Quantitative Analysis

for Management

TWELFTH EDITION
GLOBAL EDITION

Charles Harwood Professor of Management Science

Crummer Graduate School of Business, Rollins College

Professor of Information and Management Sciences,

Florida State University

Professor of Decision Sciences,

University of Houston-Clear Lake

Associate Professor of Management Sciences,

University of Houston-Downtown

PEARSON

Boston Columbus Indianapolis New York San Francisco Upper Saddle River
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CONTENTS

PREFACE 13 CHARTER 2 Probability Concepts and Applications 41

2.1 Introduction 42
CHARTER 1 Introduction to
Quantitative Analysis 19 2.2 Fundamental Concepts 42
1.1 Introduction 20 Two Basic Rules of Probability 42
1.2 What Is Quantitative Analysis? 20 Types of Probability 43
1.3 Business Analytics 21 Mutually Exclusive and Collectively
Exhaustive Events 44
1.4 The Quantitative Analysis Approach 22
Unions and Intersections of Events 45
Defining the Problem 22
Probability Rules for Unions, Intersections,
Developing a Model 22 and Conditional Probabilities 46
Acquiring Input Data 23 23 Revising Probabilities with Bayes' Theorem 47
Developing a Solution 23 General Form of Bayes' Theorem 49
Testing the Solution 24 24 Further Probability Revisions 49
Analyzing the Results and Sensitivity Analysis 24 25 Random Variables 50
Implementing the Results 24 26 Probability Distributions 52
The Quantitative Analysis Approach Probability Distribution of a Discrete
and Modeling in the Real World 26 Random Variable 52
1.5 How to Develop a Quantitative Analysis Expected Value of a Discrete Probability
Model 26 Distribution 52
The Advantages of Mathematical Modeling 27 Variance of a Discrete Probability Distribution 53
Mathematical Models Categorized by Risk 27 Probability Distribution of a Continuous
1.6 The Role of Computers and Spreadsheet Random Variable 54
Models in the Quantitative Analysis 2.7 The Binomial Distribution 55
Approach 28
Solving Problems with the Binomial Formula 56
1.7 Possible Problems in the Quantitative Analysis
Approach 31 Solving Problems with Binomial Tables 57
Defining the Problem 31 28 The Normal Distribution 58
Developing a Model 32 Area Under the Normal Curve 60
Acquiring Input Data 33 Using the Standard Normal Table 60
Developing a Solution 33 Haynes Construction Company Example 61
Testing the Solution 34 The Empirical Rule 64
Analyzing the Results 34 2.9 The F Distribution 64
1.8 Implementation Not Just the 2.10 The Exponential Distribution 66
Final Step 35 Arnolds Muffler Example 67
Lack of Commitment and Resistance 2.11 The Poisson Distribution 68
to Change 35 Summary 70 Glossary 70 Key
Lack of Commitment by Quantitative Analysts 35 Equations 71 Solved Problems 72 Seif Test 74
Summary 35 Glossary 36 KeyEquations 36 Discussion Questions and Problems 75
Seif-Test 36 Discussion Questions and Case Study: WTVX 81 Bibliography 81
Problems 37 Case Study: Food and Appendix 2.1: Derivation of Bayes' Theorem 81
Beverages at Southwestern University Football
Games 39 Bibliography 39

