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SHREE VEDHA COLLGE

COURSE MATERIAL
OPERATIONAL RESEARCH
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CHAPTER-1
Introduction to OR:-
Operations Research (OR) is a field of study that uses mathematical models and analytical
methods to help organizations make better decisions. It involves applying quantitative techniques
to complex problems in order to optimize outcomes.

Definition of OR:-
Operations Research-is the systematic application of quantitative methods, techniques and tools
to the analysis of problems involving the operation of system.

Daellenbach & George

Origin of Operation Research

Operations Research (OR) is a discipline that originated during World War II (1939-1945) when
military planners faced complex logistical and strategic problems that required systematic
analysis and decision-making. The need for systematic analysis, optimize resource allocation,
troop movements and supply chains in military operations led to the development of OR
techniques to improve military operations

The term "Operations Research was coined in 1940 by A.P. Rowe, a British Air Ministry
Scientist. The phrase referred to the application of scientific methods to analyze and improve the
effectiveness of military operations OR gained prominence beyond military applications after the
war. Organizations began to recognize its potential to solve complex problems in various sectors,
including manufacturing, transportation, logistics, finance, healthcare, and telecommunications

Key Points about the Origin of Operations Research:

 Operations Research is a 'war baby. It is because, the first problem attempted to solve in a
systematic way was concerned with how to set the time fuse bomb to be dropped from an
aircraft on to a submarine

 The main origin of Operations Research was during the Second World War (1939-1945)
in order to make the best use of limited military resources and the win the war.
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 At the time of Second World War, the military management in England invited a team of
scientists to study the strategic and tactical problems related to air and land defense of the
country

 The problem attained importance because at that time the resources available with
England was very limited and the objective was to win the war with available limited
resources.

 The resources such as food, medicines, manpower etc., were required to manage war and
for the use of the population of the country

 It was necessary to decide upon the most effective utilization of the available resources to
achieve the objective. It was also necessary to utilize the military resources cautiously.
Hence, the Generals of military, invited a team of experts in various walks of life such as
scientists, doctors, mathematicians, business people, professors, engineers etc., and the
problem of resource utilization is given to them to discuss and come out with a feasible
solution. These specialists had a brain storming session and came out with a method of
solving the problem, which they coined the name "Linear Programming". This method
worked out well in solving the war problem.

 As the name indicates, the word Operations is used to refer to the "problems of military"
and the word Research is use for "inventing new method". As this method of solving the
problem was invented during the war period, the subject is given the name
"OPERATIONS RESEARCH and abbreviated as "O.R".
Characteristics / Features of OR:-
Operations Research (O.R.) is a multidisciplinary field that applies mathematical modeling,
statistical analysis, and optimization techniques to solve complex decision-making problems.
Some key features or characteristics of Operations Research are listed below

1. Systematic Approach: OR uses a structured approach to solve problems, typically beginning

with the formulation of the problem, Constructing a Model, Deriving Solution from the Model,
Testing the Model, Establishing Controls over the Solution, and Implementation of the Solution.
This methodical approach ensures consistency and comprehensiveness in tackling complex
issues.

2. Quantitative Approach: The core of OR is based on quantitative techniques. It relles on

mathematical models to formulate problems involving complex systems or processes. This
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reliance on quantifiable data allows for objective decision-making that can be systematically
validated.

3. Interdisciplinary Approach: Operations Research often involves teams of specialists from

various disciplines, including mathematics, statistics, economics, engineering, and psychology.
This interdisciplinary approach ensures that all aspects of a problem are considered and that
solutions benefit from diverse perspectives.

4. Goal Oriented Approach: OR is focused on achieving specific goals like minimizing costs,
maximizing efficiency, or optimizing resource allocation. This goal-oriented approach ensures
that the solutions developed are directly aligned with organizational or project objectives.

5. Scientific Approach: OR applies scientific methods to the management of organized systems

in business, industry, government, and other enterprises. OR techniques are systematic and based
on the scientific gathering of information, followed by objective analysis and testing of
hypotheses.

6. Problem Solving and Decision-Making: One of the primary characteristics of OR is its

emphasis on problem-solving and decision-making. It provides a toolkit for dealing with
problems that are not only complex but often also dynamic and evolving.

7. Iterative Process: O.R. often involves an iterative process of problem formulation, model
development, solution derivation, testing and implementation to refine and improve decision-
making

8. Optimization: OR, aims to optimize or improve decision outcomes by finding the best
possible solution given constraints and objectives.

9. Decision Support: OR pound objectives-makers with tools and techniques to make informed
decisions based on data-driven analysis modeling.

