Operation Research

UNIT -I
Operation Research

Since the advent of industrial revolution, the world has seen a remarkable growth in the size &
complexity of the organizations. It was a long journey, since the artisan‟s small shops of an
earlier era have evolved into the thousand crores Corporations of today. An integral part of this
revolutionary change has been a tremendous increase in the division of labor & segmentation
of management responsibilities in these organizations.

There is a tendency for the many components of the organization to grow into relatively
autonomous empires with their own goals & value systems, thereby losing sight of how their
activities & objectives mesh with those of the overall organization. What is best for one
component may be detrimental to another, so the components may end up working at cross
purposes. As the complexity & specialization in an organization increases, it becomes more &
more difficult to allocate the available resources to the various activities in a way which is most
effective for the organization as a whole. These kinds of problems & the need to find a better
way to solve them provided the environment for the emergence of operations research, which
is commonly referred as OR.

Early attempts were made to use a scientific approach in the management of organization. The
beginning of the activity called „operation research‟ has generally been attributed to the
military services, early in World War II. During the war, there was an urgent need to allocate
scarce resources to the various military operations in an effective manner.

The British & the US military management called upon a large number of scientists to apply a
scientific approach to deal with this & other strategic & tactical problems. These teams of
scientist were the first O.R. teams. By developing effective methods of using the new tools of
radar etc., these teams were instrumental in the Air Battle of Britain & also the Battle of north
Atlantic & the Island campaign in the Pacific.

After the end of the war, the success of Operation Research, i.e., O.R. in the war effort, spurred
interest is applying or outside the military as well. In the post-war period, there was an
industrial boom & the problem caused by the increasing complexity & specialization in
organizations were again coming to the forefront.

The consultant who had served with the O.R. teams during the war realized that they were
basically the same problems that had been faced by the military, although in a different context.

By the early 1950s, these individuals introduced the use of O.R. to a variety of organizations in
business, industry & government. Thus, there was a rapid spread of O.R. after the war, many of
the scientists who had participated on OR teams & other interested people were motivate to
pursue research relevant to the field. Important advancements in the state of the art were
published. Many of the standard tools of O.R. such as Linear Programming, Dynamic
Programming, Queuing Theory, Inventory Theory, were relatively before the end of the 1950s.

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A large computation is usually required to deal most effectively the complex problems
considered by O.R. Doing this manually, i.e., by hand, is out of question. The development of
electronic computers was a tremendous boon to Operation Research. Operation Research was
known by a variety of names in the USA, such as „Operational Analysis‟, „Operation
Evaluation‟, „Systems Analysis‟, „Systems Evaluation‟, „System Research‟ & „Management
Science‟ also. In 1950, OR was introduced as a subject for academic study in American
Universities. The Operation Research Society was formed in 1950. In 1953, the Institute of
Management Sciences (IMS) was established. In other countries, also a number of similar
institutes were setup. In 1959, the International federation of OR Societies were established.
OR activities have spread to diverse fields such as Hospitals, Libraries, City planning,
Transportation System, Crime Investigation etc.

O.R. in India

Operation Research Techniques were utilised in India in 1949 at the Regional Research
Laboratory at Hyderabad. In 1953, at Calcutta, Professor Prasanta Chandra Mahalanobis,
established an O.R. unit in the Indian Statistical Institute to apply OR methods in National
planning & survey.

Operation Research Society of India was formed in 1957

Professor P.L. Mahalanobis, made the first important application of O.R. in India in preparing
the draft of the Second Five Year Plan. The draft Plan frame is still the most scientifically
formulated plan bearing programmes of massive economic development of India.

The first M.Sc. (Operation Research) was started by Delhi University in 1963. At the same
time IIM, Ahmedabad, introduced OR in MBA course.

Meaning of Operations Research

„Operation‟ means some action that may be applied to some problem. „Research‟ means an
organized process, seeking out facts about the same. „Operation Research‟ is the research of
operations. An operation may be called a set of acts required for the achievement of a desired
outcome. Such complex, inter-related acts can be performed by various types of systems, viz.,
(1) Man (2) machine (3) Man-Machine unit (4) Organisation of Men, machines & man-
machine units. The last type of system typifies with the operation research.

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Definition of Operation research

Thomas L. Satty

“OR is an act of giving bad answers to problems which otherwise have worse Answer.”
- i.e. a tool of improving the quality of answer to problems
Polock

“OR is scientific methodology, analytical, experimental quantitative technique by which

assessing the overall implication of various alternative course of action in management system
provide an improved basis of management decisions.”
- i.e. they both stressed on OR as applied science.