6
 CONTENTS 7

CHARTER 3 Decision Analysis 83 4.8 Multiple Regression Analysis 146

3.1 Introduction 84
3.2 The Six Steps in Decision Making 84
3.3 Types of Decision-Making Environments 85
3.4 Decision Making Under Uncertainty 86
Optimistic 86
Pessimistic 87
Criterion of Realism (Hurwicz Criterion) 87
Equally Likely (Laplace) 88
Minimax Regret 88
3.5 Decision Making Under Risk 89
Expected Monetary Value 89
Expected Value of Perfect Information 90
Expected Opportunity Loss 92
Sensitivity Analysis 92
3.6 A Minimization Example 93
3.7 Using Software for Payoff Table Problems 95
QM for Windows 95
Excel QM 96
3.8 Decision Trees 97
Efficiency of Sample Information 102
Sensitivity Analysis 102
3.9 How Probability Values Are Estimated
by Bayesian Analysis 103
Calculating Revised Probabilities 103
Potential Problem in Using Survey Results 105
3.10 Utility Theory 106
Measuring Utility and Contracting
a Utility Curve 107
Utility as a Decision-Making Criterion 110
Summary 112 Glossary 112
KeyEquations 113 Solved Problems 113
Seif-Test 118 Discussion Questions and
Problems 119 Case Study: Starting Right
Corporation 127 Case Study: Blake
Electronics 128 Bibliography 130
CHARTER 4 Regression Models 131
4.1 Introduction 132
4.2 Scatter Diagrams 132
4.3 Simple Linear Regression 133
4.4 Measuring the Fit of the Regression Model 135
Coefficient of Determination 136
Correlation Coefficient 136
4.5 Assumptions of the Regression Model 138
Estimating the Variance 139
4.6 Testing the Model for Significance 139
Triple A Construction Example 141
The Analysis of Variance (ANOVA) Table 141
Triple A Construction ANOVA Example 142
4.7 Using Computer Software for Regression 142
Excel 2013 142
Excel QM 143
QM for Windows 145
Evaluating the Multiple Regression Model 147
Jenny Wilson Realty Example 148
4.9 Binary or Dummy Variables 149
4.10 Model Building 150
Stepwise Regression 151
Multicollinearity 151
4.11 Nonlinear Regression 151
4.12 Cautions and Pitfalls in Regression
Analysis 154
Summary 155 Glossary 155
KeyEquations 156 Solved Problems 157
Seif Test 159 Discussion Questions and
Problems 159 Case Study: North-South
Airline 164 Bibliography 165
Appendix 4.1: Formulasfor Regression Calculations 165
CHARTER 5 Forecasting 167
5.1 Introduction 168
5.2 Types of Forecasting Models 168
Qualitative Models 168
Causal Models 169
Time-Series Models 169
5.3 Components of a Time-Series 169
5.4 Measures of Forecast Accuracy 171
5.5 Forecasting ModelsRandom Variations
Only 174
Moving Averages 174
Weighted Moving Averages 174
Exponential Smoothing 176
Using Software for Forecasting Time Series 178
5.6 Forecasting Models Trend and Random
Variations 181
Exponential Smoothing with Trend 181
Trend Projections 183
5.7 Adjustingfor Seasonal Variations 185
Seasonal Indices 186
Calculating Seasonal Indices with No
Trend 186
Calculating Seasonal Indices with Trend 187
5.8 Forecasting ModelsTrend, Seasonal, and
Random Variations 188
The Decomposition Method 188
Software for Decomposition 191
Using Regression with Trend and Seasonal
Components 192
5.9 Monitoring and Controlling Forecasts 193
Adaptive Smoothing 195
Summary 195 Glossary 196
KeyEquations 196 Solved Problems 197
Self-Test 198 Discussion Questions and
Problems 199 Case Study: Forecasting Attendance
at SWU Football Games 202
Case Study: Forecasting Monthly
Sales 203 Bibliography 204
8 CONTENTS

