UNIT-1 Introduction to Operations Research

1.1

Unit

1 Introduction to
Operations Research

Learning Objectives

After studying this unit, one would be able to understand,

v Definition, Nature and Scope of Operations Research.
v Origin of OR since 1885.
v Applications of OR in different Managerial Areas.
v Concept of Model and its Types.
v Process of Developing an OR Model.
v OR Model is Practice.

v Opportunities and Shortcomings of Using an OR Model.

Introduction
The term Operations Research originated during second world war when U.S.A. and Great Britain’s Armed
Forces sought the assistance of scientists to solve complex and very difficult strategical and tactical problems
of warfare, like making mines harmless or increasing the efficiency of antisubmarine aerial warfare etc.
Operations research employs mathematical logic to complex problems requiring managerial decisions.
Operations research aids in solving diverse business problems and in planning an investigation of major
operation decisions.
One of the important characteristics of Operations Research is that it considers any problem from its
multidimensional aspects as, a single activity may be having its impact on other activities of an organization.
Thus, for the evaluation of any decision, analysts must identify its interactions and impact on different
dimensions of organization as a whole. After determining the factors which affect the system, a mathematical
model can be developed. A solution to this model which is helpful in obtaining maximum profits is usually
referred to as “optimal solution”.
Operations Research (OR) model is a simple representation of a real-world phenomena which provides
framework for solving complicated problems.
Formulation of the problem is the first stage in the construction of a model. It involves the analysis of the
system which is under study. The next stage in model construction is to define a measure of effectiveness.
In this stage, a model is constructed wherein the effectiveness of the system is indicated as a function of the
variables that defines the system.

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1.2 Quantitative analysis for business decisions

1.1 Definition, nature and scope of operations research

Q1. Explain briefly the nature and meaning of Operations Research.
Answer : (Model Paper-III, Q2 | Aug./Sept.-15, Q2(a))

Operations Research
Operations research is a scientific method of providing executive departments with a quantitative basis for decisions
regarding the operations under their control.
– [Morse and Kimball]
Operations research is applied decision theory. It 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 problems.
– [Miller and Starr]
Operations research is a scientific approach to problem solving for executive management.
– [H.M Wagner]
Nature of Operations Research
The nature of operations research deals with the following,
(a) Operations Research is a Scientific Method
Operations research is of scientific nature as it solves the problems scientifically. It helps in providing quantitative
basis for decisions related to the operations under their control.
(b) Operations Research Provides Optimal Solution to the Problem
Operations research determines the root cause of the problem and helps in selecting the best alternative among the
various alternatives.
(c) Helps the Executive Management
Operations research helps the executive management in solving the problems related to management scientifically
by providing them analytical and objective basis for making decisions.
(d) Uses Interdisciplinary Team
Operations research uses interdisciplinary team for representing difficult functional relationships as mathematical
models as this helps in providing quantitative basis for taking effective decisions and detecting new problems for quantitative
analysis.
(e) Operations Research is an Experimental and Applied Science
The nature of operations research deals with experimental and applied science which predicts, understands and
observes the behaviour of man-machine system and operations research workers and utilizes all these resources to solve
the practical problems effectively. The problems may be related to business, government and society at large.
Q2. Discuss in detail the main features of Operations Research study.
Answer : Aug./Sept.-15, Q2(b)

Following are the different characteristics/features of operations research,

1. System (or Executive) Orientation
One of the important characteristics of Operations Research is that it considers any problem from its multidimensional
aspects as, a single activity may be having its impact on other activities of an organization. Thus, for the evaluation of any
decision, analysts must identify its interactions and impact on different dimensions of organization as a whole.
After determining the factors which affect the system, a mathematical model can be developed. A solution to this
model which is helpful in obtaining maximum profits is usually referred to as “optimal solution”.
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UNIT-1 Introduction to Operations Research
1.3
2. The use of Interdisciplinary Teams 6. Use of Computer
According to this characteristic, problems of To solve the complicated mathematical models, to
operations research can be solved by forming teams which change the data which is massive in size and to execute large
consist of individuals belonging to different disciplines of number of computations or calculations, operation research
engineering, science, statistics and so on. They all work makes use of computers which helps in finding accurate
together with a single aim of obtaining an optimal solution solutions.
to a problem.
7. Quantitative Solutions
The solution provided by an operation research Quantitative decisions can be taken by research
team is mostly accurate as they analyze the problem from analyst. Example: Operations research provide answers like
different angles and selects the best alternative from the “the time taken by the company to complete the process
group of alternatives. Example: If the operations research if machine “S” is used is found to be “D” minutes and if
team is confronted with a problem wherein they have to machine “T” is used it is “L” minutes.
increase productivity of a plant by consuming less time and
limited number of labourers then in such a case, different 8. Human Factors
individuals belonging to different fields takes up unique An operation research study would be incomplete, if
functions such as personnel individuals are directed towards the study of human factors is not taken into consideration,
the maintenance of safe and secure working conditions, as they play a crucial role in solving the operations research
the mechanical engineer is responsible for improving the problems.
maintenance of machines and the system analyst ensures
the smooth flow of information without any interruption Q3. Discuss the significance and scope of
through out the plant. operations research in modern management.

The formation of interdisciplinary teams are found to (Model Paper-II, Q2(a) | March-15, Q2)
be important as the knowledge required to solve a problem OR
is increasing day by day. A single person cannot draw up
the required information from all the sources which thereby Explain atleast four management applications
paves the path for the establishment of teams. of OR in industry.
(Refer Only Topic: Applications or Scope of OR)
3. Application of Scientific Method
Answer : Aug.-17, Q3(b)
Operations research makes use of scientific method
for the analysis and for providing the solution to the existing Significance of OR
problem. Scientific research on operations research problems Significance of OR in modern management or in
cannot be carried out in a laboratory under controlled industries are as follows,
conditions without the interaction of outside world unlike
other research studies of physics and chemistry. 1. Uncertainty

4. Uncovering of New Problems There exist uncertainty relating to both general and
economic environment. Uncertainty is increasing with the
This characteristic features of operations research economic growth. Due to uncertainty decision making is
conveys that the solution given by operation research analysts becoming time consuming and costlier. OR helps in reducing
may not be able to cover all the new problems but achieve the uncertainty in the business.
maximum benefits. All the new problems need to be solved
effectively but at the same time it is not compulsory to solve 2. Knowledge Explosion
all the problems at a time. Research should be continued to Knowledge is growing day-by-day and not all
attain maximum benefits. industries are updated with the latest knowledge. Therefore,
OR teams gather latest information for the analysis purpose
5. Improvement in the Quality of Decisions
which is very essential for industries.
Operation research by using scientific method is able
3. Scattered Responsibility and Authority
to provide improved solutions to the problem. It does not
mean that it always gives the perfect solution. That is why it In majority of the organisations, the responsibility
is rightly said by Thomas L. Saaty that, operations research and authority is scattered throughout the organisation. This
is the art of giving bad answers to the problems to which leads to inconsistent goals. Mathematical quantification of
otherwise worse answers are given. OR helps the industries in overcoming this difficulty.
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1.4 Quantitative analysis for business decisions
4. Complexity 5. Allocation and Distribution Management
In large industries, these factors such as technology, In the area of allocation and distribution, OR
competition and environment have a great influence over techniques are applied for,
decisions. Due to these factors, the companies are uncertain
about the effectiveness of their decision. In order to minimize (a) Planning distribution policy.
the complexity, it requires mathematical models that can
(b) Determining size and location of distribution centres,
divide the complex problem into simpler parts. These parts
can be examined separately and the results can be synthesized warehouses and retail depots.
to provide the clear understanding of the problem. (c) Allocation of resources (men, machines, time, money,
Applications or Scope of OR material) in an optimal way.
Operations Research is referred to as a problem 6. Procurement Management
solving and decision making science. It provides the
industries with scientific and programmable rules and also In the area of procurement, OR techniques are
acts as a ‘quantitative basis’ for operations decisions. OR applied for,
techniques are successfully been used in the following areas,
(a) Making the right purchase, at right time, in right way
1. Production and Facility Planning and at the minimum procurement cost.
In the area of production and facility planning, OR
(b) Replacement and bidding policies.
techniques are used for the following purposes,
(a) Allocation of resources and project scheduling. (c) Vendor analysis and transportation planning.