10. Modeling: OR involves the development of mathematical models that represent real-world

systems, processes, or problems to facilitate analysis and decision-making.

11. Simulation: OR uses simulation techniques to mimic real-world scenarios and test different
strategies or solutions in a risk-free environment.

12. Data-driven: OR relies on data analysis and interpretation to derive insights, make
predictions, and optimize decision outcomes.
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13. Sensitivity Analysis: OR assesses the sensitivity of solutions to changes in input parameters,
helping decision-makers understand the robustness of their decisions.

14. Broad Applications: Operations Research is not confined to any specific type of problem or
industry sector. It has broad applications across various fields such as business, engineering,
healthcare, transportation, logistics, finance, and government, showcasing its versatility.

15. Improvement Focus: O.R. promotes a culture of continuous improvement by evaluating and
refining decision-making processes based on feedback and performance metrics.

Steps/Phases of Operations Research Process:

1. Formulating the Problem:

 Identification: Clearly define the problem to be addressed and understand its scope and
objectives.
 Data Collection: Gather relevant data and information needed to model the problem
accurately.
 Stakeholder Involvement: Involve key stakeholders to ensure that the formulated
problem aligns with organizational goals.
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 Problem Decomposition: Break down complex problems into smaller, more manageable
components for analysis.
 Assumptions: Explicitly state any assumptions made during problem formulation to
guide the modeling process.

2. Constructing a Model:
 Mathematical Representation: Translate the real-world problem into a mathematical
model using equations and relationships.
 Objective Function: Define the objective function that quantifies the goal to be
optimized.
 Constraints: Identify and incorporate constraints that limit the feasible solutions within
the model.
 Decision Variables: Define the variables that can be controlled or manipulated to
achieve the desired outcome.

3. Deriving Solution from the Model:

 Optimization Techniques: Apply optimization methods such as linear programming

integer programming, or simulation to find the best solution.
 Sensitivity Analysis: Evaluate how changes in input parameters impact the solution and
its sensitivity to variations.
 Trade-off Analysis: Consider trade-offs between conflicting objectives to make
informed decisions.
 Solution Interpretation: Interpret the results obtained from the model in the context of
the problem being addressed.
 Feasibility Analysis: Ensure that the derived solution meets all constraints and is feasible
in practical terms

4. Testing the Model:

 Validation Testing: Compare the model's predictions with real-world data to assess its
accuracy and reliability
 Scenario Analysis: Test the model under different scenarios to evaluate its robustness
and generalizability
 Model Refinement: Modify the model based on testing results to improve its predictive
power and effectiveness
 Error Analysis: Identify and analyze discrepancies between model predictions and
actual outcomes to refine the model.
 Peer Review: Seek feedback from experts or peers to validate the model's assumptions
and methodology.
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5. Establishing Controls over the Solution:

 Monitoring Mechanisms: Implement systems to monitor the performance of the solution

and detect deviations.
 Feedback Loops: Establish feedback loops to adjust the solution based on changing
conditions or new information.
 Thresholds and Alerts: Define thresholds and alerts to trigger corrective actions when
the solution deviates from expected outcomes.
 Continuous Improvement: Continuously evaluate and refine the solution to maintain its
effectiveness over time.
 Risk Management: Identify potential risks and develop contingency plans to mitigate
adverse effects on the solution.

6. Implementation of the Solution:

 Action Plan: Develop a detailed plan for implementing the recommended solution in
practice.
 Change Management: Address organizational changes required to adopt the solution
effectively.
 Training and Communication: Provide training and communication to stakeholders on
the new solution and its benefits.
 Performance Metrics: Define key performance indicators to measure the impact of the
implemented solution.
 Feedback Mechanisms: Establish mechanisms for feedback and evaluation to assess the
success of the implemented solution and make adjustments as needed.

Scope of OR:

 Decision-Making: OR provides tools and methodologies to facilitate informed decision.

making by systematically analyzing available data and information.
 Resource Management: It helps in the optimal allocation of limited resources such as
materials, personnel, time, and finances to maximize efficiency and productivity.
 Process Improvement: OR techniques are utilized to enhance the performance of
business operations, reduce costs, and streamline processes for increased effectiveness.
 Risk Analysis and Management: Operations Research offers quantitative approaches to
assess and mitigate risks by enabling organizations to develop strategies to manage
uncertainties effectively.
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 Strategy Development: OR supports organizations in strategic planning and policy