Morse and Kimball

A scientific method of providing executive department which the quantitative basis for
decision recording the operations under their control”
- i.e. he stressed the quantitative approach or OR.

OR society of America

“OR is devoted to observing, understanding and predicting the behavior to purposeful non-
machine system”.

H. N. Wagner

“OR is a scientific approach to problem solving for executive management”

OR as a science

Providing mathematical techniques and algorithms for solving appropriate decision problems.

OR as an art
“Depends Langley on the creativity and personal abilities of the decision making analysts ”

• OR is the application of the scientific methods, techniques & tools of problems involving
the operation of a system so as to provide those in control of the system with optimum
solutions to the problems.
• OR is applied decision theory. It uses any scientific, mathematical or logical means to
attempt to cope with the problems involving the operation of systems so as to provide those
in control of the operations with optimum solutions to the problems.
• OR is a scientific approach to problem solving for executive management.
• OR is a scientific method of providing executive departments with a quantitative basis for
decisions regarding the operation under their control.

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• OR is the application of modern methods of mathematical science to complex problems

involving management of large systems of man, machines, materials & money in industry,
business, government & defence. The distinctive approach is to develop a scientific model
of the system incorporating measurement of factors such as chance & risk to predict &
compare the outcomes alternative decisions, strategies of control.

Scope of Operation research

O.R. is a powerful tool & an analytical process that offers the presentation of an optimum
solution inspire of its few limitations.

i. O.R. is very useful to the top management for making decisions on optimum allocation
of various limited resources like men, machine, material, time, money, space etc.
ii. Usefulness of O.R. to the production-specialists.
OR is useful in designing, selecting & locating sites & deciding when to buy / produce
& how much to buy or produce, scheduling & sequencing the production sums,
distribution of the commodity satisfying the availability & demand constraints etc.
iii. Usefulness of OR in Marketing Decisions.
iv. Usefulness of OR in Financial Decisions.
v. Usefulness of OR in Personnel Decisions.

Characteristics of OR

i. OR uses mixed team approach to find out optimum solution.

ii. OR uses scientific methods to find out optimum solution.
iii. OR considers holistic approach i.e. OR takes into account all significant factors &
evaluates them as a whole.
iv. OR uses interdisciplinary team approach to find out the optimum return.
v. OR tries to optimise the total output by maximising the profit & minimising the loans
or cost.

Thus, OR is a system (or executive) orientation. OR uncover new problems. OR improves the
quality of decisions. OR provides quantitative solutions. OR considers the human factors.

Phases of Operation Research

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Judgment Phase consist of

i. Determination of operation.
ii. Establishment of the objectives & values related to the operation.
iii. Determination of the suitable measures of effectiveness &
iv. Formulation of the problems relative to the objectives.

Research Phase utilizes

i. Operation & Data collection.
ii. Formulation of Hypothesis & Model.
iii. Observation & experimentation to test the hypothesis.
iv. Analysis of the available information & verification of the hypothesis.
v. Predictions of various results from hypothesis.
vi. Generalisation of the various results & consideration of the various results &
consideration of alternative methods.

Action phase consists of making recommendations for the decision-process.

Alternatively the phases are -
i. Identification of the problem
ii. Formulating the problem
iii. Constructing a model
iv. Seek appropriate input data
v. Deriving the solution
vi. Testing the model & solution
vii. Establishing controls
viii. Implementations.

The phase of an OR study are not rigid rules & they may be often modified. However, there is
a considerable relationship between the various phases.

The Scope of Operation Research in Management

We know that operations research is a problem solving & decision-making science. OR is a kit
of scientific & programmable rules providing the management, a quantitative basis.

The areas of management where OR techniques have been successfully applied are :

Allocation & Distribution

i. Optimal allocation of limited resources such as man, machines, materials, time &
money.
ii. Location & size of warehouses, distribution centres, retail depots etc.
iii. Distribution policy.

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Production & Facility Planning Techniques

i. Selection, location & design of production plants.

ii. Project scheduling, allocation of Resources.
iii. Forecasting inventory items & computing Economic order quantities & recorder levels.
iv. Determinations of the No. & size of the items to be produced.
v. Maintenance policy.

vi. Scheduling & sequencing of production plans (by proper allocation of machines)

Procurement Techniques

i. What, how & when the purchase at the minimum procurement cost.

ii. Bidding & replacement policies.

Marketing Techniques

i. Product solution, timing & competitive actions.

ii. Selection of advertising media.
iii. Demand forecast & stock levels.
iv. Customer preference for colour/size & packaging of various products.

