Operations Research

Analytics
Unit – 1
Introduction to Operations Research and Analytics
OR Tools
Operations Research
• Operations Research is “a scientific approach to decision making,
which seeks to determine how best to design and operate a system,
under conditions requiring the allocation of scarce resources”
• Provides a set of algorithms that act as tools for effective problem
solving and decision making
• Extensive applications in engineering, business and public systems
• Used by both manufacturing and service industries in their day to day
decision making
History
• Origin during World War II when the British military asked the scientists to
analyse military problems

• The application of scientific method and mathematics to military

application was called Operations Research

• Today it is also called Management Science

• It is a scientific approach to decision making that seeks to determine how

best to operate a system under conditions of allocating scarce resources
OR Tools
• Linear Programming
• Transportation Problem
• Assignment Problem
• Networking Analysis
• Game Theory
• Decision Theory
Linear Programming
• First conceived by George B Dantzig around 1947

• The work of Kantrovich (1939) was published in 1959

• Dantzig’s first paper was titled “Programming in Linear Structure”

• Koopmans coined the term “Linear Programming” in 1948

• Simplex method was published by Dantzig in 1949

Linear Programming
• In Mathematics, linear programming is a method of optimizing
operations with some constraints.
• The main objective of linear programming is to maximize or minimize
the numerical value.
• It consists of linear functions which are subjected to the constraints in
the form of linear equations or in the form of inequalities.
• Linear programming is considered as an optimization method to
maximize or minimize the objective function of the given
mathematical model with the set of some requirements which are
represented in the linear relationship.
Characteristics of Linear Programming

• Constraints – The limitations should be expressed in the mathematical

form, regarding the resource.
• Objective Function – In a problem, the objective function should be
specified in a quantitative way.
• Linearity – The relationship between two or more variables in the
function must be linear. It means that the degree of the variable is
one.
• Decision Variables – The decision variable will decide the output. It
gives the ultimate solution of the problem. For any problem, the first
step is to identify the decision variables.
Applications of LP
• Product Mixing
• Production Scheduling
• Media selection
• Portfolio selection
• Profit planning
Example 1
(Product Mix Problem)
• Consider a small manufacturer making two products A and B

• Two resources R1 and R2 are required to make these products

• Each unit of product A requires 1 unit of R1 and 3 units of R2

• Each unit of product B requires 1 unit of R1 and 2 units of R2

• The manufacturer has 5 units of R1 and 12 units of R2 available

• The manufacturer also makes a profit of

• `6 per unit of product A sold
• `5 per unit of product B sold
Terminology
• The problem variables x1 and x2 are called decision variables and they represent the solution or
the output decision from the problem

• The profit function that the manufacturer wishes to increase, represents the objective of
making the decisions on the production quantities and is called the objective function

• The conditions matching the resource availability and resource requirement are called the
constraints
• They usually limit the values that decision variables can take

• We have also explicitly stated that the decision variables should take non-negative values
• This is called non-negativity restrictions

