QUANTITATIVE TECHNIQUES

IN MANAGEMENT
Books by the Same Author
• Operations Research: Theory and Applications (5th Ed)
• Operations Research: Problems and Solutions (3rd Ed)
• Linear Programming: Theory and Applications
• Discrete Mathematics (3rd Ed)
• Management of Systems
QUANTITATIVE TECHNIQUES
IN MANAGEMENT
Third Edition

J K Sharma
Professor, Amity Bussines School
Amity University Uttar Pradesh, Noida

(An Imprint of Laxmi Publications Pvt. Ltd.)

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QUANTITATIVE TECHNIQUES IN MANAGEMENT

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 Preface to the Third Edition

It gives me great pleasure and satisfaction to present the third edition of the book Quantitative Techniques in Management to
the teachers and students of this subject. This edition continues to provide readers an understanding of problem-solving methods
based on a careful discussion of model formulation, solution procedure and analysis. I hope this easy-to-understand approach
would enable readers to develop the required skills and apply quantitative techniques to all kinds of decision-making problems.
The text revision in this edition is extensive and in accordance with the objective of enhancing and strengthening the
conceptual as well as practical knowledge of readers about various quantitative techniques. A large number of new business-
oriented solved as well as practice problems have been added, thus creating a bank of problems that give a better representation
of the various quantitative techniques.
This edition has a completely new look and feel. I hope this revision will facilitate the teaching of quantitative techniques
as well as enhance the learning experience for students.
Following are some of the key changes:
• The text of almost each chapter has been reorganized and/or rewritten to make explanations more cogent through relevant
and interesting examples. This will provide a more meaningful, easier and effective learning experience.
• Each chapter contains Preview and Learning Objectives to guide the students and help them focus their attention on
understanding a specific topic under study.
• Most chapters contain Management Cases to help students understand various business situations and suggest
solutions to managerial issues that are raised while using specific techniques.
• Each chapter contains Concept Quizzes to help students reinforce their understanding of the principles and applications
of quantitative techniques.
• Explanations are well illustrated with numerous interesting and varied business-oriented examples.
• Conceptual Questions, Self Practice Problems with Hints and Answers are given in each chapter to enable students
to learn at their own pace.
• Complete conformity to the latest trends of questions appearing in universities and professional examinations.
• References to questions set in examinations of various Indian universities have been updated.
The book is intended to serve as a core textbook for students of BBA, BCA, MBA/PGDBM, BCom, MCom, CA, ICWA and
those who need to understand the basic concepts of quantitative techniques in management and apply results directly to real-
life business problems.
It would also prove to be useful for those preparing for IAS, NET, ISI and other competitive examinations.

Prof (Dr) J K Sharma

 Preface to the First Edition

The primary objective in writing this book is to provide the readers the insight into structures and processes that Quantitative
Techniques can offer and the enormous practical utility of its various techniques.
The aim is to explain the concepts and simultaneously to develop in readers an understanding of problem-solving methods
based upon a careful discussion of model formulation, solution procedures and analysis. To this end, numerous solved business-
oriented examples have been presented throughout the text. Unsolved Self Practice Problems with Hints and Answers, and
Review Questions have been added in each chapter to strengthen the conceptual as well as practical knowledge of the reader.
The book is designed to be self-contained and comprises of 20 chapters. The book is intend to serve as a core text primarily
for students of BBA, BCA, BCom, MCom, MBA/PGDBM, CA, ICWA etc. who need to understand basic concepts of and apply
results directly to real-life business problems. The book also suits the requirements for those preparing for IAS, NET, ISI and
other competitive examinations.
I hope that the presentation and sequence of chapters have made the text interesting and lucid. In writing this book I have
benefitted immensely by referring to many books and publications. I express my gratitude to all such authors, publishers and
institutions; many of them have been listed in the references. If anybody has been left out inadvertently, I seek their pardon.
I express my sincere gratitude to my teachers Prof. Kanti Swarup and Dr S D Sharma for their blessings and inspiration. I
wish to acknowledge my sincere thanks to my students, friends and colleagues, particularly to Prof M P Gupta and Prof A S Narag
for their valuable suggestions and encouragement during the preparation of this text. I would like to thank the publishers for
the efficient and thoroughly professional way in which the whole project was managed. In the end let me thank my wife and
children for the unflagging support and encouragement they gave me while I worked on this book.
Any suggestions to improve the book in contents or in style are always welcome and will be appreciated and acknowledged.

