Chapter 01: Introduction of Operations Research

1.1 Origin of Operations Research:

Since the advent of the industrial revolution, the world has seen remarkable growth in the
size and complexity of organizations. The artisans’ small shops of an earlier era have evolved into
the billion-dollar corporations of today. An integral part of this revolutionary change has been a
tremendous increase in the division of labour and the segmentation of management responsibilities
in these organizations. The results have been spectacular. However, along with its blessings, this
increasing specialization has created new problems, problems that are still occurring in many
organizations. One problem is a tendency for the many components of an organization to grow
into relatively autonomous empires with their own goals and value systems, thereby losing sight of
how their activities and objectives mesh with those of the overall organization. What is best for
one component frequently is detrimental to another, so the components may end up working at
cross purposes. A related problem is that as the complexity and specialization in an organization
increase, it becomes more and more challenging to allocate the available resources to the various
activities in a way that is most effective for the organization as a whole. These kinds of problems
and the need to find a better way to solve them provided the environment for the emergence of
operations research (commonly referred to as OR).
The roots of OR can be traced back many decades when early attempts were made to use a
scientific approach in the management of organizations. However, the beginning of the activity
called operations research has generally been attributed to the military services early in World War
II. Because of the war effort, there was an urgent need to allocate scarce resources to the various
military operations and the activities within each operation in an effective manner. Therefore, the
British and then the U.S. military management called upon a large number of scientists to apply a
scientific approach to dealing with this and other strategic and tactical problems. In effect, they
were asked to research (military) operations. These teams of scientists were the first OR teams. By
developing effective methods of using the new tool of radar, these teams were instrumental in
winning the Air Battle of Britain. Through their research on how to better manage convoy and
antisubmarine operations, they also played a significant role in winning the Battle of the North
Atlantic. Similar efforts assisted the Island Campaign in the Pacific.
When the war ended, the success of OR in the war effort spurred interest in applying OR
outside the military as well. As the industrial boom following the war was running its course, the
problems caused by the increasing complexity and specialization in organizations were again
coming to the forefront. It was becoming apparent to a growing number of people, including
business consultants who had served on or with the OR teams during the war, that these were the
 same problems that had been faced by the military but in a different context. By the early 1950s,
these individuals had introduced the use of OR to a variety of organizations in business, industry,
and government. The rapid spread of OR soon followed.
At least two other factors that played a key role in the rapid growth of OR during this
period can be identified. One was the substantial progress that was made early in improving the
techniques of OR. After the war, many of the scientists who had participated in OR teams or heard
about this work were motivated to pursue research relevant to the field; important advancements in
the state of the art resulted. A prime example is the simplex method for solving linear
programming problems, developed by George Dantzig in 1947. Many of the standard tools of OR,
such as linear programming, dynamic programming, queueing theory, and inventory theory, were
relatively well developed before the end of the 1950s. A second factor that gave great impetus to
the growth of the field was the onslaught of the computer revolution. A large amount of
computation is usually required to deal most effectively with the complex problems typically
considered by OR. Doing this by hand would often be out of the question. Therefore, the
development of electronic digital computers, with their ability to perform arithmetic calculations
millions of times faster than a human being can, was a tremendous boon to OR. A further boost
came in the 1980s with the development of increasingly powerful personal computers
accompanied by good software packages for doing OR. This brought the use of OR within the
easy reach of much larger numbers of people, and this progress further accelerated in the 1990s
and into the 21st century. Today, literally millions of individuals have ready access to OR
software. Consequently, a whole range of computers, from mainframes to laptops, are now
routinely used to solve OR problems, including some of the enormous sizes.