CHARTER 6 Inventory Control Models 205 CHARTER 7 Linear Programming Models: Graphical
6.1 Introduction 206 and Computer Methods 257
6.2 Importance of Inventory Control 207 7.1 Introduction 258
Decoupling Function 207 7.2 Requirements of a Linear Programming
Storing Resources 207 Problem 258
Irregulr Supply and Demand 207 7.3 Formulating LP Problems 259
Quantity Discounts 207 Flair Furniture Company 259
Avoiding Stockouts and Shortages 207 7.4 Graphical Solution to an LP Problem 261
Inventory Decisions 208 Graphical Representation of Constraints 261
6.3
6.4 Economic Order Quantity: Determining How Isoprofit Line Solution Method 265
Much to Order 209 Corner Point Solution Method 268
Inventory Costs in the EOQ Situation 210 Slack and Surplus 270
Finding the EOQ 212 7.5 Solving Flair Furniture's LP Problem Using
Sumco Pump Company Example 212 QMfor Windows, Excel 2013, and Excel
QM 271
Purchase Cost of Inventory Items 213
Using QM for Windows 271
Sensitivity Analysis with the EOQ Model 214
Using Excel's Solver Command to Solve
6.5 Reorder Point: Determining When LP Problems 272
to Order 215
Using Excel QM 275
6.6 EOQ Without the Instantaneous Receipt
Assumption 216 7.6 Solving Minimization Problems 277
Annual Carrying Cost for Production Run Holiday Meal Turkey Ranch 277
Model 217 7.7 Four Special Cases in LP 281
Annual Setup Cost or Annual Ordering No Feasible Solution 281
Cost 217 Unboundedness 281
Determining the Optimal Production Redundancy 282
Quantity 218 Alternate Optimal Solutions 283
Brown Manufacturing Example 218 Sensitivity Analysis 284
7.8
6.7 Quantity Discount Models 220
High Note Sound Company 285
Brass Department Store Example 222 Changes in the Objective Function
6.8 Use of Safety Stock 224 Coefficient 286
6.9 Single-Period Inventory Models 229 QM for Windows and Changes in Objective
Marginal Analysis with Discrete Function Coefficients 286
Distributions 230 Excel Solver and Changes in Objective Function
Cafe du Donut Example 231 Coefficients 287
Marginal Analysis with the Normal Changes in the Technological Coefficients 288
Distribution 232 Changes in the Resources or Right-Hand-Side
Newspaper Example 232 Values 289
6.10 ABC Analysis 234 QM for Windows and Changes in Right-Hand-
6.11 Dependent Demand: The Case for Material Side Values 290
Requirements Planning 234 Excel Solver and Changes in Right-Hand-Side
Material Structure Tree 235 Values 290
Gross and Net Material Requirements Summary 292 Glossary 292
Plan 236 Solved Problems 293 Self-Test 297
Discussion Questions and Problems 298
Two or More End Products 237 Case Study: Mexicana Wire Works 306
6.12 Just-In-Time Inventory Control 239 Bibliography 308
6.13 Enterprise Resource Planning 240
CHARTER 8 Linear Programming Applications 309
Summary 241 Glossary 241
KeyEquations 242 Solved Problems 243 8.1 Introduction 310
Self-Test 245 Discussion Questions and &2 Marketing Applications 310
Problems 246 Case Study: Martin-Pullin Bicycle Media Selection 310
Corporation 253 Bibliography 254
Marketing Research 311
Appendix 6.1: Inventory Control with QMfor Windows 255 Manufacturing Applications 314
Production Mix 314
Production Scheduling 315
 CONTENTS 9

8.4 Employee Scheduling Applications 319 Limiting the Number of Alternatives

Labor Flanning 319 Selected 390
8.5 Financial Applications 321 Dependent Selections 390
Portfolio Selection 321 Fixed-Charge Problem Example 390
Track Loading Problem 324 Financial Investment Example 392
8.6 Ingredient Blending Applications 326 10.4 Goal Programming 392
Diet Problems 326 Example of Goal Programming: Harrison Electric
Company Revisited 394
Ingredient Mix and Blending Problems 327
Extension to Equally Important Multiple
8.7 Other Linear Programming Applications 329 Goals 395
Summary 331 Self-Test 331 Ranking Goals with Priority Levels 395
Problems 332 Case Study: Cable &
Moore 339 Bibliography 340 Goal Programming with Weighted Goals 396
10.5 Nonlinear Programming 397
CHARTER 9 Transportation, Assignment, and Network Nonlinear Objective Function and Linear
Models 341 Constraints 398
9.1 Introduction 342 Both Nonlinear Objective Function and
9.2 The Transportation Problem 343 Nonlinear Constraints 398
Linear Program for the Transportation Linear Objective Function with Nonlinear
Example 343 Constraints 400
Solving Transportation Problems Using Summary 400 Glossary 401
Computer Software 343 Solved Problems 401 Self-Test 404
Discussion Questions and Problems 405
A General LP Model for Transportation Case Study: Schank Marketing
Problems 344 Research 410 Case Study: Oakton River
Facility Location Analysis 345 Bridge 411 Bibliography 412
9.3 The Assignment Problem 348
CHARTER 11 Project Management 413
Linear Program for Assignment Example 348
11.1 Introduction 414
9.4 The Transshipment Problem 350
11.2 PERT/CPM 415
Linear Program for Transshipment Example 350
General Foundry Example of PERT/CPM 415
9.5 Maximal-Flow Problem 353
Drawing the PERT/CPM Network 417
Example 353
Activity Times 417
9.6 Shortest-Route Problem 355
How to Find the Critical Path 418
9.7 Minimal-Spanning Tree Problem 356
Probability of Project Completion 423
Summary 360 Glossary 361
Solved Problems 361 Self-Test 363 What PERT Was Able to Provide 424
Discussion Questions and Problems 364 Using Excel QM for the General Foundry
Case Study: Andrew-Carter, Inc. 375 Example 424
Case Study: Northeastern Airlines 376 Sensitivity Analysis and Project Management 425
Case Study: Southwestern University Traffic
Problems 377 Bibliography 378 11.3 PERT/Cost 427
Flanning and Scheduling Project Costs:
Appendix 9.1: Using QMfor Windows 378 Budgeting Process 427
CHARTER 10 Integer Programming, Goal Programming, Monitoring and Controlling Project Costs 430
and Nonlinear Programming 381 11.4 Project Crashing 432
10.1 Introduction 382 General Foundary Example 433
10.2 Integer Programming 382 Project Crashing with Linear Programming 434
Harrison Electric Company Example of Integer 11.5 Other Topics in Project Management 437
Programming 382 Subprojects 437
Using Software to Solve the Harrison Integer Milestones 437
Programming Problem 384 Resource Leveling 437
Mixed-Integer Programming Problem Software 437
Example 386
Summary 437 Glossary 438
10.3 Modeling with 0-1 (Binary) Variables 388 KeyEquations 438 Solved Problems 439
Capital Budgeting Example 388
8 CONTENTS