(b) Preventive maintenance and maintenance policy. 7. Personnel Management

(c) Selection, design and location of production plants, In the area of personnel management, OR techniques
retail outlets and distribution centres. are used for,
(d) Finding out the size and number of items to be
(a) Personnel selection, recruitment policies and job
produced.
assignment.
2. Marketing Management
(b) Determination of retirement age and skill sets.
In the area of marketing, OR techniques are
applied for, (c) Wage/salary administration.
(a) Determining stock levels and demand forecasts. 1.1.1 Origin of OR
(b) Deciding right time to launch a new product in the
Q4. Trace the evolution and origin of operations
market.
research.
(c) Selection of appropriate advertising media.
Answer :
(d) Selection of product, timing and the competitive
actions. The origin and evolution of operations research can
3. Finance be known from the following classification,
In the area of finance, OR techniques are applied to, 1. Pre-world War-II Developments
(a) Determine Credit risks, credit policies. The development of operations research had been
(b) Develop a profitable plan for the company. started in the early 1800s, but it came into practise when
(c) Carryout Auditing, dividend policies, financial Frederick W.Taylor used the methods of scientific analysis
planning, investment and portfolio management. for the production techniques.

(d) Carryout Cash flow analysis and capital requirements. Most of the techniques of operations research such as
4. Research and Development Inventory control, Queueing theory and Statistical quality
control were developed and applied before the introduction
In the area of R&D, OR techniques are applied for, and coinage of the term “operations research”.
(a) Project selection and their budget preparation.
In 1885, F.W. Taylor carried-out his experiments on a
(b) Identification of areas for research and development. simple shovel to determine the optimal capacity of a Shovel
(c) Validity and regulation of development projects. to carry maximum load with minimum fatigue.
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 UNIT-1 Introduction to Operations Research 1.5
Although, the jobs on machines are performed 3. Post-world War-II Developments
perfectly, there was a delay in their movement for further Fascinated by the results obtained by military teams
processing. But with the introduction of job scheduling in the world war-II, the industrial managers tried to follow
techniques developed by Henry L.Gnatt, movement from the operation research techniques in their production
one machine to other is found on a timely manner without operations to solve their problems and to achieve maximum
any delays. This helps in minimizing the process time and profitability out of the available scarce resources.
enables the firm to plan for monthly machine loadings in
Primarily, Britain and America focussed on these
advance by accurately stating the delivery dates. The total
operations research techniques to be applied in their
cost of inventory can be optimized by Economic Order
industries.
Quantity (EOQ) model which was developed by Ford Harris
in 1915 and analyzed by R.H. Wilson in 1934. In U.S.A, second industrial revolution led to the
growth of industrial operation research which resulted into
Queueing theory was very much developed in 1916
the replacement of man by machine. After the world war
by A.K. Erlang.
II, a new revolution had been witnessed due to the easy
In 1924, control charts were developed by Shwart in availability of electronic computers.
the inspection engineering department of Western Electric’s
4. Computer Era
Bell Laboratory. Such control charts are used for controlling
the quality and cost of raw materials, components and As most of the operations research techniques are
finished products. associated with complex calculations, longer times are
required for solving the real-life problems. But, due to the
Industrial revolution is responsible for bringing the
development of high speed digital computers, even the
rapid pace in the growth and development of operations
complex computations can be easily done in few seconds.
research. Prior to the industrial revolution, most of the
industries were small scale employing only few people 5. Inclusion of Uncertainty Models
but due to automation, when the man is replaced by Operations research techniques are able to deal
machine, improvements were seen in transportation and with the undeterministic situations more realistically by
communication and management of an organization has using probability theory and statistics than deterministic
undergone a division wherein the entire organization was situations.
classified into separate departments such as marketing,
finance, production, IT which were headed by individual
1.1.2 Applications of OR in Different
managers for each department. Managerial Areas
Each and every department of an organization has its Q5. Explain in detail the application of Operations
own objectives whose accomplishment contributes to the Research (OR) in different managerial areas.
achievement of organizational objectives. An individual Answer :
department cannot contribute to the whole objectives For answer refer Unit-I, Page No. 1.4, Q.No. 3, Topic:
of the organization. They just constitute a part. All the Applications or Scope of OR.
departments together achieve the established objectives of
Q6. Discuss briefly the common application areas
the organization.
of Operations Research (OR).
All the departments must strive hard for the
Answer :
achievement of their goals and objectives.
Hence, a policy should be set up which serves the Scope of O.R is very wide and broad in nature.
organizations interest but not the interest of individual It can be used in areas such as Finance, Purchase,
department. Production, Distribution, Marketing, Personnel, Research
and Development.
2. Developments During World War-II
Some of the application or scope areas of O.R are as
During this phase, there was a great concern about
follows,
the allocation of scarce military resources which were
restricted only to the different military operations. For this, (i) Optimum product mix for an FMCG manufacturer.
a team of scientists, under the guardianship of professor (ii) Determination of a suitable fare structure for public
and a naval officer P.M.S. Blackett was appointed by the transport.
military management. Their role was to study and examine
(iii) The premium rates of various policies of a life
various strategic and tactical problems related to air and land
insurance firm.
defence and to formulate the optimal solution by optimally
allocating the scarce resources. As, they have performed (iv) Diet planning of patients.
efficiently, they were able to achieve their objectives. Many (v) Establishing the best manufacturing strategy with the
such teams were spread to western allied countries. available resources.
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1.6 Quantitative analysis for business decisions
(vi) Design of logistics system in order to minimize total 3. Capital Budgeting
shipping costs. In capital budgeting, many investment projects can
(vii) Locating the site for factory or warehouse schedule be evaluated such as launch of a new product, buying of new
that satisfies firms demand and production limitations. machineries in place of old ones etc. For example: Techniques
of operations research OR such as linear programming
(viii) Making the best assignment of jobs to resources.
dynamic programming and integer programming assists in
(ix) Appropriate selection of a sequence of jobs to be done choosing best investments proposals.
on a finite number of service facilities. 4. Inventory Control
(x) Establishing replacement policies of hydraulic press. In large scale companies, inventory control
(xi) Designing the queuing and service system to reduce techniques of OR assists management in formulating proper
the total cost of the system. inventory policies and reduces the scale of investment
in inventories. The Inventory control techniques assists
(xii) Decision-making under conditions of risk or
in bringing stability available between shortage costs,
uncertainty.
ordering costs and inventory carrying costs. For example:
(xiii) Predicting the optimum strategy to adopt while OR techniques help in determining the quantity of stock
playing with a competitor whose strategy is unknown. available and when it is required to order.
(xiv) Develop the inventory policies and management 5. Queue Management
system to control inventories of sheets, components. Queuing is one of the major technique of Operation
(xv) Estimating the project duration of a factory building Research (OR). This technique helps to find out the optimal
construction project. arrival time of customers. For example, queuing may help
the firm to find out the number at customers waiting for
(xvi) Crashing project duration to optimum level when
service and required time to deliver the service etc. If firm
additional resources can be supplied.
efficiently managed its customers then it will automatically
(xvii) Using the best forecast tool to predict with lesser increase the sales.
inaccuracy the demand for a product. Operation Research Helps in Improving Performance
Q7. State any five areas for the application of For answer refer, Unit-I, Page No. 1.3, Q.No. 3,
OR techniques in financial management Topic: Significance of OR.
with suitable examples. How it improves the
performance of the organization? 1.2 Problem solving and
Answer : Feb.-17, Q2
decision making
Q8. What do you mean by problem solving and
Following are the areas of financial management
decision-making? Explain their relationship
where Operations Research (or) techniques are applied,
with the objectives of management.
1. Cash Management Answer :
A finance manager is accountable for proper supply Problem Solving
of funds to various divisions and departments of an
Problem solving is a process under which the
organization, because availability of sufficient funds is very
management take corrective actions to solve a problem and
important for smooth running of business. For this purpose,
there by meet organizational goals. But, before solving a
Linear programming techniques of OR are very useful in
problem they need to identify and understand the nature of
ascertaining allocation of funds to various divisions. For
a problem which they are facing i.e., the size, complexity,