formulation by analyzing complex scenarios, forecasting future conditions, and
recommending data-driven strategies for long-term success.
 Supply Chain Optimization: OR plays a crucial role in optimizing supply chain
networks, inventory management, demand forecasting, and distribution strategies to
enhance operational efficiency and customer satisfaction.
 Project Management: OR methodologies are applied in project planning, scheduling.
resource allocation, and risk analysis to ensure successful project completion within
defined constraints.
 Quality Control: Operations Research contributes to quality improvement initiatives by
analyzing process data, identifying areas for enhancement, and implementing strategies to
maintain high standards of quality and customer satisfaction.
 Revenue Management: OR techniques are utilized in pricing optimization, revenue
forecasting, and capacity management to maximize revenue, optimize pricing strategies,
and adapt to changing market conditions.
 Human Resource Management: OR supports workforce planning, scheduling,
optimization and performance evaluation to align human resource capabilities with
organizational goals and enhance workforce efficiency.
 Simulation: OR employs simulation techniques to model and analyze the behavior of
complex systems over time. Simulation allows for the exploration of system dynamics,
the evaluation of different scenarios, and the assessment of the impact of changes or
interventions. It is widely used in fields such as manufacturing, healthcare, transportation,
and finance.
 Forecasting and Predictive Analytics: OR utilizes statistical analysis and forecasting
methods to analyze historical data, identify patterns and trends, and make predictions
about future outcomes. Forecasting techniques help organizations anticipate demand,
plan inventory levels, and make strategic decisions in areas such as sales, finance, and
operations.

Applications of OR:

Today, almost all fields of business and government use the benefits of Operation
Research. Some of them are:-
[Link]:
 Assigning audit teams effectively
 Credit policy analysis
 Cash flow planning
 Developing standard costs
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 Establishing costs for by products

 Planning of delinquent account strategy

2. Construction:
 Project scheduling, monitoring and control
 Determination of proper work force
 Deployment of work force
 Allocations of resources to projects
3. Facilities Planning:
 Factory location and size decision
 Estimation of number of facilities required
 Hospital planning
 International logistic system design
 Transportation loading and unloading
 Warehouse location decision
4. Finance:
 Building cash management models
 Allocating capital among various alternatives
 Building financial planning models
 Investment analysis
 Portfolio analysis
 Dividend policy making
5. Manufacturing:
 Inventory control
 Marketing balance projection
 Production scheduling
 Production smoothing
6. Marketing:
 Advertising budget allocation
 Product introduction timing
 Selection of Product mix
 Deciding most effective packaging alternative
7. Organizational Behavior / Human Resources:
 Personnel planning
 Recruitment of employees
 Skill balancing/Training program scheduling
 Designing organizational structure more effectively
8. Purchasing:
 Optimal buying
 Optimal reordering
 Materials transfer
9. Research and Development:
 R & D Projects control
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 R & D Budget allocation

 Planning of Product introduction

Types of Models in OR:-

OR
MODELS

Models by
Function

Descriptive Predictive Normative

Model Model Model

These models consist of (1) Descriptive Models, (ii) Predictive Models, and (iii) Normative or
Optimization Models.

 Descriptive Models: These models aim to describe the relationships and patterns within
a dataset or system without incorporating an explicit objective function for decision-
making. These models provide insights into how variables interact and change in
response to each other.
Example: A descriptive model in healthcare may analyze patient demographics and medical
history to understand the factors influencing the prevalence of a particular disease within a
population.

 Predictive Models: These models utilize historical data to forecast future outcomes or
trends based on observed patterns. These models focus on making informed predictions
about future events or behaviors.
Example: A predictive model in finance may use past stock market data to predict future price
movements and guide investment decisions.

 Normative or Optimization Models: These models are prescriptive in nature and it is

used to develop objective decision rules for achieving optimal solutions. These models
guide decision- making processes towards the best course of action among feasible
alternatives.
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Example: An example is linear programming used in supply chain management to optimize

production schedules and minimize costs by allocating resources efficiently based on defined
constraints and objectives.

OR Models

Models by
Structure

Iconic Analog Mathematic

Model Model Model

These models are represented by (1) Iconic or Physical models, (11) Analog models, and (iii)
Mathematic or Symbolic models.
 Iconic or Physical Models: These are pictorial representations of real systems and have
the appearance of the real thing. An iconic model is said to be scaled down or scaled up
according to the dimensions of the model which may be smaller or greater than that of the
real item
Example: City maps, blue prints of houses, globe and so on. These models are easy to observe
and describe but are difficult to manipulate and are not very useful for the purposes of prediction.
 Analog Models: Analog Models are closely linked to iconic models but not exact
replicas of systems or processes but serve to analyze the underlying issues and forces
within them. By using properties that are analogous to those of the actual system, these
models help in understanding complex phenomena.
Example: Toy models, Railroads, and children's play sets.
 Mathematic or Symbolic Models: The solution of the problem is then obtained by
applying well developed mathematical techniques to the model. The symbolic model is
usually the easiest to manipulate experimentally and it is the most general and abstract.
Its function is more explanatory than descriptive.
Example: A simple example of a symbolic model is using algebraic equations to
represent the motion of a falling object. By defining variables such as initial height, time,
acceleration due to gravity, and velocity, and relating them through equations like the
kinematic equations of motion, one can predict the object's position at any given time.
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This symbolic model allows for precise calculations and analysis of the object's motion
without the need for physical experimentation.

