DECISION MAKING – A QUANTITATIVE APPROACH

1. DECISION MAKING – A QUANTITATIVE APPROACH CHAPTER 1

2. Learning Objectives • Decision Making Model • Operations Research - Definitions • Characteristics of Operations Research • Models and Operations Research • Operations Research Methodology • Operations Research Techniques • Typical Applications of Operations Research

3. Decision Making Model Define the problem Establish Cause-Effect relationship Objective Setting Decide on Boundary Conditions Gather Data Analyse Data Information Gathering Impose Limits Generation of Alternatives Decide on Feasible Alternatives Look at Short Range Evaluation of Alternatives Look at long Range Decide on Strengths and Weaknesses Apply Qualitative Aids Apply Quantitative Aids Selection of Alternative Translate into Action Decide Alternative Implementation Qualitative Approach Quantitative Approach Monitor and Control Quantify and Measure against Objectives

4. The Decision Dilemma • Apna Gaon, an ethnic resort, wanted a special dish that will be served to all patrons free on Divali. • They held a competition for amateur cooking teams to decide on the dish. Four teams participated in the competition. The competition was not open to professionals. • Seven judges were appointed for the competition. Each judge rank ordered the teams according to their performance. The team standing first was awarded 4 points, the second 3, the third 2 and the team standing fourth was awarded 1 point. The points of all judges were totalled up and a score sheet prepared.

5. Before result was announced, Team C protested that Team B should be disqualified as it had used a professional. This was true. What would you do as the Chairman of Apna Gaon?

6. Disqualify Team B. If scoring is revised as per fresh ranking without altering each judge’s preference; the results alter materially. • Method of scoring debatable.

7. History of OR • Second World War • Blackett’s Circus • 3 physiologists, 2 mathematical physicists, 1 astrophysicist, 1 army officer, 1 surveyor, 1 general physicist, 2 mathematicians. • Depth charge settings • Dam busters • AA gun layout

8. Operations Research - Definitions • OR is a scientific method of providing executive departments with a quantitative basis for decisions under their control. Morse & Kimball

9. Operations Research - Definitions • OR is a scientific approach to problem solving for executive management Wagner

10. Operations Research - Definitions • OR is the art of giving bad answers to problems, which otherwise have worse answers. T.L. Saaty

11. Operations Research - Definitions • OR is an applied decision theory. It uses scientific, mathematical or logical means to attempt to cope with the problems that confront the executive, when he tries to achieve a thorough-going rationality in dealing with his decision problems. D. W. Miller & M. K. Starr

12. Operations Research - Definitions • Employment of scientific methods of analysis to provide executives with quantitative basis for making decisions regarding operations under their control.

13. Characteristics of Operations Research • Systems Approach • Analytical Approach • Interdisciplinary Approach • Deals with real world problems

14. Modelling in Operations Research • Physical or Iconic Model – ‘Look alike’ of what it represents. • Analogue Models – Substitution of one property for another • Mathematical or Analytical Models – Symbolic abstract models. TC = FC + (VC)Q where TC is Total Cost FC is Fixed Cost VC is Variable Cost Q is number of units produced

15. Operations Research Methodology • Problem Identification • Model Construction • Experimentation • Implementation • Evaluation

16. Problem Identification • Need Analysis • Cause and Effect Analysis

17. Cause and Effect Diagram Control Energy Source Efficiency Procure Portable Light Purchase Date Effectiveness Design

18. Cause and Effect Diagram Control Dry Cells Energy Source On/Off Efficiency Life Cost Lens Ni Cd Bty Convenience Procure Portable Light Field Purchase Date Flashing Combination Brightness Effectiveness Regular Design

19. Cause and Effect Diagram Control Dry Cells Intermittent use Energy Source Red On/Off Efficiency Initial 1 Life Point 2 Continuous use Cost White Lens 4 Ni Cd Bty Operating Wide Angle Convenience Procure Portable Light Weight Size Range Lumens Field Purchase Date Area Flashing Watts Combination Brightness Effectiveness Regular Design

20. Model Construction • Data Collection • Only scarce resources need to be considered. • Only those activities that affect the scarcity of such resources should be considered. • Model Design • Model Evaluation • Relational Models – C & E diagrams • Precedence Models – C.P.M. & P.E.R.T. • Mathematical Models – Optimisation models • Stochastic Models - Simulation

21. Experimentation • Feasibility Analysis • Optimality Analysis • Adaptivity Analysis

22. Implementation • Management Approval • Test Operations • Full Implementation

23. Evaluation • Documentation • Performance Audit • System Updating • Effectiveness of a Decision • Technically Feasible • Administratively Convenient • Politically Expedient • Economically Viable

24. Operation Research Techniques • Allocation Models • Linear Programming • Nonlinear Programming • Transportation Model • Assignment Model • Integer Programming • Goal Programming • Dynamic Programming

25. Operation Research Techniques • Inventory Models • Replacement Models • Networks • Queuing Theory • Simulation Models • Sequencing Models • Decision Theory • Game Theory • Markov Models

26. Models – Cost, Revenue and Profit • Cost and volume models. • Revenue and volume models • Profit and volume models • Break even analysis

27. Applications • Accounting • Cash flow analysis • Credit policy and credit risk • Planning of delinquent accounts strategy • Marketing • Selection of product mix • Advertising allocations • Strength of sales force • Product introduction timings

28. Applications • Purchasing and Procurement • Determination of quantities and timings of purchases • Replacement problems • Bidding policies • Material transfer from sources to destinations

29. Applications • Production Management • Location of facilities • Number of facilities • Loading and unloading sites and crews • Production scheduling and sequencing • Project scheduling • Allocation of resources • Materials requirement planning

30. Applications • Human Resource Management • Manpower planning • Skill balancing • Schedule of training programmes • Recruiting and job assignment • Research and Development • Project selection • Project scheduling • Reliability and alternative designs • Control of R & D projects