CHARTER 6 Inventory Control Models 205 CHARTER 7 Linear Programming Models: Graphical
6.1 Introduction 206 and Computer Methods 257
6.2 Importance of Inventory Control 207 7.1 Introduction 258
Decoupling Function 207 7.2 Requirements ofa Linear Programming
Storing Resources 207 Problem 258
Irregulr Supply and Demand 207 7.3 Formulating LP Problems 259
Quantity Discounts 207 Flair Furniture Company 259
Avoiding Stockouts and Shortages 207 7.4 Graphical Solution to an LP Problem 261
6.3 Inventory Decisions 208 Graphical Representation of Constraints 261
6.4 Economic Order Quantity: Determining How Isoprofit Line Solution Method 265
Much to Order 209 Corner Point Solution Method 268
Inventory Costs in the EOQ Situation 210 Slack and Surplus 270
Finding the EOQ 212 7.5 Solving Flair Furniture's LP Problem Using
Sumco Pump Company Example 212 QMfor Windows, Excel 2013, and Excel
QM 271
Purchase Cost of Inventory Items 213
Using QM for Windows 271
Sensitivity Analysis with the EOQ Model 214
Using Excel's Solver Command to Solve
6.5 Reorder Point: Determining When LP Problems 272
to Order 215
Using Excel QM 275
6.6 EOQ Without the Instantaneous Receipt
Assumption 216 7.6 Solving Minimization Problems 277
Annual Carrying Cost for Production Run Holiday Meal Turkey Ranch 277
Model 217 7.7 Four Special Cases in LP 281
Annual Setup Cost or Annual Ordering No Feasible Solution 281
Cost 217 Unboundedness 281
Determining the Optimal Production Redundancy 282
Quantity 218 Alternate Optimal Solutions 283
Brown Manufacturing Example 218 7.8 Sensitivity Analysis 284
6.7 Quantity Discount Models 220 High Note Sound Company 285
Brass Department Store Example 222 Changes in the Objective Function
6.8 Use of Safety Stock 224 Coefficient 286
6.9 Single-Period Inventory Models 229 QM for Windows and Changes in Objective
Marginal Analysis with Discrete Function Coefficients 286
Distribution: 230 Excel Solver and Changes in Objective Function
Cafe du Donut Example 231 Coefficients 287
Marginal Analysis with the Normal Changes in the Technological Coefficients 288
Distribution 232 Changes in the Resources or Right-Hand-Side
Newspaper Example 232 Values 289
6.10 ABC Analysis 234 QM for Windows and Changes in Right-Hand-
6.11 Dependent Demand: The Case for Material Side Values 290
Requirements Planning 234 Excel Solver and Changes in Right-Hand-Side
Material Structure Tree 235 Values 290
Gross and Net Material Requirements Summary 292 Glossary 292
Plan 236 Solved Problems 293 Self-Test 297
Discussion Questions and Problems 298
Two or More End Products 237 Case Study: Mexicana Wire Works 306
6.12 Just-In-Time Inventory Control 239 Bibliography 308
6.13 Enterprise Resource Planning 240
CHARTER 8 Linear Programming Applications 309
Summary 241 Glossary 241
KeyEquations 242 Solved Problems 243 8.1 Introduction 310
Self-Test 245 Discussion Questions and 8.2 Marketing Applications 310
Problems 246 Case Study: Martin-Pullin Bicycle Media Selection 310
Corporation 253 Bibliography 254
Marketing Research 311
Appendix 6.1: Inventory Control with QM for Windows 255 Manufacturing Applications 314
8.3
Production Mix 314
Production Scheduling 315
 CONTENTS 9