example, Linear programming techniques not only used
type and consequences. All these aspects influence the
to find out the divisions/departments which are having un-
approach/techniques to be used for solving a problem. If the
used funds but they also helps to allocate such funds to
management fails to identify the actual problem then they
needed departments.
won’t be able to take corrective actions to solve it.
2. Simulation Techniques If a technical problem occurred in a machine it can be
In simulation, different aspects are taken into easily identified and quickly resolved by taking necessary
consideration which have impacts on present and projected action because it does not require any detail information.
costs of borrowed funds from banks and tax rates and But in case of problems like decrease in profitability of
gives a favourable mix of financing for required capital a firm, management requires detailed information and
amount. For example, simulation may help in replacing greater analysis to solve the problem. The reason is different
intuitive estimation, judgements or ideas of management opinions of the people regarding to the decreasing profits of
by dependable or valid information. the firm.
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 UNIT-1 Introduction to Operations Research 1.7
Some problems are simple and routine in nature. They 4. Classification based on their importance.
don’t require detailed information or any special technique
5. Classification based on the extent of freedom to
to solve them. But on the other hand, in case of complex and
decide.
non routine problems, management is required to collect
huge information and new ideas/techniques to re-solve the 6. Classification based on the persons involved.
problem.
1. Classification Based on their Impact on
Decision Making Organization
Decision making is “a process of identification and
The decisions are classified into two types based on
selection of an action from a number of alternative courses
their impact on organization. They are as follows,
of action for resolving a problem in the organization”.
Decision making acts as the basis for planning (a) Basic Decisions
an activity in the organization. It is one of the important The decisions which are important to the organization
managerial function. Decision making must be rational for and are strategic in nature are called as basic decision.
achieving the set goals successfully. It is very important to These decisions are also called as strategic decision.
take the decisions at every stage of the organization. The These decisions have a major impact on the success
decisions which are taken by top management are called as of the organization.
strategic decisions and the decisions which are related to
Example
the normal day-to-day activities of organization are called
as tactical or operational decisions. Location of plant, decisions relating to distribution
Relationship of Management Objectives with channels design of the organizational structure etc.
Problem Solving and Decision-making (b) Routine Decisions
Each and every organization will have its own The decisions which are related to the routine day-to-
objectives and the employees of the organization strive day activities are called as routine decisions. These
towards achieving these objectives. The problem arises decisions does not have a significant impact on the
when the individuals in an organization fails in meeting the performance of the organization.
objectives set by their boss.
Example
For instance, if the objective of an organization or a
firm is to produce 2000 finished products a day but it had The decisions related to the movement of raw
succeeded in producing only 1800 products then it means materials to production process, marketing of a
that there exist some problem i.e., the difference between the product at a selected place etc.
actual performance and performance expected by the boss. 2. Classification Based on Nature of Problems
If the difference is found between the actual Involved
performance expected by the organization then under that The decisions are classified into two types based on the
situation corrective actions are taken to fill the gap and nature of the problems involved. They are as follows,
thereby achieve organizational objectives.
(a) Programmed Decisions
The process of taking corrective action to meet the
objectives is referred to as problem-solving and the process The decisions which are taken by the management
of selecting a course of action to solve the problem is referred based on its past experience for resolving the
to as decision-making. structured problems are called as programmed
decisions. Structured problems are clear and definite.
Q9. Discuss in detail the various types of decision
making.
It can be anticipated and are routine in nature. For
solving these problems, the management can plan
Answer : the decisions before its occurrence. The programmed
The decisions are categorized broadly into six decisions follows the policies, procedures and rules
categories based on the different criteria. They are as follows, which are fixed by the organization for a particular
1. Classification based on their impact on period of time.
organization. Programmed decisions may limit the freedom of the
2. Classification based on the nature of decision (employees) managers as they are taken as per the
and the nature of problems involved. policies. It is a time saving process as the problems are
3. Classification based on the number of individuals anticipated and the management can plan to resolve
involved in the process. the problems in advance.
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1.8 Quantitative analysis for business decisions
(b) Non-programmed Decisions (b) Minor Decisions
The decisions which are taken by the management for The decisions which are routine in nature and deals
resolving the complex, unanticipated and exceptional with the organizational aspect are less significant are
problems are called as non-programmed decisions. called as minor decisions. These decisions require low
These problems are also called as unstructured cost for implementation and are not specific decisions.
problems.
5. Classification Based on the Extent of
It is very important to take non-programmed decisions
at every level of management. These decisions Freedom to Decide
are specific in nature for resolving the non routine The decisions which are classified into two types
problems. based on the extent of freedom given to the managers to
Example decide. They are as follows,
Decisions relating to the allocation of resources, (a) Personal Decisions
improvement of community relations etc., are the
examples of non-programmed decisions. The decisions are taken by manager without
consulting others in the organization are called as
3. Classification Based on Number of Individuals
personal decisions. The manager has the freedom to
Involved
take personal decisions.
The decisions are classified into two types based on
the number of individuals involved in the decision making (b) Organizational Decisions
process. They are as follows, The decisions which a manager take by considering
(a) Individual Decisions the organizational and environmental conditions
The decisions which are taken by managers and factors that are within the boundaries of the
individually or by any individual person of the organizational policy are called as organizational
organization without consulting others are called as decisions. The manager either consults with the
individual decisions. These are routine in nature and colleagues or subordinates or superiors while taking
do not have any major impact on the organizational decisions or takes the decisions independently.
success. The managers have the right to take
6. Classification Based on the Persons Involved
individual decisions in certain conditions.
in Taking Decisions
(b) Group Decisions
The decisions are classified into two types based on
The organizations mostly opt for group decision the persons which are involved in taking the decisions. They
making. The decisions in which a group of members
are as follows,
or managers and associates consult with the other
group members are called as group decisions. These (a) Departmental Decisions
decisions are taken after reviewing the advantages
The decisions which are taken by the head of the
and limitations of each alternative proposed by all the
members. All the group members collectively resolve department or chief of the department are called as
the problem. Strategic decisions are a type of group departmental decisions. These decisions are mostly
decisions which are taken by a group of managers based on the past performance and the opinions of
from each department and board of directors. the people in the department.
4. Classification Based on their Importance Example
The decisions are classified into two types based on Decisions relating to the development of the
their importance in the organization activities. They are as department etc.
follows,
(b) Inter Departmental Decisions
(a) Major Decisions
The decisions which are strategic in nature and are The decisions which are taken by the heads of
related to the significant aspects of organization like two separate departments or the chiefs of all the
construction of building for production, processing departments of the organization are called as
of products, business expansion are called as major interdepartmental decisions. In some cases, instead
decisions. These decisions require huge amount of of the chief of the departments a group of senior
money for implementation and are very specific managers of the department or general managers takes
decisions. the related decisions.
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UNIT-1 Introduction to Operations Research 1.9
7. Classification Based on the Decision-making 2. Wider scope
Model Decision-making function has a wider scope. All
The decisions are classified into two types based on management level employees are involved in decision-
the decision-making model. making function and it covers each and every part of the
(a) Rational Decisions organization. Decision making is all about what manager’s
do. Decision and actions are the final outcomes of activities
The rational decision maker makes effective, undertaken by manager in his/her job.
consistent and profit maximizing decisions within
