EXPERIMENT NO.

01

GRADE:
DATE OF PERFORMANCE:

DATE OF ASSESSMENT: SIGNATURE OF LECTURER/ TTA:

AIM: Study of Operational Research.

THEORY:
OPERATIONS RESEARCH, in the most general sense, can be characterized as the application of
scientific methods, techniques and tools, to problems involving the operations of a system so as to
provide those in control of the operations with optimum solutions to the problems.

FEATURES OF OPERATIONS RESEARCH APPROACH

OPERATIONS RESEARCH utilizes a planned approach following a scientific method and an

interdisciplinary team, in order to represent complex functional relationship as mathematical models, for
the purpose of providing a quantitative basis for decision-making and uncovering new problems for
quantitative analysis.

1. Interdisciplinary approach: For solving any managerial decision problem often an

interdisciplinary teamwork is essential. This is because while attempting to solve a complex
management problem, one person may not have the complete knowledge of all its aspects such as
economic, social, political, psychological, engineering, etc. Hence, a team of individuals
specializing in various functional areas of management should be organized so that each aspect of
the problem can be analyzed to arrive at a solution acceptable to all sections of the organization.

2. Scientific approach: Operations research is the application of scientific methods, techniques and
tools to problems involving the operations of systems so as to provide those in control of
operations with optimum solutions to the problems. The scientific method consists of observing
and defining the problem; formulating and testing the hypothesis; and analyzing the results of the
test. The data so obtained is then used to decide whether the hypothesis should be accepted or not.
If the hypothesis is accepted, the results should be implemented, otherwise not.

3. Holistic approach: While arriving at a decision, an operations research team examines the
relative importance of all conflicting and multiple objectives. It also examines the validity of
claims of various departments of the organization from the perspective of its implications to the
whole organization.

4. Objective-oriented approach: An operations research approach seeks to obtain an optimal

solution to the problem under analysis. For this, a measure of desirability (or effectiveness) is
defined, based on the objective(s) of the organization. A measure of desirability so defined is then
used to compare alternative courses of action with respect to their possible outcomes.

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OPERATIONS RESEARCH APPROACH TO PROBLEM SOLVING
The operations research approach to problem solving is based on three phases, namely (i) Judgement
Phase; (ii) Research Phase, and (iii) Action Phase.
1. Judgement phase This phase includes: (i) identification of the real-life problem, (ii) selection of
an appropriate objective and the values of various variables related to this objective, (iii)
application of the appropriate scale of measurement, i.e. deciding the measures of effectiveness
(desirability), and (iv) formulation of an appropriate model of the problem and the abstraction of
the essential information, so that a solution to the decision-maker’s goals can be obtained.

2. Research phase This phase is the largest and longest amongst all the phases. However, even
though the remaining two are not as long, they are also equally important as they provide the
basis for a scientific method. This phase utilizes: (i) observations and data collection for a better
understanding of the problem, (ii) formulation of hypothesis and model, (iii) observation and
experimentation to test the hypothesis on the basis of additional data, (iv) analysis of the available
information and verification of the hypothesis using pre-established measures of desirability, (v)
prediction of various results from the hypothesis, and (iv) generalization of the result and
consideration of alternative methods.

3. Action phase This phase consists of making recommendations for implementing the decision.
This decision is implemented by an individual who is in a position to implement results. This
individual must be aware of the environment in which the problem occurred, be aware of the
objective, of assumptions behind the problem and the required omissions of the model.

METHODOLOGY OF OPERATIONS RESEARCH

Every Operations Research specialist may have his/her own way of solving problems.

Step 1: Defining the problem: Problem definition involves the process of identifying, understanding, and
describing the problem being faced by an organization. It helps to define the objective(s) to be achieved,
and the alternative courses of action.
The procedure begins with gathering information (data) of the organizational structure, communication
and control system, objectives and expectations. Such information will help in assessing the difficulty
likely to be faced in terms of costs, time, resources, probability of success of the study, etc.

The major components involved in problem formulation are as under:

I. Decision-maker’s Point of View The first component of the problem formulation is to know the
point of view of the decision-maker who is not satisfied with the existing state of affairs. Such
interaction with the decision-maker will help to understand whether he has already obtained the
solution of the problem and wants to retain it, or wants to improve it to next level of satisfaction.
If the decision-maker has conflicting multiple objectives, he may be advised to rank his
objectives in order of preference; overlapping among several objectives may be eliminated.

II. Decision Environment It is desirable to know the details about resources (such as manpower,
material, money, etc.) that are required to attain objectives of the organization while keeping in
mind the social norms in which the organization need to function. Knowledge of such factors will
help in modifying the initial set of the decision-maker’s objectives.

III. Alternative Courses of Action If several courses of action are available for solution to a problem,
then an exhaustive list of such courses of action should be prepared. Courses of action that are not
feasible with respect to objectives and resources may be ruled out.

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IV. Measure of Effectiveness A measure of effectiveness (or performance) is required in order to
evaluate the merit of the several available courses of action. The effectiveness can be measured in
different units such as rupees (net profits), percentage (share of market desired) or time
dimension (service or waiting time).

Step 2: Formulating a mathematical model After the problem is clearly defined and understood, the
next step is to collect required data and then formulate a mathematical model. Model formulation requires
to define relationships among decision variables.