8.4 Employee Scheduling Applications 319 Limiting the Number of Alternatives

Labor Flanning 319 Selected 390
8.5 Financial Applications 321 Dependent Selections 390
Portfolio Selection 321 Fixed-Charge Problem Example 390
Truck Loading Problem 324 Financial Investment Example 392
8.6 Ingredient Blending Applications 326 10.4 Goal Programming 392
Diet Problems 326 Example of Goal Programming: Harrison Electric
Company Revisited 394
Ingredient Mix and Blending Problems 327
Extension to Equally Important Multiple
8.7 Other Linear Programming Applications 329 Goals 395
Summary 331 Self-Test 331 Ranking Goals with Priority Levels 395
Problems 332 Case Study: Cable &
Moore 339 Bibliography 340 Goal Programming with Weighted Goals 396
10.5 Nonlinear Programming 397
CHARTER 9 Transportation, Assignment, and Network Nonlinear Objective Function and Linear
Models 341 Constraints 398
9.1 Introduction 342 Both Nonlinear Objective Function and
9.2 The Transportation Problem 343 Nonlinear Constraints 398
Linear Program for the Transportation Linear Objective Function with Nonlinear
Example 343 Constraints 400
Solving Transportation Problems Using Summary 400 Glossary 401
Computer Software 343 Solved Problems 401 Self-Test 404
Discussion Questions and Problems 405
A General LP Model for Transportation Case Study: Schank Marketing
Problems 344 Research 410 Case Study: Oakton River
Facility Location Analysis 345 Bridge 411 Bibliography 412
9.3 The Assignment Problem 348
CHARTER 11 Project Management 413
Linear Program for Assignment Example 348
11.1 Introduction 414
9.4 The Transshipment Problem 350
11.2 PERT/CPM 415
Linear Program for Transshipment Example 350
General Foundry Example of PERT/CPM 415
9.5 Maximal-Flow Problem 353
Drawing the PERT/CPM Network 417
Example 353
Activity Times 417
9.6 Shortest-Route Problem 355
How to Find the Critical Path 418
9.7 Minimal-Spanning Tree Problem 356
Probability of Project Completion 423
Summary 360 Glossary 361
Solved Problems 361 Self-Test 363 What PERT Was Able to Provide 424
Discussion Questions and Problems 364 Using Excel QM for the General Foundry
Case Study: Andrew-Carter, Inc. 375 Example 424
Case Study: Northeastern Airlines 376 Sensitivity Analysis and Project Management 425
Case Study: Southwestern University Trajfic
Problems 377 Bibliography 378 11.3 PERT/Cost 427
Flanning and Scheduling Project Costs:
Appendix 9.1: Using QMfor Windows 378 Budgeting Process 427
CHARTER 10 Integer Programming, Goal Programming, Monitoring and Controlling Project Costs 430
and Nonlinear Programming 381 11.4 Project Crashing 432
10.1 Introduction 382 General Foundary Example 433
10.2 Integer Programming 382 Project Crashing with Linear Programming 434
Harrison Electric Company Example of Integer 11.5 Other Topics in Project Management 437
Programming 382 Subprojects 437
Using Software to Solve the Harrison Integer Milestones 437
Programming Problem 384 Resource Leveling 437
Mixed-Integer Programming Problem Software 437
Example 386
Summary 437 Glossary 438
10.3 Modeling with 0-1 (Binary) Variables 388 KeyEquations 438 Solved Problems 439
Capital Budgeting Example 388
10 CONTENTS
Self-Test 441 Discussion Questions and
Problems 442 Case Study: Southwestern
University Stadium Construction 447
Case Study: Family Planning Research Center of
Nigeria 448 Bibliography 450