specified limits. Rational decisions are taken by 3. Dedication of Time, Efforts and Money
following the rational decision making model/process Decision-making is the dedication of time, efforts and
which includes the following six steps, money. The dedication may be for a short-term period or a
(i) Identifying and defining the problem. long-term period which varies based on the type of decision
that is strategic, operational or tactical decision. After taking
(ii) Specifying the criteria. the decision, the organization starts moving towards the
(iii) Assigning weights to the selected criteria. attainment of the set goals.
(iv) Generating alternatives. 4. Important Part of Planning
(v) Evaluating alternatives. Decision-making is an important part of planning.
(vi) Choosing the best alternative. The salient features of planning and decision making match
one another. Some of the common features of planning and
Some of the assumptions of rational decision-making decision-making are,
model are,
v Both planning and decision making are intellectual
(i) The decision maker must posses complete process.
information.
v Both planning and decision making are situational in
(ii) The decision maker should have the capability nature.
to identify the alternatives without any bias.
v Both involve selecting the most feasible alternative
(iii) The decision maker should have the capability from the set of alternatives.
to select the best alternative from the identified
alternatives. v Both intends to attain the desired objectives.
Generally, people do not follow the process of rational v Both are dependent upon the estimations and
decision-making model because they focus more on assumptions regarding future risks and uncertainties.
finding reasonable solution rather than optimal solution. 5. Continuous Process
(b) Bounded Rational Decisions Decision-making is not a one time activity. It is a
Bounded rational decision are also known as ‘Bounded continuous process. Decision making is a continuous activity
rationality’. It is a kind of perception associated with of manager.
decision-making, wherein rationality of individuals is 6. Alternatives and Choice
limited due to the coincised information and the time Searching for opportunities and selecting the most
within which they have to make decisions. Bounded feasible alternative from the set of alternatives are the two
rationality considers rationality as optimization. activities involved in arriving at a decision. Choosing the best
Thus, in bounded rationality the decision maker is a alternative solution a problem results in decision- making.
satisfier, who seeks for a satisfactory solution rather
than optimal solution. 7. Dynamic Process
Q10. What are the important characteristics of Decision making is a dynamic process in which
decision making? inputs are used to the maximum extent to find solution to
the problems and the outputs having high usage value are
Answer : generated. In other words, decision-making is the process
Some of the important characteristic feature of of finding out the most efficient things to be carried out in a
decision-making are, dynamic environment.
1. Object-Oriented Process 8. Social and Human Process
Decision-making is an objective-oriented process. Decision making is a social and human process as
Generally, managers take decisions with the intention to it includes intellectual capabilities, judgemental skills and
achieve some objectives. The objective may be to reach the intuition. Both social and human factors are taken into
desired state from the existing state of affairs. consideration while making a decision.
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1.10 Quantitative analysis for business decisions
9. Analytical and Intellectual Process It is not mandatory that all the six steps have to be
carried out in the above mentioned sequence. At times, the
Decision making is not only an intellectual process
decision maker may require to go back to the previous step
but also an analytical process. Decision making process
rather than going to the next step. This is usually done when
involves the analysis of both known and unknown aspects.
the decision maker wants to make changes in the previous
The knowledge required to carry out analytical process can
steps.
be acquired by learning. Apart from this, the decision maker
should have intelligence to take an effective decision. A Following all the steps in the decision making model
decision refers to a judgement, a solution to a problem and may not ensure a good decision but will enhance the chances
a commitment of time, effort and money in an uncertain, of success in problem solving and decision making.
irrational and complicated environment.
Step 1: Classify and Define the Problem or
Q11. Examine in detail the various steps involved in Opportunity
decision making process.
Defining a problem is the first step in the process
Answer : Model Paper-II, Q2(b) of problem solving. Collecting information processing
The decision-making model (or the decision making the information and careful consideration of the collected
process) involves six steps. These six steps have to be carried information are the activities to be undertaken in this step.
out by a decision maker in order to arrive at a decision. The problem has to be defined clearly and correctly
The following figure depicts the six steps in the because the solution to a problem relys upon how effectively
decision-making model. the problem was defined in the initial stage.
A problem could be of many types, but in simple terms
Classify and Define
Defin the Problem it can be stated as “the difference between what is and what
or Opportunity should be”. A manager should try to define the problem as
clearly as possible because a well-defined problem is halfway
solved. The efficiency of the decision making process and
quality of decision highly depends upon how clearly the
problem was defined.
Set Objective and Criteria
Generally, defining a problem is quite difficult is
majority of the cases because the actual problem may be
different from the appearing problem. Thus, the situation
of the problem has to be defined and described in terms of
its importance, scope, symptoms, causes etc.
Generate Creative and Innovative
Step 2: Set Objectives and Criteria
Alternatives
In order to ensure good decision making, clear
objectives must be set for the organization. These objectives
assist the managers in making good decisions. Objectives
give the description of what the decisions is supposed to do
Analyze Alternatives and Select the i.e., whether they have to resolve a problem or they have to
most Feasible Alternative grab an opportunity.
Step 3: Generate Creative and Innovative
Alternatives
The process of implementing the new ideas is called
Plan and Implement the Decision as innovation. The innovation is a sequential process
which basically deals with identifying problem generating
ideas for solving the problems following the best ideas to
complete and generate value from these ideas. The process
of innovation always includes the generation of ideas and
implementation of them.
Control the Decision Creativity in the organizational decision-making is the
most significant feature of employees and process. It is often
regarded as a mental process and is related with developing
Figure: The Decision-making Model a new product or problem solving. It is not possible for a
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 UNIT-1 Introduction to Operations Research 1.11
company to create a unique image and gain competitive Step 6: Control the Decision
advantage, if it cannot effectively differentiate its functioning
style and nature of product offerings. A product has a broad Controlling is the last step in the decision-making
scope and can either be tangible or intangible. Creative process. At the time of planning, control methods are
thinking and linear thinking are different from each other developed to determine the decision outcomes. Some check
as linear thinking is convergent thinking which basically points have to be set during the implementation process to
emphasizes on solution, while creative thinking is divergent find out whether the selected alternative is capable of solving
or different. Hence, creative thinking is also known as ‘out- the problem or not. It the alternative chosen is failing in
of-the box thinking’ or ‘right-brain thinking’. solving the problem then the decision maker has to go back
Step 4: Analyze Alternatives and Select the most to the previous steps to make necessary corrections in the
Feasible Alternative selection stage (selection of best alternative stage).
Analyzing/evaluating the alternatives and selecting the 1.2.1 Role of Problem Solving and
most feasible alternatives is the fourth step in the decision-
Decision Making in OR
making model. At the time of evaluating alternatives, each
alternative has to be compared with the objectives and Q12. Discuss the various phases in solving an
criteria set in step-2 of the decision-making process. Apart OR problem. Explain the role of Operations
from this, alternatives need to be compared with one another Research in decision making.
to identify the most feasible alternative. While evaluating
alternatives, the decision maker should try to estimate the (Model Paper-I, Q2(a) | Feb./March-16, Q2)
possible results from each alternative.
OR
It is essential for a decision-maker to select the best
alternative from the list of alternatives. The decision maker Discuss the main phases of operations research
requires to compare the results of various alternatives and study. Aug.-17, Q3(a)
select the one which yield maximum benefits. Selecting the
(Refer Only Topic: Phases in Solving OR Problem)
best alternative from available alternatives is not so simple
as it seems to be. Usually, it give rise to same complications. OR
The reputation of the decision maker may be at risk. As
decision maker is the one who has to face criticism against Explain how and why OR methods have been
his wrong decision (so this fear stops the manager from valuable in aiding executive decision.
making any decision) Sometimes, the fear of risk prevents
(Refer Only Topic: Role of OR in Decision Making)
him from taking correct decision. Thus, the capability to
select the best alternative from the available alternatives Answer : Aug./Sept.-15, Q3(b)
differentiate the successful managers from unsuccessful or
less successful managers. Phases in Solving OR Problem

