Chapter Two

Models
Learning Objectives
 You should be able to
 Define what model is
 Characteristics of models
 Classification of models
 Models in Quantitative Analysis
 Advantages and limitations of models
 Quantitative Approach/Methodology
 Models and Modeling
 Model
 An abstraction or approximation of reality.
 It is a simplified, and often idealized, representation of reality.
 Examples : an equation, an outline, a diagram, financial
statements and a map as they partially represent reality
 Reality could be problem, process, operation, object or event
 By its very nature, a model is incomplete.
 A good model will capture only important details of reality without
including innumerable minor details that would obscure than
illuminate reality.
 Cont’d…
 Models provide an alternative to working with
reality.
 Models give greater freedom to experiment with
different ideas, controlling certain aspect of the
situation, investigating alternative solutions.
 The key to model building lies in abstracting only
the relevant variables that affect the criteria of
the measures of performance of the given system
and expressing the relationship in a suitable form.
 But oversimplification of problem can lead to a
poor decision.
Cont’d…

 Model enrichment is accomplished through the process

of changing constants in to variables, adding variables,
relaxing linear and other assumptions, and including
randomness.

? What more do you know about models? Relate

with your experiences
 Types of Models

 Different ways of classifying models

a) based on structure
i) Physical Models
 provide a physical appearance of the real object
under study either reduced in size or scaled up.
 Physical models are useful only in design problems
because they are easy to observe, build, and
describe; they are not used in prediction.
 Different ways of classifying
models(cont’d..)
ii. Symbolic models
 use symbols (letters, numbers) and functions to represent variables and
their relationships to describe the properties of the system.
e.g. y = mx +b
y = 2x +6
 Different ways of classifying models(con’d..)

b) Based on level of abstraction

i) Iconic models
 Are physical or pictorial or visual representation of real system in a scaled
up or down form versions of a system.
 Are the least abstract as they are physical models that look like reality.
 It provide important physical characteristics to audiences.
e.g. Model of Car, ship, airplane, blueprint of building, etc.
 Models of sun and planets are scaled down, while model of cells in human
body are scaled up.
 Different ways of classifying models(cont’d..)

ii)Analog Models
 Are physical models, but they are more abstract than iconic models;
 Instead of replicating physical object
as iconic models do, they substitute
some physical analogy for important
aspect of the reality.
 You can’t resemble reality in these
models and it is through consensus that reality is represented by these models.
E.g. Demand Graph,
Organizational Chart, thermometer
 Thermometer indicates changes in
atmospheric temperature
 Different ways of classifying models(cont’d..)

iii) Symbolic/Mathematical models

 most abstract; they incorporate numbers, variables and
algebraic symbols to represent important aspects of a
problem, often in an equation form.
 The numbers and symbols are manipulated to show inter-
relationships and solve for unknown values of key
variables.
 Very flexible for alteration.
 Lend themselves to computational power inherent to
calculators and computers.
 Are made up of constants and variables.
Cont’d…
 While constants are fixed or known quantities not subject to variation,
variables(controllable vs uncontrollable) can take on different values.
 E.g. Linear programming models, queuing models, Inventory models…
 Different ways of classifying models(con’d..)

c) based on function or purpose

i. Descriptive models
 Descriptive models simply describe some aspects of a situation, based on
observation, survey, questionnaire results or other available data of a
situation and do not recommend anything.
e.g. Organizational chart, plant layout diagram, scale models etc…
 Different ways of classifying models(con’d..)

ii. Predictive Models


Predicts outcomes regarding certain events due to a
given set of alternatives for the problem.
 indicate “If this occurs, then that follow”.
 They relate dependent and independent variables and
permit trying out, “what if” questions.
 In other words, these models are used to predict
outcomes due to a given set of alternatives for the
problem.
 These models do not have an objective function as a
part of the model to evaluate decision alternatives.
 E.g. forecasting models
 Television net work predicts the election outcome
before counting the vote based on the survey results
 Different ways of classifying models(con’d..)