Appendix 11.1: Project Management with QM
for Windows 450
CHARTER 12 Waiting Lines and Queuing Theory
Models 453
12.1 Introduction 454
12.2 Waiting Line Costs 454
Three Rivers Shipping Company Example 455
12.3 Characteristics of a Queuing System 456
Arrival Characteristics 456
Waiting Line Characteristics 456
Service Facility Characteristics 457
Identifying Models Using Kendall Notation 457
12.4 Single-Channel Queuing Model with Poisson
Arrivals and Exponential Service Times
(M/MII) 460
Assumptions of the Model 460
Queuing Equations 460
Arnolds Muffler Shop Case 461
Enhancing the Queuing Environment 465
12.5 Multichannel Queuing Model with Poisson
Arrivals and Exponential Service Times
(M/M/m) 465
Equations for the Multichannel Queuing
Model 466
Arnolds Muffler Shop Revisited 466
12.6 Constant Service Time Model (M/D/I) 468
Equations for the Constant Service Time
Model 468
Garcia-Golding Recycling, Inc. 469
12.7 Finite Population Model (M/M/i with Finite
Source) 470
Equations for the Finite Population Model 470
Department of Commerce Example 471
12.8 Some General Operating Characteristic
Relationships 472
12.9 More Complex Queuing Models and the Use
of Simulation 472
Summary 473 Glossary 473
KeyEquations 474 Solved Problems 475
Self-Test 478 Discussion Questions and
Problems 479 Case Study: New England
Foundry 483 Case Study: Winter Park
Hotel 485 Bibliography 485
Appendix 12.1: Using QMfor Windows 486
CHARTER 13 Simulation Modeling 487
13.1 Introduction 488
13.2 Advantages and Disadvantages
of Simulation 489
13.3 Monte Carlo Simulation 490
Harry's Auto Tire Example 490
Using QM for Windows for Simulation 495
Simulation with Excel Spreadsheets 496
13.4 Simulation and Inventory Analysis 498
Simkins Hardware Store 498
Analyzing Simkins Inventory Costs 501
13.5 Simulation ofa Queuing Problem 502
Port of New Orleans 502
Using Excel to Simulate the Port of New Orleans
Queuing Problem 504
13.6 Simulation Model for a Maintenance
Policy 505
Three Hills Power Company 505
Cost Analysis of the Simulation 507
J3.7 Other Simulation Issues 510
Two Other Types of Simulation Models 510
Verification and Validation 511
Role of Computers in Simulation 512
Summary 512 Glossary 512
Solved Problems 513 Self-Test 516
Discussion Questions and Problems 517
Case Study: Alabama Airlines 522
Case Study: Statewide Development
Corporation 523 Case Study: FB Badpoore
Aerospace 524 Bibliography 526
Markov Analysis 527
CHARTER 14
14.1 Introduction 528
14.2 States and State Probabilities 528
The Vector of State Probabilities for Three
Grocery Stores Example 529
14.3 Matrix of Transition Probabilities 530
Transition Probabilities for the Three Grocery
Stores 531
14.4 Predicting Future Market Shares 531
14.5 Markov Analysis of Machine Operations 532
14.6 Equilibrium Conditions 533
M7 Absorbing States and the Fundamental
Matrix: Accounts Receivable Application 536
Summary 540 Glossary 541
KeyEquations 541 Solved Problems 541
Self-Test 545 Discussion Questions
and Problems 545 Case Study: Rentall
Trucks 550 Bibliography 551
Appendix 14.1: Markov Analysis with QMfor Windows 551
Appendix 14.2: Markov Analysis With Excel 553
CHARTER 15 Statistical Quality Control 555
15.1 Introduction 556
15.2 Defining Quality and TQM 556
15.3 Statiscal Process Control 557
Variability in the Process 557
 CONTENTS 11

