Introduction to

Operations Research-2
LECTURER: GUNEL IMANOVA
PHASES OF AN OPERATIONS RESEARCH
STUDY
 The principal phases for implementing OR in practice include
1. Definition of the problem
2. Construction of the model
3. Solution of the model
4. Validation of the model
5. Implementation of the solution
Problem Definition

 Problem definition involves defining the scope of the problem under

investigation. This function should be carried out by the entire OR team. The
aim is to identify three principal elements of the decision problem:
(1) description of the decision alternatives, (2) determination of the objective
of the study, and (3) specification of the limitations (constraints) under which
the modeled system operates.
Model Construction

 Model construction entails an attempt to translate the problem definition into

mathematical relationships. If the resulting model fits one of the standard
mathematical models, such as linear programming, we can usually reach a
solution by using available algorithms. Alternatively, if the mathematical
relationships are too complex to allow the determination of an analytic
solution, the OR team may opt to simplify the model and use a heuristic
approach, or they may consider the use of simulation, if appropriate. In some
cases, mathematical, simulation, and heuristic models may be combined to
solve the decision problem.
Model Solution

 Model solution is by far the simplest of all OR phases because it entails the
use of well-defined optimization algorithms. An important aspect of the
model solution phase is sensitivity analysis. It deals with obtaining additional
information about the behavior of the optimum solution when the model
undergoes some parameter changes. Sensitivity analysis is particularly needed
when the parameters of the model cannot be estimated accurately. In these
cases, it is important to study the behaviour of the optimum solution in the
neighbourhood of the estimated parameters.
Model Validity

 Model validity checks whether or not the proposed model does what it
purports to do-that is, does it predict adequately the behavior of the system
under study? Initially, the OR team should be convinced that the model's
output does not include "surprises." In other words, does the solution make
sense? Are the results intuitively acceptable? On the formal side, a common
method for checking the validity of a model is to compare its output with
historical output data. The model is valid if, under similar input conditions, it
reasonably duplicates past performance. Generally, however, there is no
assurance that future performance will continue to duplicate past behavior.
Also, because the model is usually based on careful examination of past data,
the proposed comparison is usually favorable. If the proposed model
represents a new (nonexisting) system, no historical data would be available.
In such cases, we may use simulation as an independent tool for verifying the
output of the mathematical model.
Implementation of the solution

 Implementation of the solution of a validated model involves the translation

of the results into understandable operating instructions to be issued to the
people who will administer the recommended system. The burden of this task
lies primarily with the OR team.
Advantages of Using Models

 They are less expensive and disruptive than experimenting with the real
world system • They allow quantitative analysts to ask “What if” types of
questions • They are built for management problems and encourage
management input.
 They force a consistent and systematic approach to the analysis of problems.
They require managers to be specific about constraints and goals relating to a
problem. They can help reduce the time needed in decision making.
Relationship between the Manager and
O.R. Specialist
 The key responsibility of manager is decision making. The role of the O.R.
specialist is to help the manager make better decisions. Figure 1-1 explains
the relationship between the O.R. specialist and the manager/decision maker.
Figure 1-1 Relationship between
Manager/Decision Maker and O.R.
Specialists
 O.R. Tools and Techniques
 Operations Research uses any suitable tools or techniques available. The
common frequently used tools/techniques are mathematical procedures, cost
analysis, electronic computation. However, operations researchers given
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. There are
many other Operations Research tools/techniques also exists. The brief
explanations of some of the above techniques/tools are as follows:
O.R. Tools and Techniques

 Linear Programming: This is a constrained optimization technique, which

optimize some criterion 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.
 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 are dichotomized. The success of one player tends to be at the cost of
other players and hence they are in conflict.
O.R. Tools and Techniques

 Decision Theory: Decision theory is concerned with making decisions under

conditions of complete certainty about the future outcomes and under
conditions such that we can make some probability about what will happen in
future.
 Queuing Theory: This is used in situations where the queue is formed (for
example customers waiting for service, aircrafts waiting for landing, jobs
waiting for processing in the computer system, etc). The objective here is
minimizing the cost of waiting without increasing the cost of servicing.
O.R. Tools and Techniques

 Inventory Models: Inventory models make a decisions that minimize total

inventory cost. This model successfully reduces the total cost of purchasing,
carrying, and out of stock inventory.
 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 trials and error solutions attempt to determine the best solution.
Some times this is a difficult/time consuming procedure. Simulation is used
when actual experimentation is not feasible or solution of model is not
possible.
O.R. Tools and Techniques

 Non-linear Programming: This is used when the objective function and the
constraints are not linear in nature. Linear relationships may be applied to
approximate non-linear constraints but limited to some range, because
approximation becomes poorer as the range is extended. Thus, the non-linear
programming is used to determine the approximation in which a solution lies
and then the solution is obtained using linear methods.
 Dynamic Programming: Dynamic programming is a method of analyzing
multistage decision processes. In this each elementary decision depends on
those preceding decisions and as well as external factors.
O.R. Tools and Techniques