J K Sharma
 Acknowledgements

I express my heartfelt gratitude to Founder President Dr. Ashok K Chauhan and Chancellor Mr. Atul K Chauhan, Amity University
Uttar Pradesh, Noida for their inspiration, overwhelming support, and motivation.
The support of Prof. B Shukla, Acting Vice-Chancellor, Amity University Uttar Pradesh, Noida; Prof. Sanjay Srivastava, Dean,
Faculty of Management Studies and Director General, Amity Business School, Amity University Uttar Pradesh, Noida and Prof.
Sanjeev Bansal, Director, Amity Business School, Amity University Uttar Pradesh, Noida was very reassuring and invaluable. I
thank them from the core of my heart.
In preparing the text of this book, I have benefitted immensely by referring many books and publications. I express my
gratitude to those authors, publications, publishers and institutions, most of them have been listed in the references. I would
also like to thank Wikipedia, (www.wikipedia.org as accessed on 6/5/09) from where I have taken quotes that I have placed at
the beginning of each chapter. If anybody is left out inadvertently, I seek their pardon.
I am thankful to my esteemed colleagues, and students who have contributed to this book through their valuable advice
and feedback. I express my sincere thanks to Trinity Press and Editorial Staff for their excellent job during the publication of the
book. Last but never ever the least I thank God Almighty and my family for being there whenever I need them.
I hope that the book serves the purpose for its readers and that I will continue to get their support and suggestions. I retain
the responsibility of errors of any kind in the book. Suggestions and comments to improve the book in content and in style are
always welcome and will be appreciated and acknowledged.

Email: [email protected] Prof (Dr) J K Sharma

 Contents

Preface to the Third Edition v

Preface to the First Edition vii
Acknowledgements ix

Chapter 1 Quantitative Techniques: A Managerial Perspective 1–21

1.1 Quantitative Approach to Decision-making 2
1.2 Features of Quantitative Approach 3
1.3 Quantitative Approach to Problem-solving 4
Conceptual Questions A 5
1.4 Models and Modelling for Quantitative Analysis 5
• Precautions in Model Building 5
• Classification Based on Structure 6
• Classification Based on Function (Or Purpose) 8
• Classification Based on Time Reference 8
• Classification Based on Degree of Certainty 8
• Classification Based on Solution Method 9
1.5 Advantages of Model Building 9
1.6 Methods for Solving Quantitative Models 9
1.7 Quantitative Analysis Process 10
1.8 Advantages of Quantitative Analysis 12
1.9 Opportunities and Shortcomings of the Quantitative Approach 12
1.10 Features of Quantitative Analysis 13
1.11 Quantitative Models in Practice 13
1.12 Computer Software for Quantitative Analysis 14
Conceptual Questions B 15
Chapter Concepts Quiz 16
Case Study 17

Chapter 2 Linear Programming: Applications and Model Formulation 22–64

2.1 Introduction 23
2.2 Structure of Linear Programming Model 23
• General Structure of an LP Model 23
• Assumptions of an LP Model 24
2.3 Advantages of Using Linear Programming 24
2.4 Limitations of Linear Programming 24
 xii Contents

2.5 Application Areas of Linear Programming 25

2.6 General Mathematical Model of Linear Programming Problem 26
2.7 Guidelines on Linear Programming Model Formulation 27
2.8 Examples of LP Model Formulation 27
• Examples on Production 27
• Examples on Marketing 38
• Examples on Finance 40
• Examples on Agriculture 46
• Examples on Transportation 48
• Examples on Personnel 50
Conceptual Questions 52
Self Practice Problems 53
Hints and Answers 58
Chapter Concepts Quiz 61
Case Study 62

Chapter 3 Linear Programming: The Graphical Method 65–95

3.1 Introduction 66
3.2 Important Definitions 66
3.3 Graphical Solution Methods of LP Problem 66
• Extreme Point Solution Method 67
• Examples on Maximization LP Problem 67
• Examples on Minimization LP Problem 72
• Examples on Mixed Constraints LP Problems 75
• Iso-profit (Cost) Function Line Method 83
• Comparison of Two Graphical Solution Methods 84
3.4 Special Cases in Linear Programming 84
• Alternative (or Multiple) Optimal Solutions 84
• Unbounded Solution 85
• Infeasible Solution 87
• Redundancy 89
Conceptual Questions 89
Self Practice Problems 89
Hints and Answers 92
Chapter Concepts Quiz 93
Case Study 94

Chapter 4 Linear Programming: The Simplex Method 96–139

4.1 Introduction 97
4.2 Standard Form of an LP Problem 97
4.3 Simplex Algorithm (Maximization Case) 99
4.4 Simplex Algorithm (Minimization Case) 108
• Two-Phase Method 110
• Big-M Method 115
Self Practice Problems A 123
Hints and Answers 126
4.5 Some Complications and their Resolution 127
• Unrestricted Variables 127
• Tie for Entering Basic Variable (Key Column) 130
• Tie for Leaving Basic Variable (Key Row) – Degeneracy 130
 Contents xiii xiii

4.6 Types of Linear Programming Solutions 131

• Alternative (Multiple) Optimal Solutions 132
• Unbounded Solution 133
• Infeasible Solution 134
Conceptual Questions 135
Self Practice Problems B 135
Hints and Answers 137
Chapter Concepts Quiz 137
Case Study 139

Chapter 5 Duality in Linear Programming 140–160

5.1 Introduction 141
5.2 Formulation of Dual Linear Programming Problem 141
• Symmetrical Form 141
• Economic Interpretation of Dual Variables 142
• Economic Interpretation of Dual Constraints 143
• Rules for Constructing the Dual from Primal 143
Self Practice Problems A 147
Hints and Answers 147
5.3 Standard Results on Duality 148
• Principle of Complementary Slackness 148
5.4 Managerial Significance of Duality 148
5.5 Advantages of Duality 154
Conceptual Questions 154
Self Practice Problems B 154
Hints and Answers 156
Chapter Concepts Quiz 158
Case Study 160