Step 5: Plan and Implement the Decision Phases or Steps involved in solving OR problem are,
In decision-making model planning and implementing 1. Defining the Problem and Gathering Data
the decision (step-5) and controlling (step-6) plays an
active role in execution of decision. After taking decision A thorough study of the business system is carried
the manager develops an action plan with a schedule to out to enable the development of a well-defined statement
implement it. of the problem. The development includes determining
A ‘plan’ is defined as a specific action which is the appropriate objectives, constraints, interrelationships,
proposed to help the organization to achieve its objectives. possible alternative courses of action and so on.
In an organization, it is very essential for the managers to 2. Formulating a Mathematical Model
develop the organizational plan. In other words, “planning is
deciding in the present what to do in future. It is the process After the decision making problem is defined, the
whereby companies reconcile their resources with their next phase is to reformulate this problem in a form that
objectives and opportunities”. is convenient for analysis. The usual way adopted in OR
After developing the action plan, that plan must approach is to construct a mathematical model that represents
be implemented. The manager must identify and remove the essence of the problem. Mathematical models are defined
the constraint if any in the way of implementation. The as idealized representation in terms of mathematical symbols
implementation of action plan needs the active support of the and expressions. A typical OR model consist of decision
organization and employees at all levels of the organization. variables, objective function, constraints and parameters.
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1.12 Quantitative analysis for business decisions
3. Deriving Solutions from the Model Q13. What is the importance of managerial decision
The next step is to develop a procedure for deriving making? Explain the techniques of managerial
solutions to the problem from the model. This is done with decision making.
the help of algorithms or readily available software. The Answer :
procedures are developed with an aim of arriving at the Importance of Managerial Decision Making
optimal solution with respect to the model being used. Also
post optimality analysis is done to answer questions about 1. The process of decision making is very crucial for
change in optimality due to change in assumptions. other principles of management such as planning,
organizing, controlling etc.
4. Testing the Model
2. Decision making allows for the selection of best
The model developed should be tested to identify and alternative solution to a problem, which ultimately
correct flaws. This is important because of the difficulty in benefits the enterprise.
communicating and understanding all the aspects of a complex
problem. The process of testing and improving a model to 3. The decisions taken by the higher authorities are
increase its validity is commonly known as model validation. A crucial and help to generate maximum returns on the
systematic approach to testing the model is to use a retrospective company’s assets.
test. This test involves using historical data to reconstruct the 4. As certain decisions are taken at the low-level
past and then test how well the model performs. management also, this decreases the burden of
5. Preparing to Apply the Model higher officials who can direct their attention towards
achieving the desired goals of the company.
A well documented system is needed for applying the
model. This system encompasses the model, the solution Decision-Making Techniques
procedure, post optimality analysis and operating procedures The different techniques of decision making are,
of implementation which enables the model and system to 1. Deterministic Models
be independent of personnel changes.
These models are useful when the manager has
6. Implementation of the Model reliable data. It facilitates the manager to solve revenue
The last phase of an OR study is to implement this related problems, when he has an exact idea regarding what
system as prescribed. It is vital for the OR team to participate revenues are for a particular year.
in launching this phase. This ensures that model solutions are The deterministic models include the following,
correctly translated to an operating procedures. In addition,
it helps to rectify any flaws in the solutions which are left (a) Linear programming
uncovered. (b) Break-even analysis
Role of OR in Decision Making (c) Inventory management
The following points highlights the role of OR in (d) Capital budgeting.
decision making, 2. Probabilistic Models
1. OR is a decision science that assists the management Unlike deterministic model, probabilistic models
in making appropriate decisions. don’t require any exact value in a problem. These are used
2. It provides the required tools to the management for to solve the problems that involve chance or random factors.
the improvement of different decisions. The probabilistic models are,
3. Today, managers use the OR techniques for different (a) Simulation
functional areas.
(b) Decision tree
4. It facilitates free-flow of communication.
(c) Expected value model.
5. It helps in recognizing the critical data elements and
3. Other Techniques
their role as model inputs.
The various other techniques for decision making are,
6. It identify the decisions that have an impact on the
organisational objectives. (a) Utility theory
7. It helps in identifying and clarifying constraints on (b) Heuristic problem solving
operations and decisions. (c) Waiting line theory
8. It examines the interaction among variables. (d) Information theory
9. It makes the organizational objectives clear. (e) Game models.
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UNIT-1 Introduction to Operations Research
1.13