iii. Normative (Optimization) models

 provide the “best” or “Optimal” solution to
problems subject to certain limitations on the
use of resources.
 These models provide recommended courses of
action.
 are also called prescriptive models, because
they prescribe what the decision maker ought
to do.
 E.g. Linear Programming, X- Ray of healthy
man, CPM, PERT of planning
 Different ways of classifying models(con’td..)

d) Classification Based on Time Reference

i)Static Models
 Static models represent a system at some specified time and do not account
for changes over time. Eg. EOQ models
ii) Dynamic models
 considers time as one of the variables and allows the impact of changes due
to change in time.
 Sequences of interrelated decisions over a period of time are made to select
the optimal course of action to optimize the given objective.
 Different ways of classifying models(con’td..)

e)Based on Degree of certainty/ Nature of

Environment

i)Deterministic Models.
 Where all the parameters i.e., constants and
functional relationships are assumed to be known
with certainty when the decision is made.
 the outcome associated with a particular course of
action is known.
 for a specific set of input values, there is a uniquely
determined output which represents the solution of
the model under consideration of certainty.
 E.g. Linear Programming models, Transportation and
Assignment models come under this.
 Different ways of classifying models(con’td..)

ii. Probabilistic (Stochastic) models

 Used to handle situations in which outcomes of
managerial decisions can’t be predicted with certainty.
 at least one parameter or decision variable is a random
variable.
 Since at least one decision variable is random, a
dependent variable which is the function of
independent variable(s) will also be random.
 it is possible to predict a pattern of values of both the
variables by their probability. distribution.
e.g. Insurance risk
Insurance companies are willing to insure against risk of
fire, accidents and sickness, where the out come can’t
be known ahead.
 Different ways of classifying models(con’d..)

f)Based on Method of solution or Quantification

i) Heuristic Model
 These models employ some sets of rules which, though perhaps not optimal,
do facilitate solutions of problems when applied in a consistent manner.
 Are based on ones experience, intuition, hunches …
 Different ways of classifying models(con’d..)

ii) Analytical Models

 These models have a specific mathematical
structure and thus can be solved by known
analytical or mathematical techniques.
 Any optimization model (which requires
maximization or minimization of an objective
function) is an analytical model.
 Used to determine an optimal or best solution
to a problem.
 Note: Optimal solution is generally optimal in
the context of the model; not necessarily in
the larger context of the reality.
 E.g. Linear Programming models
 Different ways of classifying models(con’d..)

iii) Simulation Models

 have a mathematical structure but are not solved by applying mathematical
techniques to get a solution.
 are essentially a computer-assisted experimentation under certain assumptions
over a period of time.
 are more flexible than mathematical ones and therefore, can be used to
represent a complex system which otherwise can not be represented
mathematically.
 do not provide general solution like those of mathematical Models; but
satisfactory solution
 Different ways of classifying models(con’d..)

Note:
 This classifications are not mutually exclusive; you
can not put hard boundary between these
classifications. There will be an overlap between
classifications.
 All models discussed so far are not under the
umbrella of quantitative analysis.
 Common models in Quantitative analysis are is
symbolic/Mathematical models(will be discussed in
the coming slides).
? Can you mention some of these mathematical
models?
 Advantages of model

 Models have many advantages:

 Model provides economy and compress time… only important aspect of a
problem is treated.
 The problem can be viewed in its entirety
 Aids to transmit ideas and visualization
 Models simplify the investigation considerably and provide a powerful and
flexible for predicting the future state.
 Allows to analyze and experiment in a complex situation to a degree that
would be impossible in the actual system.
 Risks of Using Models

 One or more important aspect the reality might be left out.