Finance Techniques

i. Capital Requirements, cash flow analysis.

ii. Credit policies, credit risks etc.
iii. Profit plan for the company.
iv. Determination of optimum replacement policies.

Personnel Techniques

i. Selection of personnel, determination of retirement age & skills.

ii. Recruitment policies & assignment of jobs.

Research & Development Techniques

i. Determination of areas for R&D.

ii. Reality & control of development projects.
iii. Selection of projects& preparation of budgets.

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 ►earcl

Models In Operations Research

In OR, a model is defined as an identified representation of the real life situation, i.e., a
representation of an actual object or situation. It shows the relationship (direct & indirect) &
the interrelationships of action & reaction in terms of cause & effect.

Since, a model is an abstraction of reality, it may appear to be less complex than reality itself.
To be complete, the model, must be representative of those aspects of reality, which are being
investigated.

MODELING PROCESS

FORMULATION
REAL SYSTEM MODEL

DEDUCTION
THE MODELING PROCESS

REAL INTERPRETATION MODEL

CONCLUSION CONCLUSION

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Classification scheme of models

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A Mathematical Model is a description of a system using mathematical concepts and

language. Mathematical models are usually composed of relationships and variables.
Relationships can be described by operators, such as algebraic operators, functions, differential
operators, etc. Variables are abstractions of system parameters of interest that can be quantified.

A Conceptual Model is a model made of the composition of concepts, that thus exists only in
the mind. Conceptual models are used to help us know, understand, or simulate the subject
matter they represent.

Iconic Model or Physical Model is a physical representation of some item either in an

idealised form or on a different scale. A photograph, cyclograph, a blueprint & a painting are
iconic models of persons or objects. A globe is an iconic model of the earth. A toy aeroplane is
an iconic model of a real aeroplane.

An iconic model is said to be scaled down when the dimensions of the model are smaller than
those of the real objects e.g., a globe representing the earth or a blueprint representing a floor of
a building. An iconic model represents a static event. Models of automobiles used in the study
of a parking problem need not have upholstery or motors.

Analogue or Schematic Models are similar to iconic models but not the exact replica of the
actual system. These are small physical systems having similar characteristics such as children
toys, model cars & rail lines etc. the aim is to visualise how the system should look like & how
routine procedures can be demonstrated such as building models.

An organisational chart is a common analogous model. It represents the relationship existing

between the various numbers of the organization. A man-machine chart is also a schematic
model. It represents a time varying interaction of men & machines over a complete work cycle.
A flow process chart is another schematic model which represents the order of occurrence of
various events to make a product. Contour lines on a map are analogue of the „flow‟ of
electricity through wires .Demand curves & frequency distribution curves used in statistics &
example of analogue models.

Symbolic Models are used to represent actual models. There are two types of symbolic models
:
(a) Verbal Models
When we represent the problem & parameter inter-relationships written or spoken in
words, these are called Verbal Models, e.g., a magazine, a book or an advertisement is a
verbal model.
(b) Mathematical Models
When we represent the problem & its parameters by a set of mathematical expressions,
these are called Mathematical Models. Though, these are abstract, but have finite &
precise manipulation possible under the laws of mathematics. Mathematical models can
be either deterministic or probabilistic models.

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Deterministic Models assume conditions of complete certainty & perfect knowledge. Linear
programming, transportation & assignment models are examples of deterministic models.

Probabilistic Models handle those situations in which the consequences or pay off of
managerial actions cannot be predicted with certainty. However, it is possible to forecast a
pattern of events, based on which managerial decisions can be made. They are semi-closed
models & represent the likelihood of occurrence of an event. They represents to an extent, the
complexity of the real world & the uncertainty prevailing in it.

E.g., insurance companies are willing to ensure against risk of fire, accidents, sickness & so on,
because the patterns or events have been compiled in the form of probability distributions.The
exponential smoothing model for forecasting demand is a probabilistic model.

General models ; Linear programming model is known as a general model since it can be used
for all the functions (viz. product mix, production scheduling, marketing etc.) of an
organisation.

Static Models are one time decision models. In these models, cause & effect occur almost
simultaneously & time-lag between the two is zero. They are easier to formulate, manipulate &
solve. Static models do not consider the impact of charges that takes place during the planning
horizon i.e., they are independent on time. In static model, only one decision is needed for the
duration of a given time period.

Dynamic Models are for situations in which time often plays an important role. They are used
for optimization of multistage decision problems which require a series of decisions with the
outcome of each depending upon the results of the previous decisions in the series.