1.2.2 Quantitative and Qualitative Quantitative

Analysis
Analysis
Q14. What do you mean by quantitative analysis Summary of Final
Decision Making
and qualitative analysis of decision making. Problem and Decision
Process
Evaluation
Explain.
Answer : Qualitative
Analysis
The analysis phase of decision making may consist
of two forms, such as quantitative analysis and qualitative
Figure: Relationship of Quantitative and Qualitative Analysis
analysis.
with Decision Making Process
Quantitative Analysis
Q15. Explain the nature, scope and significance of
Quantitative analysis refers to the scientific approach quantitative analysis.
of business decision making. The quantitative analysis is
also known as Operation Research (OR) and management Answer : Feb.-17, Q3
science in modern business management. In this type of Operations Research (OR) is also known as
decision making analysis, analyst need to concentrate more quantitative analysis. The nature, scope and significance of
on quantitative factors and information associated with
OR or quantitatives analysis is discussed below.
the actual problem. Based on such information analyst is
required to develop a mathematical expression which may Nature of OR (Quantitative Analysis)
describes the constraints, objectives, goals and other factors
For answer refer Unit-I, Page No. 1.2, Q.No. 1, Topic:
or relationship exist in the problem. For this purpose, analyst
Nature of Operations Research.
need any one or more quantitative analysis technique (Model
or approach) for finding out solution to the problem. Scope and Significance of OR (Quantitative
The following are some of the major quantitative Analysis)
techniques or models which are used in Operations Research
For answer refer Unit-I, Page No. 1.3, Q.No. 3.
(OR) or quantitative analysis, in various fields of business,
1. Allocation models (Distribution models) 1.3 Defining a model, types of
2. Waiting line models (Queueing) model
3. Game theory (Competitive strategy models)
Q16. Give a brief account of the methods used in
4. Inventory models (Production) model formulation. Aug./Sept.-15, Q3(a)
5. Replacement models
OR
6. Job sequencing models
How can operations research models be
7. Network models
classified? Which is the best classification
8. Simulation models in terms of learning and understanding the
9. Markovian models. fundamentals of operations research?
Qualitative Analysis March-15, Q3
Qualitative analysis refers to the analysis of problems OR
based on the judgement experience of a person or manager.
This type of analysis is usefull incase of problems where Define a model. Explain how models used in
the manager had some previous experience for solving such OR can be classified according to various
characteristics. Sept.-14, Q3
problems. If manager does not have any past experience then,
qualitative analysis will be preferred. OR
Relationship of Quantitative and Qualitative Define model. Classify and explain them briefly.
Analysis with Decision Making Process Answer : (Model Paper-II, Q3 | Sept./Oct.-13, Q1(a))
The quantitative and qualitative analysis are directly
related with the process of business dicision making. Operations Research (OR) Model
Because, business manager may either use quantitative or Operations Research (OR) model is a simple
qualitative analysis for making decisions related to any kind representation of a real-world phenomena which provides
of business problem. The relationship between quantitative framework for solving complicated problems. Modelling
and qualitative analysis with decision making process is is a technique which helps the firms in identifying the best
shown in the following figure, alternative with minimum cost from the group of alternatives.
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1.14 Quantitative analysis for business decisions
Classification of Models/Types of Models 4. Classification Based on Solution Methodology
1. Classification Based on Structure (a) Analytical Models
(a) Physical Models (Iconic) These models possess particular mathematical
It is a physical, visual or pictorial representation structure and they can be solved using certain
of various aspects of a system. It represents a mathematical techniques.
static event. Example: Assignment problem and inventory
Example: Photograph, globe, toy and helicopter. models.
(b) Analogue Models (b) Simulative Models
It represents a system or an object of the inquiry These are upgraded versions of mathematical
drawn by utilising a set of properties different models and can be solved with the help of
from that of original system. computers for complex problems.
Examples: Graph, map and chart. Example: Monte Carlo simulation.
2. Classification Based on Abstraction
(c) Heuristic Models
(a) Language Models
Such models work on ‘rule of thumb’ concept
Language model is the representation of system and may not give optimal solution. Heuristic
in verbal or written form using certain language. models provide solutions quickly even for large
Examples: Letter and speech. size problems.

(b) Mathematical Models 5. Classification Based on Time Concept

It is a model which employs numerical functions (a) Static Models
and formulae to represent the variables and their
The effect of time is ignored in these models as
relationships with the system.
the solution is required for a given time period.
Examples: Product mix problem, EOQ equation
in inventory model. Example: Queuing theory.

(c) Symbolic Models (b) Dynamic Models

The model which uses a set of symbols to Unlike static models, these models consider time
describe the system and its behaviour is called as an important factor and take into account the
as symbolic model. changes imposed by time.
Example: Flow process chart. Example: Dynamic programming problems.
3. Classification Based on Function 6. Classification Based on State of Nature
(a) Descriptive Models (a) Deterministic Models
As the name suggests, descriptive models
The outcomes are known with certainty in
describe and explain facts and relationships
deterministic models. Thus, for any given set
among the variables of the problem or system.
of inputs, the same outputs are obtained.
Examples: Observation, survey and
questionnaire. Example: Linear programming problem.

(b) Prescriptive Models (Normative) (b) Probabilistic Models

In these models, optimal solutions are obtained There is an element of risk or uncertainty in
on the basis of the criteria or decision rule with real life situation and this element is taken into
constraints on resources. consideration in probabilistic models.
Example: Transportation problem and Linear Examples: Game theory, forecasting models and
programming problem. PERT.
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UNIT-1 Introduction to Operations Research
1.15

1.3.1 Process for Developing an Step 3: Integration of Components

Operations Research Model Now, the components are integrated. Example: It is
convenient to combine purchase price, receiving cost of
Q17. Outline the general principles used in model
material and freight costs and this integration is called as
building within the context of OR. Briefly
‘raw material acquisition cost’.
explain the scientific method in OR.
The next step is to find whether the value of
(Model Paper-I, Q2(b) | Sept.-14, Q2) components on the modified list are fixed or variable. In
OR case of variable component, it is essential to determine the
factors affecting the component value.
What is scientific decision making process?
Step 4: Substituting Symbols
(Refer Only Topic: Phases of Scientific Method in OR) When the variable component in the modified list is
Answer : Feb./March-16, Q8(a) broken down into sub-components, symbols are assigned to
each sub-component.
Process for Developing an OR Model
Phases of Scientific Method in OR
Formulation of the problem is the first stage in the Operations research is a scientific method of
construction of a model. It involves the analysis of the system approaching a decision making model. This method consists
which is under study. The next stage in model construction of three phases,
is to define a measure of effectiveness. In this stage, a model
(i) Judgement phase
is constructed wherein the effectiveness of the system is
indicated as a function of the variables that defines the (ii) Research phase and
system. (iii) Action phase.
The general form of OR model is, (i) Judgement Phase
The activities undertaken in this phase are
E = f ( xi , y j ) determination of the operation, setting of objectives and

values related to the operation, determination of the suitable
Where, measures of effectiveness and formulation of the problems
related to the objectives.
E = Effectiveness of the system.
(ii) Research Phase
xi = The controllable variables of the system
The activities involved in this phase are data collection,
yj = The uncontrollable variables of the system. formulation of hypothesis and models, observation and
experimentation, analysis and prediction of various results
(These variables can affect E)
from the hypothesis, generalization of the various results.
In order to derive a solution from the model (iii) Action Phase
determination of values of control variables xi is required. For
It deals with making recommendations for the
these variables, the measure of effectiveness is optimized.
decision process, influencing the operation in which the
Optimization involves maximization (when there are profits
problem occurred.
and production capacity etc.,) and minimization (when there
are losses and cost of production). Q18. For most product (except essential commodities),
higher prices result in decreased demand and
The different steps involved in the model construction vice versa. Let,
are as follows,
d = Annual demand for a product in units
Step 1: Selection of Various System Components p = Price per unit
The components of the system which leads to Assuming that a firm estimates the following
effectiveness of the system should be listed out in this step. price - demand relationship:
d = 800 – 10 p, where p must be between ` 20
Step 2: Suitability of the Components
and ` 70.
After preparing a list of components, it is necessary Show the mathematical model for the total
to determine whether these components are to be considered revenue, which is the annual demand multiplied
or not. To do this, the effect of alternative actions on these by the unit price. How many units the firm can
components are determined. The components which sell at ` 30 per unit price? If the price options are
are independent of the changes (such as fixed costs) are ` 35, ` 40 and ` 45 per unit only, at what price the
temporarily ignored. total revenue will be maximum?
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1.16 Quantitative analysis for business decisions
Answer : Aug./Sept.-16, Q3

Determination of Mathematical Model

Total Revenue = Demand × Price or TR = dp
= (800 – 10p) p
= 800 p – 10 p2
\ Mathematical model is 800p – 10 p2
Calculation of Units to be sold at price ` 30 per unit
= 800 – 10 p
= 800 – 10 (30)
= 800 – 300
= 500
\ Number of units to be sold by firm at price ` 30 is 500 units
Calculation of maximum revenue at different prices us mathematical model.
At price ` 35,
= 800 (35) – 10 (35)2er
= 28,000 – 12,250
= 15,750
At price ` 45,
= 800 (45) – 10 (45)2
= 36,000 – 20,250
= 15,750
At price ` 40,
= 800 (40) – 10 (40)2
= 32,000 – 16,000
= 16,000
\ Total Revenue is maximized at price ` 40.

