MANAGEMENT SCIENCE

CHAPTER 1

Management Science
 discipline that attempts to aid managerial decision making by applying a scientific
approach to managerial problems that involves quantitative factor.
 whole body of knowledge and techniques based on scientific foundation
 began 1940 and 1950’s – scientists apply scientific approach to management of the war
effort for the allies.
 1947 George Dantzig- Simplex method for solving linear programming problems.
 1950-substantial applications of MS (organization in business, industry, and
government.
 Widely used today as operations research. Name was applied because the teams of
scientists in WWII were doing research on how to manage military operations.
 sometimes called BUS-ANA when dealing with business problems
 Analytics attempts to aid managerial decision making
 Descriptive analytics- the use of data (sometimes massive amounts of data)
 Predictive analytics- the use of data to predict what will happen in the future
 Prescriptive analytics- the use of data to prescribe the best course of action
(frequently by using the optimization techniques
 MS provides an analysis and recommendation, based on quantitative factors involved
Scientific Methods:
 Step 1: Define the problem and gather data.
 Step 2: Formulate a model (typically mathematical model) to represent a problem
 Step 3: Develop a computer-based procedure for deriving solutions to the problem from
the model
 Step 4: Test the model and refine it as needed. Does it provide a sufficiently accurate
representation of the problem?
 Step 5: Apply the model to analyze the problem and develop recommendations for
management.
 Step 6: Help to implement the team’s recommendations that are adopted by
management-help oversee the implementation of the new procedures:providing some
information on the rationale for the changes ; makes sure that the new operating
system is consistent with its recommendations as they have been modified and
approved by management. If successful, the new system may be used for years to come.
Models
 are invaluable for abstracting the essence of the subject of inquiry, showing
interrelationships, and facilitating analysis.
 Mathematical models are approximate representations, but they are expressed in terms
of mathematical symbols and expressions.
 mathematical model of a business problem is the system of equations and related
mathematical expressions that describes the essence of the problem
  spreadsheet models to analyze managerial problems; lays out the relevant data,
measures of performance, interrelationships, and so forth, on a spreadsheet in an
organized way that facilitates fruitful analysis of the problem; incorporates an
The Nature of Management Science
 Managerial problems involve quantitative factors: production quantities, revenues,
costs, the amounts available of needed resources, and so on. By
 incorporating these quantitative factors into a mathematical model and then applying
mathematical procedures to solve the model,
 management then applying mathematical procedures to solve the model, management
science provides a uniquely powerful way of analyzing such managerial problems
Mathematical Modelling Break-Even Analysis
Example: Q=number of watches to produce
 Q is referred to as decision variable.
 Q is 0, no cost incurred
 Q is > 0, there is variable and fixed cost
Break-even analysis – used to determine the break-even point: the number of units of a
product to sell or produce (i.e., volume) that will equate total revenue with total cost.
 Formula: Total Revenue = Fixed Costs + Total Variable Costs
 Formula: BEQ/BEP =Cfx/(Pperunit-Cvx)
 Formula: Profit = TR-TC
 TC=0 if Q= 0, TC= 10M + 1000Q if Q is > 0
Mathematical Modelling Level
 art of translating problems from an application area into tractable mathematical
formulations whose theoretical and numerical analysis provides insight, answers, and
guidance useful for the originating application.
PARTS OF A MATHEMATICAL MODEL
 Decision Variables- represent quantifiable decisions to be made
 Objective function- expresses the appropriate measure of performance in term of DV
 Constraints – express the restrictions on the values that can be assigned to DV
 Parameters- constants that appear in the objective function and constraints
 Range name-descriptive name given to a cell or range cells

