INTRODUCTION TO OR-MODULE 3

History and development of OR Definition of OR Features of OR Scope of OR Models and Modelling in OR Limitations of OR

THE HISTORY OF OPERATIOH RESEARCH

It is generally agreed that operations research came into existence as a discipline during World War II. However, a particular model and technique of OR can be traced back as early as in World War I, when Thomas Edison (1914-15) made an effort to use a tactical game board for finding a solution to minimize shipping losses from enemy submarines, instead of risking ships in actual war conditions. Similarly, A K Erlang, a Danish engineer, carried out experiments to study the fluctuations in demand for telephone facilities using automatic dialing equipment. During World War II the Military Commands of UK and USA engaged several inter-disciplinary teams of scientists to undertake scientific research into strategic and tactical military operations. Their mission was to formulate specific proposals and plans for aiding the Military Commands to arrive at the decisions on optimal utilization of scarce military resources and efforts, and also to implement the decisions effectively. After the war was over, scientists who had been active in the military OR groups made efforts to apply the operations research approach to civilian problems related to business, industry, research development etc. There are 3 important factors behind the development of OR: 1. The economic and industrial boom after World War II 2. The first mathematical technique in this field, the Simplex method of Linear programming was developed in 1947 by American mathematician George B. Dantzig 3. The use of computers made it possible to apply many OR techniques

DEFINITION OF OR
Operations research is the application of the methods of science to complex problems in the direction and management of large systems of men, machines, materials and money in industry, business, government and defense. The distinctive approach is to develop a scientific model of the system incorporating measurements of factors such as chance and risk, with which to predict and compare the outcomes of alternative decisions, strategies or controls. The purpose is to be help management in determining its policy and actions scientifically -Operational Research Society, UK The application of the scientific method to study of operations of large complex organizations or activities. It provides top level administrators with a quantitative basis for decisions that will increase the effectiveness of such organizations in carrying out their basic purposes. -Committee on OR of National Research Council

From all definitions, we can arrive at the conclusion that whatever else OR may be, it is certainly concerned with optimization problems. There are three main reasons for why most of the definitions of OR are not satisfactory. (1) OR is not a science like any well-defined physical, biological, social phenomena. It is not a scientific research into the control of operations. It is essentially a collection of mathematical techniques and tools which in conjunction with a system approach are applied to solve practical decisions problems of an economic or engineering nature. Thus it is very difficult to define OR precisely (2) OR is inherently inter-disciplinary in nature with applications not only in military and business but also in medicine, engineering, physics etc.. Thus, inter-disciplinary approach is an important characteristic of OR which is not included in most of its definitions. (3) Most of the definitions of OR have been offered at different times of development of Or and hence are bound to emphasize its only one or the other aspect As the discipline of OR grew, numerous names such as Operations Analysis, Systems Analysis, Decision Analysis, Management Science, Quantitative Analysis, Decision Science were given to it. This is because of the fact that the types of problems encountered are always concerned with effective decision, but the solution of these problems do not always involve research into operations or aspects of the science of management.

MEANING OF OR

In simple, operations Research is concerned with scientifically deciding how to best design and operate man-machine systems that usually require the allocation of scarce resources. Operations Research may be described as a scientific approach to decision-making that involves the operations of organizational system 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 the optimum solutions to the problems. Operations Research is essentially a collection of mathematical techniques and tools which in conjunction with a systems approach, are applied to solve practical decision problems of an economic or engineering nature.

FEATURES OF OR APPROACH

Interdisciplinary approach OR is inter-disciplinary in nature and requires a team approach to a solution to the problem. No single individual can have a thorough knowledge of various aspects such as economic, social, political, psychological, engineering etc. and how the problems may be addressed. Managerial problems have economic, physical, psychological, sociological, and engineering aspects. This requires a blend of people with expertise in the areas of mathematics, statistics, engineering, economics, management, computer science, and so on. Scientific approach OR employs scientific methods for the purpose of solving problems, and there is no place for whims and guesswork in it. In other words, OR 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. 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 of the organization 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.

PHASES OF OR APPROACH TO PROBLEM

SOLVING

Judgment Phase includes identification of the real-life problem; selection of an appropriate objective and the values of various variables related to this objective; application of the appropriate scale of measurement; formulation of an appropriate model of the problem and the abstraction of the essential information, so that a solution to the decision-makers goals can be obtained Research Phase includes observation and collection for a better understanding of the problem; formulation of hypothesis and model; observation and experimentation to test the hypothesis on the basis of additional data; analysis of the available information and verification of the hypothesis using pre-established measures of desirability; prediction of various results from the hypothesis; and generalization of the result and consideration of alternative methods 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.