1.3.2 Practices, Opportunities and Shortcomings of Using an OR Model

Q19. Discuss various models of operational research in practice.
OR
What are the various types of models that may be used in any decision making process?
(Model Paper-I, Q3 | Aug./Sept.-16, Q2)

OR
Write a note on application of various quantitative techniques in different fields of business decision
making.
Answer : Aug.-17, Q2

Some of the operations research models applied in business decisions are as follows,
1. Allocation Models (Distribution Models)
These models are concerned with the allocation of available resources, so as to maximize profit or minimize loss or
(cost) subject to known and /or predicted restriction. Methods for solving allocation models are,
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 UNIT-1 Introduction to Operations Research 1.17
(a) Linear Programming Problems (LPP)
Linear programming problem is defined as a method which is adopted to optimize an objective function which is
subjected to set of constraints. It is named linear programming since objective function and set of constraints are
linear equations.
To solve an LPP some basic requirements must be fullfilled. They are,
(i) Objective function availability
(ii) Set of constraints
(iii) Both objective function and constraints must be linear functions.
(b) Transportation Problems
Transportation Problem (TP) is a special case of LPP in which goods or products are transferred from sources to
destination for minimizing the total cost of transportation. An Initial Basic Feasible Solution (IBFS) can be calculated
for TP by using North West Corner Rule, row and column minimum methods, matrix minimum method and VAM.
After obtaining IBFS, optimal solution is calculated for TP. The two methods available for obtaining optimal solution
are, stepping stone method and MODI method. Unbalanced TP and degeneracy are the special cases in transportation
problem.
(c) Assignment Problems
Assignment problem is a special case of transportation problem in which the objective is to assign number of tasks
(jobs, origins and sources) to an equal number of facilities (machines, persons or destinations) at a minimum cost
(or maximum profit). Hungarian method is an important method used for solving assignment problem. Assignment
problem can be classified into two types – Maximization case and minimization case. In maximization case the
objective function is maximization of profit, revenue, returns etc. In minimization case, objective function is to
minimize the cost.
2. Waiting Line Models (Queueing)
This model is an attempt made to predict,
(a) How much average time will be spent by the customer in a queue?
(b) What will be an average length of the queue?
(c) What will be the utilization factor of a queue system? etc.
This model tries to minimize the sum of costs of providing service and cost of obtaining service or costs associated
with the value of time spent by the customer in a queue.
3. Game Theory (Competitive Strategy Models)
These models are used to determine the behaviour of decision-making under competition or conflict. Methods for
solving such models have not been found suitable for industrial applications because they are referred to as idealistic world
neglecting many essential features of reality.
4. Inventory Models (Production)
These models are concerned with the determination of the optimal (economic) order scientific advancement or
determination due to wear and tear, accidents etc., individual and group replacement policies can be used in case of
equipments that fail completely and instantaneously (electric bulbs, decorative items etc).
5. Replacement Models
These models are used in situations where the decision has to be taken regarding the replacement of equipments.
The time of replacement is the crucial decision as the objective is to minimize the total cost of investments in new machine
and operating costs of old machine. Normally, such problems arise when equipment fail completely, deteriorate over time
or become obsolete.
6. Job Sequencing Models
These models involve the selection of such a sequence of performing a series of jobs to be done on machines that
optimize the efficiency measure of performance of the system.
7. Network Models
These models are applicable in large projects involving complexities and interdependencies of activities. CPM (Critical
Part Method) and PERT (Project Evaluation and Review Technique) are used for planning, scheduling and controlling
activities of complex project which can be characterized as network diagram (Arrow diagram).
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1.18 Quantitative analysis for business decisions
8. Simulation Models
These models are used for solving when the number of variables and constrained relationships are very large.
9. Markovian Models
These models are applicable in such situations where the state of the system can be defined by some descriptive
measure of numerical value and where the system moves from one state to another on a probability basis.
Q20. Discuss the opportunities and shortcomings of the Operations Research approach.
Answer :
Quantitative methods are found to be significant in the improvement of managerial decision making. Some of the
opportunities and shortcomings of OR approach are as follows:
Opportunities of OR Approach
1. It allows the decision maker to accurately consider the variables that have impact on decisions.
2. It forces the decision maker to be clear about his/her assumptions, objectives and perspectives towards constraints.
3. It identify the gaps in the data needed to support workable solutions to a problem without consuming much time.
4. OR models can easily be solved using computers. So management gets sufficient time to make decisions that require
quantitative approach.
Shortcomings of OR Approach
Following are the limitations or shortcomings of Operations Research (OR) model,
1. The model cannot be considered as valid until and unless experiments are conducted on it.
2. Models are just idealised representation of reality. Thus, it must not be considered as perfect in any case.
3. The problems are solved either by simplifying assumptions or by making it simpler. Therefore, solution derived
have limitations.
4. All realistic problems cannot be solved by OR.
5. Many a times, the decision-maker does not have clear idea about the limitations of the models which he is using.
6. At times, models may fail to represent the real world situations wherein the decisions should be taken.
7. Lack of knowledge in decision maker regarding their own roles and responsibilities.
8. Not considering organizational issues at the time of developing decision model is one of the short coming of OR
approach.
Q21. What are the advantages and disadvantages of operational research models? Why is it necessary to
test models and how would you go about testing a model?
Answer : (Model Paper-III, Q3 |Feb./March-16, Q3)
Advantages
Following are the advantages of Operations Research (OR) model,
1. It gives a systematic and logical approach to the problem.
2. It gives the clear understanding of overall structure of the problem.
3. It allows to experiment and analyse the complex system without making any direct interference in the system
environment.
4. It assists in obtaining avenues for new research and enhancements in a system.
5. It gives clear picture of the scope and limitations of a problem.
Limitations
For answer refer Unit-I, Page No. 1.18, Q.No. 20, Topic: Shortcomings of OR Approach.
Testing the Model
The model developed should be tested to identify and correct flaws. This is important because of the difficulty in
communicating and understanding all the aspects of a complex problem. The process of testing and improving a model to increase
its validity is commonly known as model validation. A systematic approach to testing the model is to use a retrospective test.
This test involves using historical data to reconstruct the past and then test how well the model performs.
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UNIT-1 Introduction to Operations Research
1.19

Short Questions and answers

Q1. Define an OR model and state their advantages and limitations.
Answer : (Model Paper-I, Q1(a) | Feb.-17, Q1(a))

OR Model
Operations Research (OR) model is a simple representation of a real-world phenomena which provides framework
for solving complicated problems.
Advantages of OR Model
Following are the advantages of Operations Research (OR) model,
1. It gives a systematic and logical approach to the problem.
2. It gives the clear understanding of overall structure of the problem.
Limitations of OR Model
Following are the limitations or shortcomings of Operations Research (OR) model,
1. The model cannot be considered as valid until and unless experiments are conducted on it.
2. Models are just idealised representation of reality. Thus, it must not be considered as perfect in any case.
Q2. What are the basic steps in developing an Operations Research (OR) model? Explain with suitable
diagram/examples.
Answer : (Model Paper-II, Q1(c) | Aug./Sept.-16, Q1(a))

Steps Involved in Developing an Operations Research Model

The steps involved in developing an OR model are listed as, Selection of Various System Components, Suitability
of the Components, Integration of Components, Substituting Symbols.
Diagram of Steps Involved in Developing Operations Research Model

Step 1: Selection of Various System Components

Step 2: Suitability of the Components

Step 3: Integration of Components

Step 4: Substituting Symbols

Figure: Steps Involved in Developing an OR Model

Q3. Define operations research and explain the scientific method in OR.
Answer : March-15, Q1(a)