15.4 Control Charts for Variables 559 M2.3 Dynamic Programming Terminology M2-6
The Central Limit Theorem 559 M2.4 Dynamic Programming Notation M2-8
Setting x-Chart Limits 560 M2.5 Knapsack Problem M2-9
Setting Range Chart Limits 563 Types of Knapsack Problems M2-9
15.5 Control Charts for Attributes 564 Rollers Air Transport Service Problem M2-9
p-Charts 564 Summary M2-16 Glossary M2-16 Key
c-Charts 566 Equations M2-16 Solved Problem M2-16
Self-Test M2-18 Discussion Questions
Summary 568 Glossary 568 and Problems M2-19 Case Study:
KeyEquations 568 Solved Problems 569 United Trucking M2-22 Internet Case
Self-Test 570 Discussion Questions and Study M2-22 Bibliography M2-22
Problems 570 Bibliography 573
Appendix 15.1: Using QM for Windows for SPC 573 MODULE 3 Decision Theory and the Normal
Distribution M3-1
APPENDICES 575 M3.1 Introduction M3-2
APPENDIX A Areas Under the Standard M3.2 Break-Even Analysis and the Normal
Normal Curve 576 Distribution M3-2
APPENDIX B Binomial Probabilities 578 Barclay Brothers Companys New Product
Decision M3-2
APPENDIX C Values of e~k for Use in the Poisson Probability Distribution of Demand M3-3
Distribution 583
Using Expected Monetary Value to Make a
APPENDIX D F Distribution Values 584 Decision M3-5
APPENDIXE Using POM-QM for Windows 586 M3.3 Expected Value ofPerfect Information and the
Normal Distribution M3-6
APPENDIX F Using Excel QM and Excel Add-Ins 589
Opportunity Loss Function M3-6
APPENDIX G Solutions to Selected Problems 590 Expected Opportunity Loss M3-6
APPENDIX H Solutions to Seif-Tests 594 Summary M3-8 Glossary M3-8
KeyEquations M3-8 Solved Problems M3-9
INDEX 597 Self-Test M3-9 Discussion Questions and
Problems M3-10 Bibliography M3-11
Appendix M3.1: Derivation of the Break-Even Point M3-11
ONLINE MODULES
Appendix M3.2: Unit Normal Loss Integral M3-12
MODULE 1 Analytic Hierarchy Process Ml-1
MODULE 4 Game Theory M4-1
Ml.l Introduction Ml-2
M4.1 Introduction M4-2
Ml.2 MultifactorEvaluation Process Ml-2
M4.2 Language of Games M4-2
Ml.3 Analytic Hierarchy Process Ml-4
M4.3 The Minimax Criterion M4-3
Judy Grim's Computer Decision Ml-4
M4.4 Pure Strategy Games M4-4
Using Pairwise Comparisons Ml -5
M4.5 Mixed Strategy Games M4-5
Evaluations for Hardware Ml-7
M4.6 Dominance M4-6
Determining the Consistency Ratio Ml-7
Summary M4-7 Glossary M4-7 Solved
Evaluations for the Other Factors Ml-9 Problems M4-7 Self-Test M4-8
Determining Factor Weights Ml-10 Discussion Questions and Problems M4-9
Overall Ranking Ml-10 Bibliography M4-10
Using the Computer to Solve Analytic Hierarchy
Process Problems Ml-10 MODULE 5 Mathematical Tools: Determinants
Ml.4 Comparison of Multifactor Evaluation and and Matrices M5-1
Analytic Hierarchy Processes Ml-11 M5.1 Introduction M5-2
Summary Ml-12 Glossary Ml-12 Key M5.2 Matrices and Matrix
Equations Ml-12 Solved Problems Ml-12 Operations M5-2
Self-Test Ml-14 Discussion Questions and Matrix Addition and Subtraction M5-2
Problems Ml-14 Bibliography Ml-16 Matrix Multiplication M5-3
Appendix Ml.l: Using Excel for the Analytic Hierarchy Matrix Notation for Systems
Process Ml-16 of Equations M5-6
MODULE 2 Dynamic Programming M2-1 Matrix Transpose M5-6
M2.1 Introduction M2-2 M5.3 Determinants, Cofactors, and Adjoints M5-6
M2.2 Shortest-Route Problem Solved Using Determinants M5-6
Dynamic Programming M2-2 Matrix of Cofactors and Adjoint M5-8
12 CONTENTS
M5.4 Finding the Inverse ofa Matrix M5-10
Summary M5-11 Glossary M5-11
