
– First, it should represent the client’s real problem accurately.
– It should take into account all important constraints, such as an
upper bound on capacity, or its recommendations might not be
possible to implement.
– On the other hand, the model should be as simple as possible,
without getting bogged down in less important details .
– Overly complex models are often of little practical use, because
they are too difficult to solve and often incomprehensible to
clients.
• A good model should neither be too simple nor too complex. This
is easier said than done.
2007 ©
Step 4: Model verification
• This step is particularly important in real management science
applications.
– A client is much more likely to accept an analyst’s model if the
analyst can provide some type of verification.
• Verification can take several forms:
– Company’s current value of the inputs is used to check the
outputs.
– Random inputs are used to check if outputs are reasonable
(e.g., use of extreme values).
• If the model’s outputs are not as expected, then
– the model is a poor approximation of the actual situation, or
– the model is fine, but the analyst’s intuition is faulty.

2007 ©
Step 5: Optimization and
decision making
• To use the model to recommend decisions or strategies,
the model has to optimize an objective, such as maximize
profit or minimize cost.
• The optimization phase is typically the most difficult phase
from a mathematical standpoint.
• A number of solution algorithms are available to solve real
problems.
– The most famous is the simplex algorithm for linear
optimization problems.
• When the problem is too complex, a heuristic is used to
solve it. Heuristic is guided by common sense, intuition,
and trial-and-error.
2007 ©
Step 6: Model communication
to management
• The analyst must eventually communicate a model and its
recommendations to the client.
• A large gap typically exists between management science
analysts and the managers of organizations.
– Managers know their business, but they often do not
understand much about mathematics or mathematical
models.
• The best strategy for a successful presentation is to involve
key people in the organization, including top executives, in
the project from the beginning.
• The analyst should also try to make the model as intuitive
and user-friendly as possible.
2007 ©
Step 7: Model implementation
• A real management science application is not complete
until it has been implemented.
– A successful implementation can occur only when step 6
has been accomplished.
• To achieve a successful implementation, it is not enough
that the management accepts the model; the people who
will run it every day must also be thoroughly trained to use
it.
• A useful model, once implemented, is likely to be expanded
by the organization.
– The best analysts often design models that can be
expanded.
2007 ©
The seven-step process
in real life
• In real life, not all steps are employed, or not always in the
described order.
• Numerous potential applications are never implemented
even though the technical aspects of the models are
perfectly correct.
– The most frequent cause is a failure to communicate.
– Company politics can be a model’s downfall, especially if the
model recommends a course of action that top management
simply does not want to follow – for whatever reasons.
• In real life, the analyst often generates several iterations of
all or some of the seven steps before the project is
considered complete.
2007 ©
The model as a beginning,
not an end
• This book places heavy emphasis on developing
spreadsheet models, which is step 3 of the seven-
step modeling process.
• However, a completed model is really a starting
point.
– After you have a working model of the problem, you can
– and you should – use it as a tool for gaining insights.
– For most models, many what-if questions can be asked.
– If the model has been developed correctly, it should be
capable of answering such what-if questions fairly easily.

2007 ©
Why study management
science?
• The modeling approach emphasized throughout this book
is an important way to think about problems in general, not
just the specific problems we discuss. This approach forces
you to think logically.
• As you work through the many models in this book, your
quantitative skills will be sharpened immensely.
• No matter what your spreadsheet abilities are when you
enter this course, by the time you are finished, you will be a
proficient spreadsheet user.
• Management science modeling helps you develop your
intuition, and it also indicates where intuition alone
sometimes fails.
2007 ©
Conclusion
• This chapter introduced the field of management
science and the process of mathematical
modeling.
– It reviewed a simple queuing model to provide a
concrete understanding of the book concepts.
– It explored a seven-step model-building process from
problem definition to final implementation.
– It discussed why the study of management science is a
valuable experience, even if you do not intend to pursue
a professional career in this field.

2007 ©
End of Chapter 1

Chapter 1

Uploaded by

Document Information

Original Title

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

Chapter 1

Uploaded by

Copyright:

Available Formats

Chapter 1

Winston/Albright Practical Management Science, 4e South-Western/Cengage Learning

Winston/Albright Practical Management Science, 4e South-Western/Cengage Learning

Winston/Albright Practical Management Science, 4e South-Western/Cengage Learning

Winston/Albright Practical Management Science, 4e South-Western/Cengage Learning

Winston/Albright Practical Management Science, 4e South-Western/Cengage Learning

Winston/Albright Practical Management Science, 4e South-Western/Cengage Learning

Winston/Albright Practical Management Science, 4e South-Western/Cengage Learning

Winston/Albright Practical Management Science, 4e South-Western/Cengage Learning

Winston/Albright Practical Management Science, 4e South-Western/Cengage Learning

• The discussion that follows explores the seven

Winston/Albright Practical Management Science, 4e South-Western/Cengage Learning

Winston/Albright Practical Management Science, 4e South-Western/Cengage Learning

Winston/Albright Practical Management Science, 4e South-Western/Cengage Learning

Winston/Albright Practical Management Science, 4e South-Western/Cengage Learning

You might also like