Descriptive Model is a formal representation of a system that depicts certain system properties
of interest and which can be used for comparison purposes

Normative Model is a formal representation of a system that determines an optimal course of

action held as valid for everyone facing the given set of circumstances; thus, the norm

Predictive Model is a formal representation of a system that is capable of forecasting certain

aspects of the system's behavior. Many OR models have been developed & applied to problems
in business & industry. Some of the models are:
 Inventory models
 Allocation models
 Sequencing models
 Routing models
 Competitive models
 Queuing models
 Dynamic programming models
 Simulation techniques.
 Decision theory

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 Replacement models
 Heuristic models
 Goal programming
 Reliability theory
 Market analysis
 Combined methods.

Some of these are discussed below.

Dynamic Programming : These techniques deals with the problems that arise in connection
with multi-period analysis & decisions. In contrast to Linear Programming, there is no standard
mathematical formulation of dynamic programming, which is a general type of approach to
problem solving - & a particular equation used, must be developed to fit each individual
situation.

The basic approach used in Dynamic Programming is to break down into a series of problems in
such a way that the answer to the first sub-problem can be used in deriving the solution to the
next sub-problem & so forth finally giving solution to the whole problem.

Dynamic programming models are used to make a series of inter-related decisions for
multistage problems that extent over a number of time periods. The underlying principle of this
model is that regardless of what the previous decisions are, it tries to determine the optimum
decision for the period that still lie ahead. The dynamic programming approach divides the
problem into a number of sub-problem or stages. The decision made at each stage influences not
only the next stage but also every stage to the end of the problem.

Although, dynamic programming have been used to solve problems in which time plays an
essential role, yet in many dynamic problems, time is not a relevant variable.
E.g., A company has marked a certain capital to be spent on advertising its products through
newspaper, radio & T.V. In each of the three media, the advertisement can appear a number of
times per week. Each of the appearance is associated with it, certain costs & returns & the
problem to determine the number of times the product is to be advertised in each media, so that
the returns are maximised & the total cost is within the prescribed limits. Here, time is not a
variable, but the problem can be divided into stages & solved by dynamic programming.

Decision Theory : Decision making is an everyday process, often without the aid of paper &
pen, having a major role for the manager. A number of complex managerial decisions are made
with some uncertainty. Managers, generally, authorise capital investments with less than
complete knowledge about the product demand. Decision Theory plays an important role in
helping managers, better decisions under uncertain future conditions.
Decision theory covers 3 categories of decision making :
i. Decision making under certainty.
ii. Decision making under risk & conflicts.
iii. Decision making under uncertainty.

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The models formulated to solve a particular problem must be very simple, but capable of giving
desired result for the help of the decision maker. The quality of decision making depends on the
quality of input formation data & its logical application & analysis towards a given objective.
Thus, over simplification of the model, at the cost of its purpose should not be tried out.

1. Decision-Making under certainty : In this condition, only one state of nature exists i.e.,
there is complete certainty about the future. Very few business situations will ever fall
in this category.
2. Decision-Making under condition of risk : In this situation, more than one state of nature
exists but there is enough information available to assign probability to each of the
possible states.
3. Decision-Making under condition of uncertainty : In this situation, more than one state
of nature exists but there is no information about the various states. Not sufficient
knowledge to assign probabilities to them.

Markov Analysis : Analyses the current behaviour of a variable in order to predict the future
behaviour of the variable. This was first used by the Russian Mathematician. A Markov to
describe & predict the behaviour of gas-particles in a closed container.

As a management tool, the Markov analysis has been used in the last few years, mainly as a
marketing aid for examining & predicting the behaviour of consumers in terms of their brand
loyalty & their switching from one brand to another. This technique, can be most favourable
applied to marketing problems.
Advantage of Models

a) Models indicate the nature of measurable quantities in the problem.

b) Models provide logical & systematic approach.
c) Models help in understanding & economic explanation of the operations of the system.
d) Models help in finding the scope for new method for solving the problems.
e) Models help in taking care of changes in parameters without disturbing the actual
system on the operation.

Limitations of Operation Research

a) The Mathematical Models which are essence of OR, do not take into account,
qualitative factors or emotional factors which are quite real. All influencing factors
which cannot be quantified find no place in mathematical models.
b) The mathematical models are applicable to only specific categories of problems.
c) Enthusiasts, overtaken by its advantage & exactness, generally forget that OR is meant
for men & not that men are meant for OR.
d) Distance between manager and OR
e) Money and time costs
f) Implementation
g) Overlooked new problems, amusing, dulling, applying methods

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