KeyEquations M5-11 Self-Test M5-12
Discussion Questions and Problems M5-12
Bibliography M5-13
Appendix M5.1: Using Excel for Matrix Calculations M5-13
MODULE 6 Calculus-Based Optimization M6-1
M6.1 Introduction M6-2
M6.2 Slope ofa Straight Line M6-2
M6.3 Slope ofa Nonlinear Function M6-3
M6.4 Some Common Derivatives M6-5
Second Derivatives M6-6
M6.5 Maximum and Minimum M6-6
M6.6 Applications M6-8
Economic Order Quantity M6-8
Total Revenue M6-9
Summary M6-10 Glossary M6-10
KeyEquations M6-10 Solved Problem M6-11
Self-Test M6-11 Discussion Questions and
Problems M6-12 Bibliography M6-12
MODULE 7 Linear Programming: The Simplex
Method M7-1
M7.1 Introduction M7-2
M7.2 How to Set Up the Initial Simplex
Solution M7-2
Converting the Constraints to Equations M7-3
Finding an Initial Solution Algebraically M7-3
The First Simplex Tableau M7-4
M7.3 Simplex Solution Procedures M7-8
M7.4 The Second Simplex Tableau M7-9
Interpreting the Second Tableau M7-12
M7.5 Developing the Third Tableau M7-13
M7.6 Review of Procedures for Solving LP
Maximization Problems M7-16
M7.7 Surplus and Artificial Variables M7-16
Surplus Variables M7-17
Artificial Variables M7-17
Surplus and Artificial Variables in the Objective
Function M7-18
M7.8 Solving Minimization Problems M7-18
The Muddy River Chemical Company
Example M7-18
Graphical Analysis M7-19
Converting the Constraints and Objective
Function M7-20
Rules of the Simplex Method for Minimization
Problems M7-21
First Simplex Tableau for the Muddy River
Chemical Corporation Problem M7-21
Developing a Second Tableau M7-23
Developing a Third Tableau M7-24
Fourth Tableau for the Muddy River Chemical
Corporation Problem M7-26
M7.9 Review of Procedures for Solving LP
Minimization Problems M7-27
M7.10 Special Cases M7-28
Infeasibility M7-28
Unbounded Solutions M7-28
Degeneracy M7-29
More Than One Optimal Solution M7-30
M7.11 Sensitivity Analysis with the Simplex
Tableau M7-30
High Note Sound Company Revisited M7-30
Changes in the Objective Function
Coefficients M7-31
Changes in Resources or RHS Values M7-33
M7.12 The Dual M7-35
Dual Formulation Procedures M7-37
Solving the Dual of the High Note Sound
Company Problem M7-37
M7.13 Karmarkar's Algorithm M7-39
Summary M7-39 Glossary M7-39
KeyEquation M7-40 Solved Problems M7-41
Self-Test M7-44 Discussion Questions and
Problems M7-45 Bibliography M7-54
MODULE 8 Transportation, Assignment, and Network
Algorithms M8-1
M8.1 Introduction M8-2
M8.2 The Transportation Algorithm M8-2
Developing an Initial Solution: Northwest Corner
Rule M8-2
Stepping-Stone Method: Finding a Least-Cost
Solution M8-4
M8.3 Special Situations with the Transportation
Algorithm M8-9
Unbalanced Transportation Problems M8-9
Degeneracy in Transportation Problems M8-10
More Than One Optimal Solution M8-13
Maximization Transportation Problems M8-13
Unacceptable or Prohibited Routes M8-13
Other Transportation Methods M8-13
M8.4 The Assignment Algorithm M8-13
The Hungarian Method (Flood's
Technique) M8-14
Making the Final Assignment M8-18
M8.5 Special Situations with the Assignment
Algorithm M8-18
Unbalanced Assignment Problems M8-18
Maximization Assignment Problems M8-19
M8.6 Maximal-Flow Problem M8-20
Maximal-Flow Technique M8-20
M8.7 Shortest-Route Problem M8-23
Shortest-Route Technique M8-23
Summary M8-25 Glossary M8-25
Solved Problems M8-26 Self-Test M8-32
Discussion Questions and Problems M8-33
Cases M8-42 Bibliography M8-42