• The problem that is written down in algebraic form represents the mathematical model of the
given system and is called the Problem Formulation
Assumptions
• Proportionality
• Additivity
• Continuity
• Certainty
• Finite Choice
• In addition to the above techniques, some other common tools are
non-linear programming, integer programming, dynamic
programming, sequencing theory, Markov process, symbolic Model,
information theory, value theory, queuing theory, inventory models
and simulation.
Transportation Problem
• The transportation problem is a distribution-type problem, the main
goal of which is to decide how to transfer goods from various sending
locations (also known as origins) to various receiving locations (also
known as destinations) with minimal costs or maximum profit. As long
as the number of origins and destinations is low, this is a relatively
easy decision. But as the numbers grow, this becomes a complicated
linear programming problem.
Types
• Transportation problems can be classified into different groups based on their
main objective and origin supply versus destination demand. Transportation
problems whose main objective is to minimize the cost of shipping goods are
called minimizing. An alternative objective is to maximize the profit of
shipping goods, in which case the problems are called maximizing.
• In a case where the supply of goods available for shipping at the origins is
equal to the demand for goods at the destinations, the transportation
problem is called balanced. In a case where the quantities are different, the
problem is unbalanced.
• When a transportation problem is unbalanced, a dummy variable is used to
even out demand and supply. A dummy variable is simply a fictional
warehouse or store.
Assignment Problem
• An assignment problem is a particular case of transportation problem
where the objective is to assign a number of resources to an equal
number of activities so as to minimise total cost or maximize total
profit of allocation.
• The problem of assignment arises because available resources such as
men, machines etc. have varying degrees of efficiency for performing
different activities, therefore, cost, profit or loss of performing the
different activities is different.
• Suppose there are n jobs to be performed and n persons are available
for doing these jobs. Assume that each person can do each job at a
term, though with varying degree of efficiency, let cij be the cost if the
i-th person is assigned to the j-th job. The problem is to find an
assignment (which job should be assigned to which person one on-
one basis) So that the total cost of performing all jobs is minimum,
problem of this kind are known as assignment problem.
Networking Analysis
• The OR techniques used for planning, scheduling and controlling large
and complex projects are often referred to as network analysis. A
network is a graphical representation consisting of certain
configuration of arrows and nodes for showing the logical sequence
of various tasks to be performed to achieve the project objectives.
Some important definitions
Activity
• An activity is a task or item of work to be done, that consumes time, effort, money or other
resources. It lies between two events, called the starting event and ending event. An activity is
represented by an arrow indicating the direction in which the events are to occur.
Event:
• The beginning and end points of an activity are called events (or nodes). Event is a point in time
and does not consume any resources. The beginning and completion of an activity are known
as tail event and head event respectively. Event is generally represented by a numbered circle .The
head event, called the jth event, has always a number higher than the tail event, called
the ith event, ie., j > i.
Predecessor Activity:
• Activities which must be completed before a particular activity starts are called predecessor
activities. If an activity A is predecessor of an activity B, it is denoted by A<B. (i.e.,) activity B can
start only if activity A is completed.
Successor Activity:
• An activity that cannot be started until one or more of the other
activities are completed, but immediately succeed them is referred to
as successor activity.
Network:
• Network is a diagrammatic representation of various activities
concerning a project arranged in a logical manner.
Path:
• A path is defined as a set of nodes connected by lines which begin at
the initial node and end at the terminal node of the network.
Game Theory
• Game theory, branch of applied mathematics that provides tools for
analyzing situations in which parties, called players, make decisions
that are interdependent. This interdependence causes each player to
consider the other player’s possible decisions, or strategies, in
formulating strategy. A solution to a game describes the optimal
decisions of the players, who may have similar, opposed, or mixed
interests, and the outcomes that may result from these decisions.
Decision Theory
• Decision theory is primarily concerned with helping people and
organizations in making decisions. It provides a meaningful
conceptual frame work for important decision making. The decision
making refers to the selection of an act from amongst various
alternatives, the one which is judged to be the best under given
circumstances.
Some Definitions
• The decision maker: The decision maker refers to individual or a group
of individual responsible for making the choice of an appropriate
course of action amongst the available courses of action.
• Acts (or courses of action): Decision making problems deals with the
selection of a single act from a set of alternative acts. If two or more
alternative courses of action occur in a problem, then decision making
is necessary to select only one course of action. Let the acts or action
be a1, a2, a3,… then the totality of all these actions is known as action
space denoted by A. For three actions a1, a2 a3; A = action space = (a1,
a2, a3) or A = (A1, A2, A3). Acts may be also represented in the following
matrix form.
• Events (or States of nature): The events identify the occurrences, which are
outside of the decision maker’ s control and which determine the level of
success for a given act. These events are often called ‘ States of nature’ or
outcomes. An example of an event or states of nature is the level of market
demand for a particular item during a stipulated time period.
• A set of states of nature may be represented in any one of the following ways:
• S = {S1, S2, …,Sn} or E = {E1, E2, …,En} or Ω = {θ1, θ2, θ3}
• For example, if a washing powder is marketed, it may be highly liked by
outcomes (outcome θ1) or it may not appeal at all (outcome θ2) or it may
satisfy only a small fraction, say 25% (outcome θ3)
• Ω = {θ1 , θ2, θ3}
• Pay-off: The result of combinations of an act with each of the states
of nature is the outcome and monetary gain or loss of each such
outcome is the pay-off. This means that the expression pay-off should
be in quantitative form.
• Pay -off may be also in terms of cost saving or time saving. In general,
if there are k alternatives and n states of nature, there will
be k × n outcomes or pay-offs.