Management Science Other Characteristics of Management

- Also referred to as operations research, Science

qualitative/quantitative methods, qualitative/ - A primary focus on managerial decision
quantitative analysis, and decision sciences. making
- Helps people make better decisions. - The application of science to decision-
- It is a scientific approach to solving making
management problems. - A dependence on electronic computers
- Encompasses a number of mathematically - An appraisal resting on criteria on economic
oriented techniques and a logical approach to effectiveness
problem solving.
- Can be used in a variety of organizations to Assignment - Assignment problems arise in
solve many different types of problems. business where someone has to assign
resources or assets (like people, vehicles,
Historical Development of Management aeroplanes) to specific tasks. We want to do
Science this to minimize the costs involved or to
Frederick Winslow Taylor - Father of maximize the return or profit we earn.
Scientific Management
Four Principles of Management Data mining - Data mining is concerned with
- Research sifting through large amounts of data and
- Standardization identifying and analyzing relevant
- Control information. Largely because of the
- Cooperation technology now available, many
George Dantzig - Developed SIMPLEX organizations are collecting large volumes of
Algorithm (an algorithm for solving linear data about sales, customers, spending
programming problems) patterns, lifestyles and the like.
* - Management scientists are constantly
developing new algorithms and improving Financial Decision Making
existing algorithms; these efforts also enable MS plays a considerable role in financial
management scientists to solve larger and decision making and the finance sector is a
more complex problems. major user of MS techniques. Areas where
MS is routinely used include:
Major Characteristics of Management Credit scoring – where an individual’s or an
Science organization’s ability to repay credit or loans
- Examine Functional Relationships is assessed quantitatively so that the lender
from a Systems Overview can assess the risks involved in the loan;
- Use the Interdisciplinary Approach capital and,
- Uncover New Problems for Study Investment budgeting – where an
- Use a Modeling-Process Approach organization must decide on the appropriate
to Problem Solving capital or investment projects it will fund;
Portfolio management – where a suitable
mix of investments must be determined.
Forecasting to examine network flows – how quickly and
It seems self-evident that business efficiently things flow, or move, through the
organizations need to undertake effective network.
forecasting of key business variables.
Forecasting future sales for a retail Optimization
organization; forecasting air traffic volumes Organizations are frequently looking for the
for a busy airport; forecasting demand for best, or optimal, solution to a decision
medical care at a new hospital. Getting such problem they have. How do we maximize
forecasts right typically involves analyzing profit from our sales? How do we minimize
the situation both quantitatively and production costs? What is the optimum size
qualitatively and a number of MS techniques for our workforce?
are usefully applied in forecasting situations.
Project Planning & Management
Logistics All organizations need to be able to plan and
Logistics management is typically concerned manage projects effectively. The project may
with managing an organization’s supply chain be relatively small involving few resources
efficiently and effectively. In an increasingly and capable of being completed fairly
global and competitive economy, good quickly. MS has developed techniques to
logistics management can make the difference allow for the efficient and effective planning
between business success and failure. MS is and management of projects.
routinely used to help organizations make
logistical decisions. Queuing
Queues are frustrating for those affected but
Marketing are also difficult to manage cost-effectively.
Managers frequently have to make decisions MS uses queuing theory to examine the
regarding their organization’s marketing impact of management decisions on queues.
strategy – the mixture of different
marketing media that will be used to Simulation
promote goods or services. The decision It’s not usual in business and management to
problem is that different media will incur be able to experiment before making a major
different costs and will reach different decision. It’s unlikely that we would in
audiences with varying degrees of practice be able to experiment and try
effectiveness. The problem for the manager is different solutions to see what happened. we
deciding what a suitable marketing strategy can experiment using computer modeling
looks like. known as simulation. Computer simulation
involves running virtual experiments so that
Networks the consequences of alternative decisions can
A network is typically defined as an be analyzed.
interconnected group or system of things. The
things might be roads or railways in terms of How does Management Science Relate to
a transportation network; or computers in a Accounting?
computer network; or telephones in a - It is a discipline whose application to
telecoms network. MS techniques are applied resolving business problems is of great
significance. situation. It can be in the form of a graph or
- Accounting provides financial information chart, but most frequently a management
that are useful in decision making. science model consists of a set of
mathematical relationships. These
Tools and Techniques in Management mathematical relationships are made up of
Science numbers and symbols.
- Cost and Volume Models
- Profit and Volume Models Example:
- Breakeven Analysis Consider a business firm that sells a product.
- Linear Programming The product costs ₱5 to produce and sells for
- Forecasting ₱20.
- Queuing Theory
A model that computes the total profit that
Scientific Method Approach will accrue from the items sold is:

Z = ₱20 x – 5 x

Note: “x” is a variable. A variable is a symbol

used to represent an item that can take on any
value.

In this equation x represents the number of

units of the product that are sold, and Z
represents the total profit that results from the
sale of the product. The symbols x and Z are
Observation variables.
The first step in the management science
process is the identification of a problem that The term variable is used because no set
exists in the system (organization). The numeric value has been specified for these
system must be continuously and closely items. The number of units sold, x , and the
observed so that problems can be identified as profit, Z , can be any amount (within limits);
soon as they occur or are anticipated. they can vary.

Definition of the Problem These two variables (x and z) can be further

Once it has been determined that a problem distinguished. Z is a dependent variable
exists, the problem must be clearly and because its value is dependent on the number
concisely defined. Improperly defining a of units sold; x is an independent variable
problem can easily result in no solution or an because the number of units sold is not
inappropriate solution. dependent on anything else (in this equation).

Model Construction
A management science model is an abstract
representation of an existing problem
The numbers $20 and $5 in the equation are
referred to as parameters. Parameters are
constant values that are generally coefficients
of the variables (symbols) in an equation.
Parameters usually remain constant during the
process of solving a specific problem.

Data are pieces of information from the

problem environment.

The equation as a whole is known as a

functional relationship (also called function
and relationship). The term is derived from
the fact that profit, Z , is a function of the
number of units sold, x , and the equation
relates profit to units sold.

Solution
Once models have been constructed in
management science, they are solved using
the management science techniques.

Implementation
Implementation is the actual use of the model
once it has been developed or the solution to
the problem the model was developed to
solve. This is a critical but often overlooked
step in the process.