OR Models

Model by Nature
of an
Environment

Deterministic Probabilistic
Model Method

3. Models by Nature of an Environment

These models can be classified into (i) Deterministic models, and (ii) Probabilistic or
Stochastic models.

 Deterministic Models: In these models, all parameters and functional relationships are
assumed to be known with certainty when the decision is to be made.
Example: CPM is a deterministic model used in project management to schedule and
manage complex projects. It identifies the critical path, which is the sequence of tasks
that determines the project's overall duration. By considering known task durations,
dependencies, and constraints, CPM helps project managers in planning and executing
projects efficiently.

 Probabilistic or Stochastic Models: These models are those in which at least one
parameter or decision variable is a random variable These models reflect to some extent
the complexity of the real world and the uncertainty surrounding it.
Example: Weather forecasting models that incorporate probabilistic elements to pre
future weather conditions. Stock market prediction models that consider the stochastic
nature of market fluctuations.
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OR Models

Models by the
Extent of
Generality

Specific Model General Model

Simulation
Model

Heuristic Models

4. Models by the Extent of Generality

These models can be categorized into (1) Specific models, and (ii) General models

 Specific Models: When a model presents a system at some specific time it is known
Specific Models: When models, if the time factor is not considered them they are termed
static models. Otherwise, they are termed as dynamic models.
Example: An inventory problem of determining economic order quantity for the next
period assuming that the demand in the planning period would remain same as that of
today is an example of static model. Dynamic programming may be considered as an
example of dynamic model

 General Models: General Models such as simulation and heuristic models are versatile
too used to explore alternative strategies that may have been overlooked in traditional
approaches

*Simulation Models: These models replicate real-world processes or systems to analyze

their behavior under different scenarios, providing insights into complex systems when
analytical solutions may be challenging to obtain
Example: Monte Carlo Simulation is used in finance to assess risk and uncertainty it
investment portfolios by generating multiple possible outcomes based on probabilistic
Inputs.
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* Heuristic Models: These models rely on rules of thumb or practical strategies to guide
decision-making in situations where optimal solutions are difficult to determine.
Example: An example of a heuristic model is a manager using past sales data and
industry trends to make pricing decisions

OR Models

Models by
Degree of
Abstraction

Concrete Models Abstract Models

5. Models by Degree of Abstraction

These models can be categorized into (1) Concrete Models, and (ii) Abstract Models.

 Concrete Models: These models represent the system using physical objects or entities
that closely resemble the real system.
Example: Functional models or mock-ups of products or systems built to test design
concepts functionality, and performance before full-scale production in product
development and manufacturing

 Abstract Models: These models represent the system using symbols, equations, or
mathematical formulations that may not directly resemble the real system but capture
essential characteristics.
Example: In Linear Regression, the relationship between a dependent variable and one or
more independent variables is represented by a linear equation. While the model itself is
based on mathematical formulations and equations, it abstracts the real-world relationship
between variables into a simplified form that can be used for prediction and analysis.
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Tools and Techniques of OR:

Tools and techniques in Operations Research refer to the methodologies, models, software, and
approaches used to analyze and solve complex problems in various fields. These tools are
essential for decision-making, optimization, and problem-solving processes Some of tools and
techniques in Operations Research are listed below:

1. Mathematical Models: Mathematical models form the foundation of Operations Research,

representing real-world systems using mathematical equations. These models help in quantifying
relationships, constraints, and objectives within a problem, enabling optimization and decision-
making.

2. Simulation: Simulation involves creating a computer-based model to mimic the behavior of a

real system over time. It is used to analyze and understand complex systems, test different
scenarios, and evaluate the impact of decisions without real-world implementation.

3. Optimization Techniques: Optimization techniques aim to find the best solution from a set of
feasible alternatives. These techniques include linear programming, integer programming
nonlinear programming, and dynamic programming, among others. They help in maximizing or
minimizing an objective function while satisfying constraints.

