8/9/2019 Unit-I-1-OR

1/28

8/9/2019 Unit-I-1-OR

2/28

OPERATIONS RESEARCH

UNITI

8/9/2019 Unit-I-1-OR

3/28

OR Defined

OR is a tool employed to increase the

effectiveness of managerial decisions as an

objective supplement to the subjective feeling

of the decision-maker.

8/9/2019 Unit-I-1-OR

4/28

OR: Some More Definitions

OR is the application of the scientific method

by interdisciplinary teams to problems

involving the (control of) organised systems so

as to provide solutions which best serve the

purpose of the organisation as a whole.

8/9/2019 Unit-I-1-OR

5/28

8/9/2019 Unit-I-1-OR

6/28

The application of scientific method.

This refers to applying science in the field of

management.

8/9/2019 Unit-I-1-OR

7/28

Byinterdisciplinaryteams.

We are aware that the science of management is thefocal point of many disciplines.

Since OR is the very science of management, in an ORteam, experts are drawn from all these disciplines.

An OR team may consist of an engineer, a

mathematician, a psychologist, an accountant, etc.,because all of these experts bring the differentanalytical tools from their respective disciplines andwe get the advantage of all the resources.

The advantage of drawing experts from each discipline

is that each expert will view the problem from hisangle and we will have many alternative solutions.

The OR scientist may then form an optimal solution bytaking into view all of them.

8/9/2019 Unit-I-1-OR

8/28

To problems involving the (control of)

organised systems so as to provide solutions

which best serve the purpose of the

organisation as a whole. The solution that the

OR scientist gives should be best suited fromthe point of view of the whole organisation

and not just a particular department.

8/9/2019 Unit-I-1-OR

9/28

Important characteristics of a scientific

method:

A keen sense of observation.

Identification of the problem.

Formulation of hypothesis. Verification of hypothesis.

8/9/2019 Unit-I-1-OR

10/28

A keen sense of observation.

A person gifted with a scientific temper has this

attribute in him.

A good manager should also have a keen sense of

observation. He should be alert and sensitive to the presence

of a problem.

8/9/2019 Unit-I-1-OR

11/28

Identification of the problem.

When something is wrong with the health of an

organisation, one has to find th enature of illness.

The problem has got to be identified and clearly

pinpointed by undertaking a thorough

investigation.

8/9/2019 Unit-I-1-OR

12/28

Formulation of hypothesis.

When the problem has been identified, ahypothesis (a tentative solution to the problem) isformulated.

In OR, hypothesis usually takes the form of a

model. A model is an abstraction or a description of the

situation.

There are many kinds of models we in OR shall

be concerned with the mathematical models. Different types of charts and graphs are also

examples of mathematical models.

8/9/2019 Unit-I-1-OR

13/28

Verification of hypothesis.

Once the hypothesis has been determined, it has

got to be tested or verified.

8/9/2019 Unit-I-1-OR

14/28

Mathematical Model

A mathematical model in OR is described in

terms of two important variables:

Parameters (uncontrollable variables). Decision (controllable variables).

We can take a decision regarding decision

variables only.

In LP these two variables describe a problem.

8/9/2019 Unit-I-1-OR

15/28

Mathematical Model

The contribution margin of different products

being manufactured is one example of

parameter, at least in the short term.

Another example of a parameter is the

magnitude of resources available.

8/9/2019 Unit-I-1-OR

16/28

Uses and Scope of OR

Profit maximisation.

Production management.

Financial management. Marketing.

Human resource management.

8/9/2019 Unit-I-1-OR

17/28

Profit maximisation. Under the existing

constraints, to utilise the resources in the best

possible way so as to maximise the profits.

Production management.

To calculate the optimum product mix.

For scheduling and sequencing production runs by

proper allocation of machines.

Application of the transportation model in order

to determine the optimum production schedule.

8/9/2019 Unit-I-1-OR

18/28

Financial management.

To decide the optimum mix of equity and debt.

Every capital has a cost, including owners capital,

which is opportunity cost.

This cost, as well as the risk on borrowed capitalhas to be minimised.

OR helps in doing this.

The financial manager not only mobilises funds,

he also has to utilise the funds.

OR assists him in doing so.

8/9/2019 Unit-I-1-OR

19/28

Marketing.

Sales can be promoted by improving quality or

reducing cost, intensive or extensive advertising.

OR assists in the optimal allocation of budget on

these different methods.

OR is also useful in the prediction of the market

share of a particular firm.

For this past experience is made use of.

The matrix of transition probabilities is used forthe purpose.

8/9/2019 Unit-I-1-OR

20/28

Human resource management. OR is useful to

the personnel administrator in finding out:

Skilled person at the minimum cost.

The number of persons to be maintained on the

full-time basis in a variable workload, like freighthandling, etc.

The optimum manner of sequencing personnel to

a variety of jobs.

8/9/2019 Unit-I-1-OR

21/28

Origin of OR

OR is a systematic and scientific method of

performing operations.

It has a military origin.

It came into being during World War II.

Was used to formulate appropriate strategies

to tackle military problems.

8/9/2019 Unit-I-1-OR

22/28

Origin of OR

Experts from different disciplines were

assembled to pool in their resources to find

the best possible solutions to problems at

hand.

After the War, the economies of many

countries lay shattered.

To rehabilitate them, OR was employed in

business and industry.

8/9/2019 Unit-I-1-OR

23/28

Application of OR in Managerial

Decision-Making OR provides managers with quantitative basis

for decision-making.

OR enhances the ability to make long-rangeplans.

OR aids in solving everyday problems of

running a business with greater efficiency,

competence and confidence.

OR leads to better control.

8/9/2019 Unit-I-1-OR

24/28

OR leads to better coordination.

Application of OR models results in better

decisions.

OR helps in evolving better systems.

OR helps in solving extremely complex

business problems, where it becomes difficult

for a human being to arrive at a solution.

8/9/2019 Unit-I-1-OR

25/28

OR helps in resolving conflicts resulting from

the various sub-divisions of the functional

areas like production , marketing, finance and

HR in an optimal, near optimal or satisfying

way. OR is a problem-solving and decision-making

science.

8/9/2019 Unit-I-1-OR

26/28

OR leads to:

Ease of manufacture.

Cost minimisation.

Maintenance of quality standards.

Product innovation.

High sales volume.

Increasing market share.

Better industrial relations.

Getting right person on right job.

Formulating optimal replacement policy.

8/9/2019 Unit-I-1-OR

27/28

OR helps to:

Ensuring liquidity.

Maximising profits.

Eliminating expenses not directly contributing to

profits. Minimising risk.

Maximising difference between cost and revenue.

Maximising long-term profits.

Secure an increasing trend in profits over time.

Ensuring corporate survival and growth.

8/9/2019 Unit-I-1-OR

28/28

OR helps in:

Cash management.

Inventory control.

Capital budgeting.