SCOPE OF OR

In Agriculture -optimum allocation of land to various crops in accordance with the climatic conditions -optimum distribution of water from various resources like canal for irrigation purposes. In Finance -to maximize the per capita income with minimum resources; -to find out the profit plan for the company. -to determine the best replacement policies, etc In Marketing -where to distribute the products for sale so that the total cost of transportation is minimum, -the minimum per unit sale price -the size of the stock to meet the future demand -how to select the best advertising media with respect to time, cost etc. In Personnel Management -to appoint the most suitable persons on minimum salary -to determine the best age of retirement for the employees In Production Management -to find out the number and size of the items to be produced -in scheduling and sequencing the production run by proper allocation of machines -in calculating the optimum product mix -to select, locate, and design the sites for the production plants In LIC -what should be the premium rates for various modes of policies -how best the profits could be distributed in the cases of with profit policies?

ROLE OF OR IN DECISION MAKING

Better Control Better Co-ordination

Better System
Better Decisions

APPLICATION OF OR

Some of the areas of management decision making, where the tools and techniques of OR are applied, are outlined below(1) Finance-Budgeting and Investments -cash-flow analysis, long range capital requirements, dividend policies, investment portfolios. -credit policies, credit risks and delinquent account procedures. -claim and complaint procedures. (2) Purchasing, Procurement and Exploration -rules for buying, supplies and stable or varying prices -determination of quantities and timing of purchases. -bidding policies -strategies for exploration and exploitation of raw material sources. -replacement policies. (3) Production Management -(I) Physical Distribution *location and size of warehouses, distribution centers and retail outlets. *distribution policy -(ii) Facilities Planning *numbers and location of factories, warehouses, hospitals etc. *loading and unloading facilities for railroads and trucks determining the transport schedule. -(iii) Manufacturing *production scheduling and sequencing. *stabilization of production and employment training, layoffs and optimum product mix.

-(iv) Maintenance and Project Scheduling *maintenance policies and preventive maintenance. *maintenance crew sizes. *project scheduling and allocation of resources. (4) Marketing -product selection, timing, competitive actions. -number of salesman, frequency of calling on accounts per cent of time spent on prospects. -advertising media with respect to cost and time. (5) Personal Management -selection of suitable personnel on minimum salary. -mixes of age and skills -recruitment policies and assignment of jobs. (6) Research and Development -determination of the areas of concentration of research and development. -project selection -determination of time cost trade-off and control development projects -reliability and alternative design. From all above areas of applications we may conclude that OR can be widely used in taking timely management decisions and also used as a corrective measure.

MODELS AND MODELLING IN OR

Model may be defined as a representation of an actual object or situation. It shows the relationships (direct or indirect) and inter-relationships of action and reaction in terms of cause and effect. Since a model is an abstraction of reality, it thus appears to be less complete than reality. Models do not, and cannot, represent every aspect of reality because of the innumerable and changing characteristics of the real-life problems. however, for a model to be complete, it must be a representative of those aspects of reality that are being investigated. The main objective of a model is to provide means for analyzing the behavior of the system for the purpose of improving its performance. Or, if a system is not in existence, then a model defines the ideal structure of this future system indicating the functional relationships among its elements. The reliability of the solution obtained from a model depends on the validity of the model in representing the real systems

CLASSIFICATION OF MODELS

Based on function -Descriptive -Predictive -Normative Based on Structure -Iconic -Analogue -Symbolic Based on Dimensionality -Two-dimensional -Multidimensional Based on Degree of certainty -Certainty -Conflict -Risk -Uncertainty Based on Time reference -Static -Dynamic

Based on Time reference -Static -Dynamic Based on Generality -Specialized -General Based on Degree of closure -Closed -Open Based on Quantification -Qualitative * Mental * Verbal -Quantitative * Statistical * Heuristic * Simulation

Classification based on Structure: 1. Physical models: these models

METHODS FOR SOLVING OR MODELS

Analytical or Deductive Method

Numerical or Iterative Method

Monte Carlo Method

METHODOLOGY OF OPERATIONS RESEARCH

Defining the problem Collecting data and constructing a mathematical model Solving the Mathematical Model Validating the solution Implementing the solution Modifying the Model Establishing Controls over the solution