 Non quantitative information might be ignored/downplayed in quantitative
models.
 Lack of experience may lead to force a problem to fit the model, which
diminishes chance of obtaining good solutions
 Cont’d…
 Due to abstract nature, models may not adequately portray the relation
ship that exist in reality, which might lead the solution to fail under harsh
light of reality.
 One way to reduce risk is to give careful consideration to the assumptions
on which the model is based.
 Assumptions are conditions that are assumed to exist under which the
model works.
Quantitative models

 Linear Mathematical Programming

 Linear programming models
Graphic Analysis
Simplex Method
Post optimality
 Transportation and assignment
 Integer linear programming
 Goal Linear Programming
Cont’d…

 Probabilistic Techniques
 Probability distribution
 Decision Analysis
 Game Theory
 Queuing
 Simulation
 Forecasting
 Markov Analysis
Cont’d…

 Inventory Techniques
 Certain Demand
 Uncertain Demand
 Net work Techniques
 Net work flow
 CPM/PERT

 Other linear and non-linear Techniques

 Dynamic Programming
 Break-even Analysis
 Non-linear programming models
 Quantitative Approach/Methodology

• Is a logical sequence that includes careful definition of the problem,

use of models, and analysis leading to solution of the problem.
• The process of developing and solving models is the essence of the
quantitative analysis process and involves the following steps.
 Quantitative /Management science/ Approach

1) Problem definition- is the identification of a real

problem that exists is a system through close
observation of the current situation to understand it
better.
 It is gap between current and future desired state
 always talk with the people who are closely involved.
 Discuss with the decision maker continuously before
rushing to model construction.
Note: Problems are not always the results of crisis; but
instead frequently involve an anticipatory or
planning situation.
 Clearly defined problem is half solved.
 Managerial problems are not always obvious and
clear.
 Quantitative/ Scientific approach Cont’d…

 Remember Iceberg analogy of managerial problem.

?What do you understand from this analogy?

Remember that majority of managerial problems are not easily visible .

• The problem could be product mix, ingredient mixture,

portfolio analysis, customer exposure, marketing mix….
 Quantitative/ Scientific approach Cont’d…

ii) Model construction/formulation

 involves an analysis of the system under study, determining objective of
the decision-maker, and alternative course of action, etc, so as to
understand and describe, in precise terms the problem that an
organization faces.
 Goal of modeling is to achieve accurate, yet simple representation of
reality which needs a trade- off between the two requirements: accuracy
vs Simplicity
Quantitative/ Scientific approach Cont’d…

 Constants in modeling be known with high

degree of precision.
 Constant include production times, machine
times, consumption rates, exposure rates,
rate of returns.
 Sources of information could be accounting
department, directly involved ones, secondary
sources and direct observation.
?Can you mention some other sources which you
know?
Quantitative/ Scientific approach Cont’d…

1) Considerations in Model formulation

i.Problem Components- know decision maker
who is not satisfied with the existing state of
affairs.
ii. Decision environment - know about the
resources such as managers, employees,
equipments, etc which are required to carry
out the policies of the organization.
iii. Alternative courses of Action
iv. Measure of effectiveness- is required in
order to evaluate the merit(effectiveness) of
the several courses of action.
 Quantitative/ Scientific approach Cont’d…

2)Collecting Data and Constructing a Mathematical

Model
 Controllable (decision) Variables – values under

the control of decision maker.

Uncontrollable variable - state of nature over
which decision maker has no control.
Objective function - criterion that expresses the
decision-maker’s manner of evaluating the
desirability of alternative values of decision
variables.
Constraints or limitations – are the restrictions on
the values of the decision variables.
Quantitative/ Scientific approach Cont’d…

 These restrictions can arise due to limited

resources such as space, money, manpower,
material, etc.
 The constraints may be put in the form of
equations or inequalities.
 Functional relationships
 the decision variables in the objective function
and in the constraints are connected by a specific
functional relationship.
 Cont’d…
 A general decision problem model might take the
form:
Optimize (Max or Min) Z = f(xi)
Subject to the constraints:
gi(xi) (≤, = ≥ ) bi; i = 1,2,…..m and x ≥ 0 Where,
x is a vector of decision variables (x1, x2, x3, xn)
f(x) = Criterion or objective function to be optimized
gi(x) = the ith constraint
bi = fixed amount of the ith resource
 Cont’d…
A model is referred to as a linear model if all
functional relationships among decision variables
X1, X2, Xn in f(x) and g(x) are of a linear form.
 But if one or more of the relationships are non –
linear, the model is said to be a non-linear model.
 Parameters - These are constants in the functional
relationships.
 Parameters can be deterministic or probabilistic in
nature.
Quantitative/ Scientific approach Cont’d…