4. Decision Analysis: Decision analysis involves assessing decision-making processes under

uncertainty. It includes tools like decision trees, influence diagrams, and risk analysis to evaluate
different choices, outcomes, and probabilities, aiding in making informed decisions.

5. Forecasting: Forecasting techniques are used to predict future trends, outcomes, or values
based on historical data and statistical methods. Forecasting plays a crucial role in planning,
resource allocation, and risk management in various industries.

6. Queuing Theory: Queuing theory is utilized to study waiting lines and optimize service
processes. It helps in analyzing system performance, improving efficiency, and reducing waiting
times by determining the optimal number of servers and service rates.

7. Inventory Management: Inventory management techniques focus on optimizing inventory

levels to meet demand while minimizing costs. Models such as Economic Order Quantity (EOQ)
and Just-In-Time (JIT) inventory systems are used to balance inventory holding costs and stock
out risks.

8. Network Analysis: Network analysis tools like Critical Path Method (CPM) and Program
Evaluation and Review Technique (PERT) are employed to schedule and manage complex
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projects. These techniques help in identifying critical activities, estimating project duration and
optimizing resource allocation.

Advantages of OR:-

Optimal Solutions: OR helps in finding optimal solutions to complex problems Optimal

Solutions models and algorithms, leading to improved efficiency and cost-effectiveness by
utilizing them
Decision Support: OR provides decision-makers with quantitative tools and techniques to
informed decisions based on data driven analysis rather than intuition or guesswork
Resource Utilization: OR helps in optimizing the utilization of resources such as time wome
manpower, and materials, leading to better resource management
Risk Management of enables organizations to assess and mitigate risks by analyzing var
scenarios and identifying potential outcomes before making decisions.
Performance Improvement: OR can enhance the performance of systems and processes by
identifying bottlenecks, inefficiencies, and areas for improvement through modeling and
analysis.
Interdisciplinary Approach: OR integrates concepts from various disciplines such as
mathematics statistics, economics, and computer science, providing a holistic approach to
problem-solving
Forecasting and Planning: OR techniques can be used for forecasting future trends, planning
operations, and developing strategies for long-term success

Disadvantages of Operations Research:-

Complexity: OR models can be complex and require specialized knowledge in mathematics,

statistics and optimization techniques, making them challenging to implement and interpret for
non-experts.

Data Requirements: OR heavily relies on accurate and reliable data for modeling and analysis,
and the unavailability or inaccuracy of data can lead to flawed results and decisions.
Assumptions: OR models are based on certain assumptions about the system under study, and if
these assumptions are incorrect or unrealistic, the model outcomes may not reflect the real-world
scenario accurately
Implementation Costs: Implementing OR solutions may require significant investments in
technology training, and infrastructure, which can be a barrier for organizations with limited
resources.

Resistance to Change: OR may face resistance from stakeholders who are accustomed to
traditional decision-making methods or are skeptical about the validity and reliability of
mathematical models.
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Ethical Considerations: OR decisions based solely on quantitative analysis may overlook

ethical considerations, human factors, and qualitative aspects that are important in decision-
making processes

Limitations of Models: OR models have limitations in capturing all aspects of a complex

system, and there may be uncertainties or unforeseen factors that cannot be accounted for in the
modeling process

LIMITATIONS OF OPERATIONS RESEARCH

OR has some these are to the problem of model building and the time and limitations. However,
these are related to her than its practical utility. Some of them are as follows:

(1) Magnitude of Computation: Operations Research models try to find out optimal solution
taking into account all the factors. These factors are enormous and expressing them in quantity
and establishing relationships among these require voluminous calculations which can be
handled by computers.

(2) Non-Quantifiable Factors: OR provides solution only when all elements related to a
problem can be quantified. All relevant variables do not lend themselves to Quantification.
Factors which cannot be quantified find no place in OR study. Models in OR do not take
account qualitative factors or emotional factors which may be quite important for decision
making.

(3) Distance between User and Analyst: OR being a specialist's job requires a mathematician
or statistician, who might not be aware of the business problems. Similarly, a manager fails to
understand the complex working of OR. Thus there is a gap between the two. Management itself
may offer a lot of resistance due to conventional thinking.

(4) Time and Money Costs: When basic data is subject to frequent changes, incorporating it into
the OR models is a costly proposition. Moreover, a fairly good solution at present may be more
desirable than a perfect OR solution available after sometime. The computational time increases
depending upon the size of the problem and accuracy of results desired.

(5) Implementation: Implementation of any decision is a delicate task. It must take into account
the complexities of human relations and behavior. Sometimes, resistance is offered due to
psychological factors which may not have any bearing on the problem as well as its solution.