Operations Research
Operations research is a scientific method of providing executive departments with a quantitative basis for decisions
regarding the operations under their control.
– [Morse and Kimball]
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1.20 Quantitative analysis for business decisions
Scientific Method in OR
Operations research is a scientific method of approaching a decision making model. This method consists of three
phases. They are,
(i) Judgement Phase
The activities undertaken in this phase are determination of the operation, setting objectives and values related to the
operation, determination of the suitable measures of effectiveness and formulation of the problems related to objectives.
(ii) Research Phase
The activities involved in this phase are data collection, formulation of hypothesis and models, observation and
experimentation, analysis and prediction of various results from the hypothesis, generalization of the various results.
(iii) Action Phase
It deals with making recommendations for the decision process, influencing the operation in which the problem
occurred.
Q4. “Operations Research (OR) is a tool for decision support system”. Justify the statement.
Answer : Aug.-17, Q1(a)
Operations Research (OR) is considered as a important and crucial tool of decision making in business organizations.
It helps in making effective business decisions. It can be applied in every functional and managerial area of decision making
like production, marketing, finance etc. As such, it is also considered as a tool for Decision Support System (DSS).
Decision Support System (DSS) is an interactive computer-based information system which helps manager and
business professionals in making appropriate decisions. However, for making appropriate decisions, DSS analyses large
amount of data and information in a fast and sophisticated manner.
In the process of DSS, Operations Research (OR) plays a crucial role in collecting and sorting data from different
sources. With the help of OR techniques or models (L.P.P, inventory models, game theory, simulation etc). DSS is able to
support decision makers in finding solution to the problems which are rapidly changing and non-understandable. Addition
to this, by using OR, DSS can provide following type of decisions to an business organization,
1. Consequences related to various decision alternatives based on previous experience.
2. Comparative sales figure on weekly, monthy or yearly basis.
3. Inventory turnovers and so on.
Q5. Outline the management applications of Operations Research (OR) in any two functional areas of
management.
Answer : Sept.-14, Q1(a)
OR techniques can be successfully applied in the following areas,
1. Production and Facility Planning
In the area of production and facility planning, OR techniques are used for the following purposes,
(a) Allocation of resources and project scheduling.
(b) Preventive maintenance and maintenance policy.
(c) Selection, design and location of production plants, retail outlets and distribution centres.
(d) Finding out the size and number of items to be produced.
2. Marketing Management
In the area of marketing, OR techniques are applied for,
(a) Determining stock levels and demand forecasts.
(b) Deciding right time to launch a new product in the market.
(c) Selection of appropriate advertising media.
(d) Selection of product, timing and the competitive actions.
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UNIT-1 Introduction to Operations Research
1.21
Q6. Explain any four main characteristics of Operations Research (OR).

Answer : Aug./Sept.-15, Q1(a)

1. System (or Executive) Orientation

One of the important characteristics of Operations Research is that it considers any problem from its multidimensional
aspects as, a single activity may be having its impact on other activities of an organization. Thus, for the evaluation of
any decision, analysts must identify its interactions and impact on different dimensions of organization as a whole. After
determining the factors which affect the system, a mathematical model can be developed. A solution to this model which
is helpful in obtaining maximum profits is usually referred to as “optimal solution”.
2. Application of Scientific Method
Operations research makes use of scientific method for the analysis and for providing the solution to the existing
problem. Scientific research on operations research problems cannot be carried out in a laboratory under controlled conditions
without the interaction of outside world unlike other research studies of physics and chemistry.
3. Uncovering of New Problems
This characteristic feature of operations research conveys that the solution given by operation research analysts
may not be able to cover all the new problems but achieve the maximum benefits. All the new problems need to be solved
effectively but at the same time it is not compulsory to solve all the problems at a time. Research should be continued to
attain maximum benefits.
4. Improvement in the Quality of Decisions
Operation research by using scientific method is able to provide improved solutions to the problem. It does not mean
that it always gives the perfect solution. That is why it is rightly said by Thomas L. Saaty that, operations research is the art
of giving bad answers to the problems to which otherwise worse answers are given.
Q7. What are the various models of OR?

Answer :
Some of the operations research models are given below,
1. Allocation models (Distribution models)
2. Waiting line models (Queueing)
3. Game theory (Competitive strategy models)
4. Inventory models (Production)
5. Replacement models
6. Job sequencing models
7. Network models
8. Simulation models
9. Markovian models.
Q8. How are the advantages of OR study approach in business and management decision making classified?
Explain.

Answer : (Model Paper-III, Q1(e) | Feb./March-16, Q1(a))

The following points highlights the role of OR in decision making,

1. OR is a decision science that assists the management in making appropriate decisions.
2. It provides the required tools to the management for the improvement of different decisions.
3. Today, managers use the OR techniques for different functional areas.
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1.22 Quantitative analysis for business decisions
4. It facilitates free-flow of communication.
5. It helps in recognizing the critical data elements and their role as model inputs.
6. It identify the decisions that have an impact on the organisational objectives.
7. It helps in identifying and clarifying constraints on operations and decisions.
8. It examines the interaction among variables.
9. It makes the organizational objectives clear.
Q9. State the characteristic features of a good model.
Answer :
Some of the characteristic features of a good model are,
1. The model must have only few number of simplifying assumptions.
2. It must be simple and real. It should contain only few number of relevant variables.
3. It must be easy and cost-effective to construct.
4. It must analyse the changes in system environment without making any change in its framework.
5. It must be flexible to parametric type of treatment.

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UNIT-1 Introduction to Operations Research
1.23

Very Short Questions and answers (Internal Assessment)

Q1. Define Operations Research (OR).

Answer :
Operations research is a scientific method of providing executive departments with a quantitative basis for decisions
regarding the operations under their control.
– [Morse and Kimball]
Q2. List out the three phases of Scientific Methods of OR.

Answer :

Operations research is a scientific method of approaching a decision making model. This method consists of three
phases. They are,
(i) Judgement Phase
(ii) Research Phase
(iii) Action Phase.
Q3. Write how OR techniques can be applied in Marketing Management.

Answer :
In the area of marketing, OR techniques are applied for,
(a) Determining stock levels and demand forecasts.
(b) Deciding right time to launch a new product in the market.
Q4. Write any two merits of Operations Research.

Answer :
Following are the advantages of Operations Research (OR) model,
1. It gives a systematic and logical approach to the problem.
2. It gives the clear understanding of overall structure of the problem.
Q5. List out the phases of OR Problem.

Answer :
Phases or Steps involved in solving OR problem are,
1. Defining the problem and gathering data
2. Formulating a mathematical model
3. Deriving solutions from the model
4. Testing the model
5. Preparing to apply the model
6. Implementation of the model.
Q6. Define Operations Research Model.

Answer :
Operation Research (OR) model is a simple representation of a real-world phenomena which provides framework
for solving complicated problems.
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1.24 Quantitative analysis for business decisions
Q7. Write any two opportunities of Operations Reasearch.

Answer :

Some opportunities of operations research are,

1. It allows the decision maker to accurately consider the variables that have impact on decisions.

2. It identify the gaps in the data needed to support workable solutions to a problem without consuming much time.

Q8. List out two shortcomings of Operations Research.

Answer :

Following are some of the shortcomings of operations research,

1. All realistic problems cannot be solved by OR.

2. Many a times, the decision-maker does not have clear idea about the limitations of the models which he is using.

Q9. What do you mean by Problem Solving?

Answer :

Problem solving is a process under which the management take corrective actions to solve a problem and there by
meet organizational goals.

Q10. What is Decision Making?

Answer :

Decision making is “a process of identification and selection of an action from a number of alternative courses of
action for resolving a problem in the organization”.

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