1.2 Definition of Operations Research:

The British/Europeans refer to "operational research", and the Americans to "operations research" -
but both are often shortened to just "OR" - which is the term we will use. Another term that is used
for this field is "management science" ("MS"). The Americans sometimes combine the terms OR and
MS and say "OR/MS" or "ORMS". Other terms that are sometimes used are "industrial engineering"
("IE") and "decision science" ("DS"). In recent years, there has been a move towards a
standardization upon a single term for the field, namely the term "OR". Operation Research is a
relatively new discipline. The contents and the boundaries of the OR are not yet fixed. Therefore,
giving a formal definition of the term Operations Research is a difficult task.
The OR starts when mathematical and quantitative techniques are used to substantiate the decision
being taken. The main activity of a manager is decision-making. In our daily lives, we make
decisions even without noticing them. The decisions are taken simply by common sense, judgment,
and expertise without using any mathematical or any other model in simple situations. But the
decisions we are concerned here with are complex and heavily responsible. Examples are public
transportation network planning in a city that has its layout of factories and residential blocks or
finding the appropriate product mix when a large number of products exist with different profit
contributions and production requirements, etc.
Operations Research tools are not from any one discipline. Operations Research takes tools
from different disciplines, such as mathematics, statistics, economics, psychology, engineering,
etc., and combines these tools to make a new set of knowledge for decision-making. Today, O.R.
has become a professional discipline that deals with the application of scientific methods for
making decisions, and especially to the allocation of scarce resources. The main purpose of O.R. is
to provide a rational basis for decision-making in the absence of complete information because the
systems composed of humans, machines, and procedures may not have full details. Operations
Research can also be treated as science in the sense it describes, understands, and predicts the
system's behaviour, especially man-machine systems.
As stated earlier, defining O.R. is a difficult task. The definitions stressed by various
experts and Societies on the subject together enable us to know what O.R. is and what it does.
They are as follows:
1. According to the Operational Research Society of Great Britain (OPERATIONAL
RESEARCH QUARTERLY, l3(3):282, l962), Operational Research is the attack of modern
science on complex problems arising in the direction and management of large systems of men,
machines, materials and money in the industry, business, government, and defence. Its distinctive
approach is to develop a scientific model of the system, incorporating measurements of factors
such as change and risk, with which to predict and compare the outcomes of alternative decisions,
strategies, or controls. The purpose is to help management determine its policy and actions
scientifically.
2. Randy Robinson stresses that Operations Research is the application of scientific
methods to improve the effectiveness of operations, decisions, and management. By means of
analyzing data, creating mathematical models, and proposing innovative approaches, operations
research professionals develop scientifically based information that gives insight and guides
decision-making. They also develop related software, systems, services, and products.
3. Morse and Kimball have stressed that O.R. is a quantitative approach and described it as
“ a scientific method of providing executive departments with a quantitative basis for decisions
regarding the operations under their control”.
4. Saaty considers O.R. as a tool for improving the quality of answers. He says, “O.R. is
the art of giving bad answers to problems which otherwise have worse answers”.
 5. Miller and Starr state, “O.R. is applied decision theory, which uses any scientific,
mathematical or logical means to attempt to cope with the problems that confront the executive
when he tries to achieve a thorough-going rationality in dealing with his decision problem”.
6. Pocock stresses that O.R. is an applied Science. He states, “O.R. is a scientific
methodology
(analytical, mathematical, and quantitative) which, by assessing the overall implication of various
alternative courses of action in a management system, provide an improved basis for management
decisions”.

1.3 Stages of Development of Operations Research:

The stages of development of O.R. are also known as phases and processes of O.R., which have six
important steps. These six steps are arranged in the following order:
Step I: Observe the problem environment
Step II: Analyze and define the problem
Step III: Develop a model
Step IV: Select the appropriate data input
Step V: Provide a solution and test its reasonableness
Step VI: Implement the solution

Step I: Observe the problem environment:

The first step in the process of O.R. development is the problem environment observation. This step
includes different activities, such as conferences, site visits, research, observations, etc. These
activities provide sufficient information to the O.R. specialists to formulate the problem.
Step II: Analyze and define the problem:
This step is analyzing and defining the problem. In this step, in addition to the problem definition,
the objectives uses and limitations of O.R.'s study of the problem are also defined. The outputs of
this step are a clear grasp of the need for a solution and its nature of understanding.
Step III: Develop a model:
This step develops a model; a model is a representation of some abstract or real situation. The
models are mathematical models which describe systems processes in the form of equations,
formulas/relationships. The different activities in this step are defining variables, formulating
equations, etc. The model is tested in the field under different environmental constraints and
modified to work. Sometimes, the model is modified to satisfy the management with the results.
Step IV: Select the appropriate data input:
A model works appropriately when there is appropriate data input. Hence, selecting the appropriate
input data is an important step in the O.R. development stage or process. The activities in this step
include internal/external data analysis, fact analysis, and collection of opinions and use of computer
data banks. The objective of this step is to provide sufficient data input to operate and test the model
developed in Step_III.
Step V: Provide a solution and test its reasonableness:
This step is to get a solution with the help of the model and input data. This solution is not
implemented immediately, instead, the solution is used to test the model and to find if there are any
limitations. Suppose the solution is not reasonable or the behaviour of the model is not proper; the
model is updated and modified at this stage. The output of this stage is the solution(s) that supports
the current organizational objectives.
Step VI: Implement the solution:
At this step, the solution obtained from the previous step is implemented. The implementation of the
solution involves so many behavioural issues. Therefore, before implementation, the implementation
authority has to resolve the problems. A properly implemented solution results in improved work
quality and gains support from management.

1.4 O.R. Tools and Techniques:

Operations Research uses any suitable tools or techniques available. The
commonly used tools/techniques are mathematical procedures, cost analysis,
and electronic computation. However, operations researchers gave special
importance to the development and the use of techniques like linear
programming, game theory, decision theory, queuing theory, inventory models,
and simulation. In addition to the above techniques, some other common tools
are non-linear programming, integer programming, dynamic programming,
sequencing theory, Markov process, network scheduling (PERT/CPM), symbolic
Model, information theory, and value theory. Many other Operations Research
tools/techniques also exist. The brief explanations of some of the above
techniques/tools are as follows:
1.4.1 Linear Programming:
This is a constrained optimization technique, which optimizes some criteria
within some constraints. In Linear programming, the objective function (profit,
loss, or return on investment) and constraints are linear. There are different
methods available to solve linear programming.
1.4.2 Game Theory:
This is used for making decisions under conflicting situations where there are
one or more players/opponents. In this, the motive of the players is
dichotomized. The success of one player tends to be at the cost of other
players, and hence, they are in conflict.
1.4.3 Decision Theory:
Decision theory is concerned with making decisions under conditions of
complete certainty about future outcomes and under conditions such that we
can make some probability about what will happen in future.
1.4.4 Queuing Theory:
This is used in situations where the queue is formed (for example, customers
waiting for service, aircraft waiting for landing, jobs waiting for processing in the
computer system, etc). The objective here is to minimize the cost of waiting
without increasing the cost of servicing.
1.4.5 Inventory Models:
The inventory model makes decisions that minimize total inventory cost. This
model successfully reduces the total cost of purchasing, carrying, and out-of-
stock inventory.
1.4.6 Simulation:
Simulation is a procedure that studies a problem by creating a model of the
process involved in the problem and then, through a series of organized trial-
and-error solutions, attempts to determine the best solution. Sometimes, this is
a difficult/time-consuming procedure. Simulation is used when actual
experimentation is not feasible or the solution of the model is not possible.
1.4.7 Non-linear Programming:
This is used when the objective function and the constraints are not linear.
Linear relationships may be applied to approximate non-linear constraints but
are limited to some range because approximation becomes poorer as the range
is extended. Thus, non-linear programming is used to determine the
approximation in which a solution lies, and then the solution is obtained using
linear methods.
1.4.8 Dynamic Programming:
Dynamic programming is a method of analyzing multistage decision processes.
In this, each elementary decision depends on those preceding decisions as well
as external factors. If one or more variables of the problem take integral values
only, then the dynamic programming method is used. For example, the number
of motors in an organization, the number of passengers in an aircraft, the
number of generators in a power generating plant, etc.
1.4.9 Markov Process:
The Markov process permits the prediction to change over time. Information
about the behaviour of a system is Known. This is used in decision-making in
situations where the various states are defined. The probability from one state
to another state depends on the current state and is independent of how we
have arrived at that particular state.
1.4.9 Network Scheduling:
This technique is used extensively to plan, schedule, and monitor large projects
(for example, computer system installation, R & D design, construction,
maintenance, etc.). This technique aims to minimize trouble spots (such as
delays, interruptions, production bottlenecks, etc.) by identifying critical factors.
The different activities and their relationships to the entire project are
represented diagrammatically with the help of networks and arrows, which are
used for identifying critical activities and paths. There are two main types of
techniques in network scheduling: Program Evaluation and Review Technique
(PERT), which is used when activity time is not known accurately and only a
probabilistic estimate of time is available. The critical Path Method (CPM) – is
used when activity time is known accurately.
1.4.10 Information Theory: This analytical process is transferred from the
electrical communication field to the O.R. field. The objective of this theory is to
evaluate the effectiveness of the flow of information with a given system. This is
used mainly in communication networks but also has an indirect influence in
simulating the examination of business organizational structure with a view of
enhancing the flow of information.