I. Controllable (Decision) Variables These are certain factors (or variables) associated with the
problem whose values are to be determined by solving the model. The possible values assigned to
these variables are called decision alternatives. For example, in queuing theory, the number of
service facilities is the decision variable.

II. Uncontrollable (Exogenous) Variables The values of these variables are not under the control of
the decision-maker and are also termed as state of nature.

III. Objective Function It represents the criterion of evaluating alternative courses of action in terms
of value of decision variables so as to optimize (minimized or maximized) the desired
performance.

IV. Policies and Constraints There are certain constraints (limitations) on the use of resources, and
such constraints arise due to organizational policy, legal restraints or limited resources such as
space, money, manpower, material, etc. The constraints on the use of resources are expressed
either in the form of equations or inequalities.

V. Functional Relationships In a decision problem, the decision variables in the objective function
and in the constraints are connected by a specific functional relationship. A general decision
problem model might take the following form:
Optimize (Max. or Min.) Z = f (x) subject to the constraints
gi (x) {≤, =, ≥} bi ; i = 1, 2, . . ., m
and x≥0
where, x = a vector of decision variables (x1, x2, . . ., xn)
f (x) = criterion or objective function to be optimized
gi (x) = the ith constraint
bi = fixed amount of the ith resource
A model is referred to as a linear model if all functional relationships among decision variables
x1, x2, . . ., xn in f (x) and g (x) are linear. But if one or more of the relationships are non-linear,
the model is said to be a non-linear model.
VI. Parameters These are constants in the functional relationships among decision variables.
Parameters can either be deterministic or probabilistic in nature. A deterministic parameter is one
whose value is assumed to occur with certainty. Otherwise, it is probabilistic.

Step 3: Solving the mathematical model Once a mathematical model of the problem has been
formulated, the next step is to obtain numerical values of decision variables. Obtaining these values
depends on the specific form or type of mathematical model. In general, the following two categories of
methods are used for solving an OR model.
(i) Analytical Methods These methods are applied to solve both constrained and unconstrained
mathematical models. In constrained problems, value of decision variables satisfies all the
constraints simultaneously and provide an optimal value for the objective function. However,

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 in unconstrained problems, value of decision variables provides an acceptable value for the
objective function.
(ii) Heuristic Methods (also referred as rules of thumb which work). These methods are used
when obtaining optimal solution is either very time consuming or the model is too complex.
A commonly used heuristic is ‘stand in the shortest line’.

Step 4: Validating the solution After solving the mathematical model, it is important to review the
solution to see whether value of variables make sense and that the resulting decisions can be
implemented.

(i) Mathematical model may not have considered all constraints present in study because few
constraints may either be omitted or incorrect.
(ii) Certain aspects of the problem may have been overlooked, omitted or simplified.
(iii) The data may have been incorrectly estimated or recorded.

Step 5: Implementing the solution Before implementing the solution, the decision-maker should ensure
to select alternatives that are capable of being implemented. Further, it is also important to ensure that any
solution implemented is continuously reviewed and updated in the light of a changing environment. In
any case, the decision-maker who is in the best position to implement solution (or result), must be aware
of the objective, assumption, omissions and limitations of the model

Step 6: Modifying the model For a mathematical model to be useful, the degree to which it actually
represents the system or problem being modelled must be established. If during validation the solution
cannot be implemented, then identify the constraint(s) that were omitted during the mathematical model
formulation or find out whether some of the original constraints were incorrect. In all such cases, return to
the problem formulation step and carefully make the appropriate modifications to represent the given
problem more accurately.

Step 7: Establishing controls over the solution The changes within the environment (society or business)
influence the continuing validity of models and their solutions. Thus, a control procedure needs to be
developed for detecting significant changes in decision variables of the problem, without having to build
a model every time a significant change occurs.

APPLICATIONS OF OPERATIONS RESEARCH

1. Finance and Accounting

Dividend policies, investment and portfolio
Break-even analysis, capital budgeting, management, auditing, balance sheet and cash
cost allocation and control, and financial flow analysis planning
Claim and complaint procedure, and public
Establishing costs for by-products and accounting developing standard cost
2. Marketing
Selection of product-mix, marketing and export planning
Sales effort allocation and assignment
Launching a new product at the best possible time
Advertising, media planning, selection and effective packing alternative
Predicting customer loyalty
3. Purchasing, Procurement and Exploration
Optimal buying and reordering with or without price quantity discount
Replacement policies
Bidding policies
Transportation planning

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 Vendor analysis

4. Production Management
Facilities planning: Location and size of warehouse or new plant distribution centers and
retail outlets, Logistics, layout and engineering design, Transportation, planning and
scheduling
Manufacturing: Aggregate production planning, assembly, line, blending, purchasing
and inventory control, Employment, training, layoffs and quality control, Allocating
R&D budgets most effectively
Maintenance and project scheduling: Maintenance policies and preventive maintenance,
Maintenance crew size and scheduling, Project scheduling and allocation of resource
5. Personnel Management: Manpower planning, wage/salary administration, Negotiation
in a bargaining situation, designing organization structures more effectively, scheduling
of training programmes to maximize skill development and retention.
6. Techniques and General Management: Decision support systems and MIS forecasting,
Making quality control more effective, Project management and strategic planning.
7. Government: Economic planning, natural resources, social planning and energy, Urban
and housing problems, Military, police, pollution control, etc.

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