 Integer Programming: If one or more variables of the problem take integral

values only then dynamic programming method is used. For example number
or motor in an organization, number of passenger in an aircraft, number of
generators in a power generating plant, etc.
 Markov Process: Markov process permits to predict changes over time
information about the behavior 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 is known and depends on the current state
and is independent of how we have arrived at that particular state.
O.R. Tools and Techniques

 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.). The aim of this technique is
minimize trouble spots (such as delays, interruption, production bottlenecks,
etc.) by identifying the critical factors. The different activities and their
relationships of the entire project are represented diagrammatically with the
help of networks and arrows, which is used for identifying critical activities
and path. There are two main types of technique in network scheduling, they
are: 1. Program Evaluation and Review Technique (PERT) – is used when
activities time is not known accurately/ only probabilistic estimate of time is
available. 2. Critical Path Method (CPM) – is used when activities time is know
accurately.
O.R. Tools and Techniques

 Information Theory: This analytical process is transferred from the electrical

communication field to O.R. field. The objective of this theory is to evaluate
the effectiveness of flow of information with a given system. This is used
mainly in communication networks but also has indirect influence in
simulating the examination of business organizational structure with a view of
enhancing flow of information.
Applications of Operations Research
 Today, almost all fields of business and government utilizing the benefits of
Operations Research. There are lots of applications of Operations Research.
Although it is not feasible to cover all applications of O.R. in brief. The
following are the abbreviated set of typical operations research applications
to show how widely these techniques are used today:
Applications of Operations Research

Accounting:
 Assigning audit teams effectively
 Credit policy analysis
 Cash flow planning
 Developing standard costs
 Establishing costs for by products
 Planning of delinquent account strategy
Construction:
 Project scheduling, monitoring and control
 Determination of proper work force
 Deployment of work force
 Allocation of resources to projects
Applications of Operations Research
Facilities Planning:
 Factory location and size decision
 Estimation of 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
Applications of Operations Research

Manufacturing:
 Inventory control
 Marketing balance projection
 Production scheduling
 Production smoothing
Marketing:
 Advertising budget allocation
 Product introduction timing
 Selection of Product mix
 Deciding most effective packaging alternative
Applications of Operations Research
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
Limitations of Operations Research

 Operations Research has number of 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 as given below:
 i) Distance between O.R. specialist and Manager. Operations Researchers job
needs 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 aim of the O.R. is to find out optimal
solution taking into consideration all the factors. In this modern world these
factors are enormous and expressing them in quantitative model and
establishing relationships among these require lots of calculations, which can
be handled only by machines.
Limitations of Operations Research

 iii) Money and Time Costs. The basic data are subjected to frequent changes,
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 available in future or after some
time.
 iv) Non-quantifiable Factors. When all the factors related to a problem can be
quantifiable only then operations research provides solution otherwise not.
The non-quantifiable factors are not incorporated in O.R. models. Importantly
O.R. models do not take into account emotional factors or qualitative factors.
 v) Implementation. Once the decision has been taken it should be
implemented. The implementation of decisions is a delicate task. This task
must take into account the complexities of human relations and behavior and
in some times only the psychological factors.
 Summary

 Operations Research is relatively a new discipline, which originated in World War II,
and became very popular throughout the world. Operations Research is used
successfully not only in military/army operations but also in business, government and
industry. Nowadays operations research is almost used in all the fields.
 Proposing a definition to the operations research is a difficult one, because its
boundary and content are not fixed. The tools for operations search is provided from
the subject’s e.g. economics, engineering, mathematics, statistics, psychology, etc.,
which helps to choose possible alternative courses of action. The operations research
tool/techniques include linear programming, non-linear programming, dynamic
programming, integer programming, Markov process, queuing theory, etc.
 Operations Research has a number of applications. Similarly it has a number of
limitations, which is basically related to the time, money, and the problem involves in
the model building. Day-by-day operations research gaining acceptance because it
improve decision making effectiveness of the managers. Almost all the areas of
business use the operations research for decision making.
Key Terms

 OR: Operations Research.

 MS: Management Science.
 Optimization: Means maximization or minimization
 Linear Programming: is a technique, which optimizes linear objective function under
limited constraints.
 Criterion: is measurement, which is used to evaluation of the results.
 Symbolic Model: An abstract model, generally using mathematical symbols.
 Integer Programming: is a technique, which ensures only integral values of variables in
the problem.
 Dynamic Programming: is a technique, which is used to analyze multistage decision
process.
 Inventory Model: these are the models used to minimize total inventory costs.