1.5 Significance of Operation Research:

 It provides a tool for scientific analysis and provides solutions for various business
problems.
 It enables proper deployment and optimum allocation of scarce resources.
 It helps in minimizing waiting and servicing costs.
 It enables management to decide when to buy and how much to buy through inventory
planning.
 It helps in evaluating situations involving uncertainty.
  It enables experimentation with models, thus eliminating the cost of making errors while
experimenting with reality.
 It allows quick and inexpensive examination of large numbers of alternatives.
 In general, OR facilitates and improves the decision-making process.

1.6 Applications of Operations Research:

Today, almost all fields of business and government utilize the benefits of
Operations Research. There are voluminous applications of Operations
Research. Although it is not feasible to cover all O.R. applications in brief, The
following is the abbreviated set of typical operations research applications to
show how widely these techniques are used today:
Accounting:
Assigning audit teams effectively
Credit policy analysis
Cash flow planning
Developing standard costs
Establishing costs for byproducts
Planning of delinquent account strategy
Construction:
Project scheduling, monitoring, and control
Determination of proper workforce
Deployment of workforce
Allocation of resources to projects
Facilities Planning:
Factory location and size decision
Estimation of the number of facilities required
Hospital planning
International logistic system design
Transportation loading and unloading
Warehouse location decision
Finance:
Building cash management models
Allocating capital among various alternatives
Building financial planning models
Investment analysis
 Portfolio analysis
Dividend policy-making
Manufacturing:
Inventory control
Marketing balance projection
Production scheduling
Production smoothing
Marketing:
Advertising budget allocation
Product introduction timing
Selection of Product mix
Deciding the most effective packaging alternative
Organizational Behavior / Human Resources:
Personnel planning
Recruitment of employees
Skill balancing
Training program scheduling
Designing organizational structure more effectively
Purchasing:
Optimal buying
Optimal reordering
Materials transfer
Research and Development:
R & D Projects Control
R & D Budget allocation
Planning of Product introduction

1.7 Limitations of Operations Research:

Operations Research has several applications; similarly, it also has certain
limitations. These limitations are mostly related to the model building and
money and time factors problems involved in its application. Some of them are
given below:
i) Distance between O.R. specialist and Manager: Operations
researchers need a mathematician or statistician who might not be
aware of the business problems. Similarly, a manager is unable to
 understand the complex nature of Operations Research. Thus, there is
a big gap between the two personnel.
ii) Magnitude of Calculations: The O.R. aims to find the optimal
solution by considering all the factors. In this modern world, these
factors are enormous, and expressing them in quantitative models and
establishing relationships among them require voluminous calculations,
which can only be handled by machines.
iii) Money and Time Costs: The basic data are subjected to frequent
changes, and incorporating these changes into the operations research
models is very expensive. However, a fairly good solution at present
may be more desirable than a perfect operations research solution that
will be available in the future or after some time.
iv) Non-quantifiable Factors: When all the factors related to a problem
can be quantifiable, only then can operations research provide a
solution; otherwise, it cannot. The non-quantifiable factors are not
incorporated in O.R. models. Importantly, O.R. models do not take into
account emotional or qualitative factors.
v) Implementation: Once the decision has been made, it should be
implemented. The implementation of decisions is a delicate task. This
task must take into account the complexities of human relations and
behaviour and sometimes only the psychological factors.