Note: Mistakes in inexperienced model builders:

 Failing to take broader perspective of the
problem; i.e., do not take in to account other
dimensions of the reality that a solution may
have an impact on. Hence, consider system
approach.
 Do not only focus on immediate problem but
also on interrelationships that exist within and
outside the organization.
 Quantitative/ Scientific approach Cont’d…

C) Model analysis/Solving the Mathematical

Model
 involves obtaining the numerical values of
decision variables, testing the solution and
interpretation of analysis of the results.
 Obtaining these values depends on the specific
form or type of mathematical models.
i) Models with high degree of certainty lend
themselves to algorithms(solution techniques)
that generally help to identify optimal solution.
ii) Models having no algorithms to find optimal
solution; rather search techniques may be used to
identify acceptable solutions. e.g. Simulation
models
Cont’d…
 Optimization model
 These models yield the best value for the decision variables
both for unconstrained and constrained problems.
 In constrained problems, these values simultaneously satisfy
all of the constraints and provide an optimal or acceptable
value for the objective function or measure of effectiveness.
 The solution so obtained is called the optimal solution to the
Problem.
 Heuristic Model
 These methods yield values of the variables that satisfy all
the constraints, but not necessarily provide optimal solution.
 However, these values provide an acceptable value of the
objective function.
 Quantitative/ Scientific approach Cont’d…

 Animportant part of model analysis is

determining how sensitive a particular solution is
to changes in one or more of the constants in
the model ( sensitivity analysis).
 Difficulties in problem solving in Using models
(i) Failure to recognize the existence of a (iii) Failure to use all available
problem
information
- Some people tend to personalize
problems. - The problem-solver fails to
- Problems arise in context which people seek out information
have had no experience.
iv) Failure to recognize or
ii)Failure to define the correct problem
question assumptions.
 One situation may contain many
intertwined problems.  it is assumed that there is a
 Obvious problems are often symptoms solution to every problem.
of much deeper problems.
 Rigid thinking blocks ones
 The inability to identify accurately
what is going on can lead to view point.
inaccurate problem identification.
 Attitudes and beliefs can blind the
problem solver to the real causes on
undesirable situations.
D) Validating (Testing) the solution

 After solving the mathematical model, it is important to

review the solution carefully to see that values make sense
and that the resulting decisions can be implemented.
 Some of the reasons for validating the solution are:
(i)The mathematical model may not have enumerated all
the limitations of the problem under consideration.
(ii)Certainaspect of the problem may have been
overlooked, omitted or simplified,
(iii)Thedata may have been incorrect estimated or
recorded, perhaps when entered in to the computer.
Quantitative/ Scientific approach Cont’d…

e) Implementation and follow up

 The decision-maker has not only to
identify good decision alternatives
but also to select alternatives that
are capable of being implemented.

It is important to ensure that any
solution implemented is continually
reviewed and updated in the light
of a changing environment
 Cont’d…
f) Modifying the Model
Ifduring validation, the solution cannot be implemented, one
needs to:
(a) identify constraint that were omitted during the
original problem.
(b) find if some of the original constraints were
incorrect and need to be modified.
In all such cases, one must return to the model formulation
step and carefully make the appropriate modifications to
represent more accurately the given problem.
A model must be applicable for a reasonable time period and should be updated
from time to time, taking in to consideration the past, present, and future aspects of
the problem.
 Cont’d…
g) Establishing control over the solution

A control procedure has to be established for detecting

significant changes in decision variables of the problem so
that suitable adjustments can be made in the solution
without having to build a model every time a significant
change occurs.
 Features of OR solution

 Technically appropriate. The solution should work

technically; meet the constraints and operate in the
problem environment.
 Reliable. The solution must be useful for a reasonable
period of time under the conditions for which it was
designed.
 Economically viable. The economic value should be more
than what it costs to develop and should be seen as wise
investment in hiring quantitative analysis talents.
 Behaviorally appropriate. The solution should be
behaviorally appropriate and must remain valid for
reasonable period of time within the organization.
Any Question?

Thanks!!!