CHAPTER 2
LINEAR PROGRAMMING BASIC CONCEPTS

Linear Programming
 uses a mathematical model to represent the problem
 ‘linear” word refers to the form of the mathematical expressions in the model
 Programming does not refer to computer programming; rather, it is essentially a
synonym for planning.
 Aids decisions about how to allocate its resources to various activities to best meet
organizational objectives.
 linear programming means the planning of activities represented by a linear
mathematical model
4 Kinds of Cell in LP Problem
 Data Cells- The cells showing the data. Shaded as light blue
 Changing cells -cells containing the decisions to be made. Shaded bright yellow (cons)
 Output cells- shows quantities that are calculated from the changing cells
 Objective cell- contains the overall measure of performance for the decision in changing
cells
Feasible solutions- solutions permitted by all the constraints,
Feasible Region- the portion of the two-dimensional graph where the feasible solutions lie;
points in the feasible region are those that satisfy every constraint.
Constraint boundary line- line forming the boundary of what is permitted by a constraint
Constraint boundary equation-a constraint boundary line is identified by its equation
Chapter 3
Linear Programming: Formulation & Applications
Categories of LP Problems:
 Resource Allocation Problems (<=)
 Cost-Benefit Trade-off Problems
 Mixed Problems
 Transportation Problems
 Assignment Problems
Characteristics of resource allocation problems:
 There are levels of activity (ex. advertising mix: newspaper, tv, magazine)
 Decision to be made is to choose the level of activity (no. of ads)
 Resource constraints on which depend the level of activity (budget)
3 kinds of data needed for any resource allocation problem:
 Amount available of each resource (dollars/budget allocation)
 The amount of each resource needed (resource requirement) – for each combination of
resource and activity, the amount of resource used per unit of the activity must be
estimated
 The contribution per unit of activity to the overall measure of performance (no. of
exposures)
Divisibility Assumption of Linear Programming:
 Decision variables in a LP model are allowed to have any values, including fractional
values, that satisfy the functional and nonnegativity constraints. Thus, these variables
are not restricted to just integer values.
 Since the number of airplanes purchased by TBA must have an integer value, the
divisibility assumption is violated.
Template for Resource-Allocation Problems
Cost-Benefit Trade-off Problems
• Differs from resource-allocation problems in terms of managerial objectives.
• Resource allocation objective: most effective use of resources
• Cost-benefit trade-off objective: prescribe benefits and achieve these benefits with
minimum cost
• Prescribes a minimum acceptable level for each benefit and achieve benefits at
minimum cost
• A type of LP problem involving the trade-off between the total cost of the activities
under consideration and the benefits to be achieved by these activities. Its identifying
feature is that each functional constraint in the LP model is a benefit constraint.
(Section 3.3), 82, which has the form:
• level achieved >= minimum acceptable level ,
• for one of the benefits.
• Data needed:
• Minimum acceptable level for each benefit
• For each benefit, the contribution of each activity to that benefit (per unit of the
activity)
• The cost per unit of each activity
Template for Cost-Benefit-Trade-off Problems
Activities

Unit Cost cost per unit of activity

Benefit Benefit
Achieved Needed
Constraints

SUMPRODUCT
benefit achieved per unit of activity (benefit per unit,
changing cells) >=

Total Cost
Level of Activity changing cells SUMPRODUCT(cost per unit, changing cells)

Types of Functional Constraints

Mixed Problems
Any linear programming problem that includes at least two of the three types of functional
constraints (resource constraints, benefit constraints, and fixed-requirement constraints).

Template for Mixed Problems

Activities

Unit Profit or Cost profit/cost per unit of activity

Resources Resources
Used Available

SUMPRODUCT
resource used per unit of activity (resource used per unit,
changing cells) <=
Constraints

Benefit Benefit
Achieved Needed

benefit achieved per unit of activity

SUMPRODUCT
(benefit per unit,
>=
changing cells)
=
Total Profit or Cost
Level of Activity changing cells SUMPRODUCT(profit/cost per unit, changing cells)

Fixed Requirement Problems (cannot deliver more or less, should be exact)

• All its functional requirements are fixed-requirement constraints (pure fixed
requirement problems)
• transportation and assignment problems
The Distribution Network
C1 10 lathes
needed
$700/lathe

12 lathe F1
produced $900/lathe

$800/lathe
C2 8 lathes
needed
$800/lathe $900/lathe

15 lathes F2
produced

$700/lathe
C3 9 lathes
needed

Assignment Problem
 An LP model that assigns people to jobs; machines, vehicles, plants to tasks (cannot hire
more than)