Chapter 6 Sensitivity Analysis in Linear Programming 161–192

6.1 Introduction 162
6.2 Sensitivity Analysis 162
• Change in Objective Function Coefficient (cj ) 162
• Change in the Availability of Resources (bi ) 169
• Changes in the Input-Out Coefficients (aij’s) 176
• Addition of a New Variable (Column) 180
• Addition of a New Constraint (Row) 181
Conceptual Questions 188
Self Practice Problems 188
Hints and Answers 190
Chapter Concepts Quiz 191
Case Study 192

Chapter 7 Integer Linear Programming 193–226

7.1 Introduction 194
7.2 Types of Integer Programming Problems 194
7.3 Enumeration and Cutting Plane Solution Concept 195
7.4 Gomory’s All Integer Cutting Plane Method 195
• Method for Constructing Additional Constraint (Cut) 196
• Steps of Gomory’s All Integer Programming Algorithm 196
 xiv Contents

Self Practice Problems A 204

Hints and Answers 207
7.5 Gomory’s Mixed-Integer Cutting Plane Method 207
• Method for Constructing Additional Constraint (Cut) 208
• Steps of Gomory’s Mixed-Integer Programming Algorithm 209
7.6 Branch and Bound Method 213
7.7 Applications of Zero-one Integer Programming 220
• Capital Budgeting Problem 220
• Fixed Cost (or Charge) Problem 220
• Plant Location Problem 221
Self Practice Problems B 222
Conceptual Questions 222
Hints and Answers 223
Chapter Concepts Quiz 224
Case Study 225

Chapter 8 Goal Programming 227–246

8.1 Introduction 228
8.2 Difference between LP and GP Approach 228
8.3 Concept of Goal Programming 228
• Distinction Among Objectives, Goals and Constraints 229
8.4 Goal Programming Model Formulation 229
• Single Goal with Multiple Subgoals 229
• Equally Ranked Multiple Goals 230
• Ranking and Weighting of Unequal Multiple Goals 231
• General GP Model 232
• Steps to Formulate GP Model 232
8.5 Graphical Solution Method for Goal Programming 232
8.6 Modified Simplex Method of Goal Programming 236
8.7 Alternative Simplex Method for Goal Programming 238
Conceptual Questions 241
Self Practice Problems 241
Chapter Concepts Quiz 243
Case Study 245

Chapter 9 Transportation Problem 247–298

9.1 Introduction 248
9.2 Mathematical Model of Transportation Problem 248
• General Mathematical Model of Transportation Problem 249
9.3 The Transportation Algorithm 250
9.4 Methods of Finding Initial Solution 250
• North-West Corner Method (NWCM) 250
• Least Cost Method (LCM) 251
• Vogel’s Approximation Method (VAM) 253
Conceptual Questions A 256
Self Practice Problems A 256
Hints and Answers 256
9.5 Test for Optimality 257
• Dual of Transportation Model 257
• Economic Interpretation of ui’s and vj’s 258
• Steps of MODI Method (Transportation Algorithm) 259
• Close-Loop in Transportation Table and its Properties 260
 Contents xv xv

Conceptual Questions B 269

Self Practice Problems B 269
Hints and Answers 271
9.6 Variations in Transportation Problem 271
• Unbalanced Supply and Demand 271
• Degeneracy and its Resolution 274
• Alternative Optimal Solutions 278
• Prohibited Transportation Routes 281
9.7 Maximization Transportation Problem 285
9.8 Trans-shipment Problem 287
Conceptual Questions C 289
Self Practice Problems C 289
Hints and Answers 293
Chapter Concepts Quiz 295
Case Study 296

Chapter 10 Assignment Problem 299–327

10.1 Introduction 300
10.2 Mathematical Model of Assignment Problem 300
10.3 Solution Methods of Assignment Problem 301
• Hungarian Method for Solving Assignment Problem 301
Conceptual Questions A 307
Self Practice Problems A 307
Hints and Answers 309
10.4 Variations of The Assignment Problem 309
• Multiple Optimal Solutions 309
• Maximization Case in Assignment Problem 309
• Unbalanced Assignment Problem 312
• Restrictions on Assignments 312
Conceptual Questions B 316
Self Practice Problems B 316
Hints and Answers 318
10.5 A Typical Assignment Problem 319
10.6 Travelling Salesman Problem 320
Self Practice Problems C 323
Hints and Answers 324
Chapter Concepts Quiz 324
Case Study 326

Chapter 11 Theory of Games 328–362

11.1 Introduction 329
11.2 Two-person Zero-sum Games 330
11.3 Pure Strategies (Minimax and Maximin Principles): Games With Saddle Point 332
• Rules to Determine Saddle Point 332
Conceptual Questions A 334
Self Practice Problems A 335
Hints and Answers 336
11.4 Mixed Strategies: Game without Saddle Point 336
11.5 The Rules (Principles) of Dominance 337
11.6 Solution Methods for Games without Saddle Point 338