OR chapter 1 an introduction materia.pdf

Operations research materials are for businesses and other organizations in any sector, like manufacturing, as well as services. therefore, I contribute this interesting material to this community. The nature of this study focused on investment policy and promotion and gave special consideration to investment in the manufacturing sector. This chapter sets the scene for the study by discussing in broad terms the background of the study, the problem statement, and the objective of the study. It also defines the study's scope and its significance. Governments need to perform various functions in the field of political, social, and economic activities to maximize social and economic welfare. To perform these duties and functions governments require large amounts of resources called public revenues. Public revenue consists of taxes, and revenue from administrative activities like fines, fees, gifts, and grants. However, taxes are the first and foremost important sources of public revenue which are central to the current economic growth and development agenda. The importance of taxation as a veritable tool of economic growth and development depends on a proper tax system that can generate revenue through tax. While fulfilling the revenue function, taxes also have a pervasive influence on the economic decisions of individuals and businesses, and social equity. (SADC, 2004). Likewise, there is a general agreement that, the process of economic growth and investment\capital formation is closely interconnected. According to the World Bank (2013), GDP growth is higher for those countries, that have relatively higher investment/GDP ratios.
Virtually governments are keen to attract potential investment. Investment can generate new jobs, bring in new technologies, and, more generally, promote growth and employment. The resulting net increase in domestic income is shared with the government through taxation of wages and profits and possibly other taxes on business. Given the above-mentioned potential benefits, policymakers continually re-examine their tax rules to ensure they are attractive to investment. At the same time, governments continually balance the desire to offer a competitive tax environment for the Investment sector, with the need to ensure that an appropriate share of domestic tax is collected from this investment (Ibid). Tax policy shapes the environment in which international trade and investment take place. Thus, a core challenge is finding the optimal balance between a tax regime that is business and investment-friendly and one that can leverage enough revenue for public service delivery to enhance the attractiveness of the economy (Ibid).
Tax concessions represent perhaps the most widely adopted measures in developing countries to promote economic development. Today virtually all developing countries and many developed countries too offer inducements to approved enterprises in the form of reductions in or exemptions from import duties and inc

1. JimmaUniversity
College of Business and Economics
Department of Management
TesfayeH. (MBA)
2013
Operations Research (OR)

2. Chapter One: Introduction
Chapterobjectives
After completing this unit, you will be able to:
•Understand the history of operations
research.
•Meaning and definition of OR
•Features of OR
•Identify application areas of
operations research
•Significance of operations research.
•OR techniques
•Quantitative Analysis and Decision Making
•Models and Model Building
•Limitations of OR
2

3. Introduction To OR/MS
•OperationsResearch(OR):isasciencewhichdealswithproblem,
formulation,solutionandfinallyappreciatedecisionmaking.
•Thisscienceisbasicallyconcernedwithoptimizingmaximaandminimaof
objectivefunctionsinvolved.
•E.g.maximacouldbeprofit,performanceandyield
minimacouldbelossandrisk
3

4. History of OR
•StartedinGreatBritainduringWWII
•Failureofmissionwasveryhigh.
•scientistsandtechnocratsformedateamtostudytheproblemsarisingoutof
differentsituations.
•1940s:thetermofORgetmoreprominencewhenresearchwascarriedoutonthe
designandanalysisofmathematicalmodelsformilitaryoperations.
4

5. Contd…
•Till1950sORconfinedtomilitaryoperations,
•1950:ORbegantodevelopinIndustrialfiledinUSA.
•1951:thefirstbook“MethodsofOperationsResearch”published.
•1952:theOperationsResearchSocietyofAmericacameintobeing.
•1957:IFORSestablishedatOxford
•SincethentheOR/MS/DS/SShasbecomemoreapplicableinall
managementaspectsofasystem,productandservice.
5

6. What is OR?
6
Operations
•Theactivitiescarriedoutinanorganization.
Research
•Theprocessofobservationandtestingcharacterizedbythescientificmethod.
Situation,problemstatement,modelconstruction,validation,experimentation,
candidatesolutions.
Model
•Anabstractrepresentationofreality.Mathematical,physical,narrative,setof
rulesincomputerprogram.

7. Meaning and Definition of OR
•ORistheapplicationofascientificapproachtosolvingmanagementproblems
inordertohelpmanagersmakebetterdecision(BernardW.TaylorIII,2006).
•OR:istheapplicationofscientificmethodsbyinter-disciplinaryteamstosolve
problemsinvolvingthecontroloforganized(man-machinesystems)soasto
providesolutionswhichbestservethepurposesoftheorganizationasawhole
(AckoffandSasieni1968).
7

8. •Fromtheconceptsanddefinitiongivenabove,OperationsResearchis:
1.Theapplicationofscientificmethods,techniquesandtoolstosolveaproblem
2.Amanagementtoolinthehandsofamanagertotakeadecision.
3.Ascientificapproachtodecision-makingprocess.
4.An“appliedresearch”aimingatfindingasolutionforanimmediateproblemfacinga
society,industryorabusinessenterprise.Thisisnot“fundamentalresearch”.
5.Adecision-orientedresearch,usingscientificmethods,forprovidingmanagementa
quantitativebasisfortakingdecisionregardingoperationsunderhis/hercontrol.
8

9. FEATURES OF OR
(i)Decision-making
(ii)ScientificApproach
(iii)Inter-disciplinaryTeamApproach
(iv)SystemApproach
(v)Reducescomplexitybyuseofcomputers
(vi)Helpfulinimprovingthequalityofsolution
(vii)Useofmodels
(viii)Requirewillingexecutives
9

10. 10
TheproceduretobefollowedinthestudyofOR,generallyinvolvesthefollowing
majorphases.
1.Formulatingtheproblem
2.Constructingamathematicalmodel
3.Derivingthesolutionfromthemodel
4.Testingthemodelanditssolution(updatingthemodel)
5.Controllingthesolution
6.Implementation

11. Application Areas of Operations Research
•Forecasting
•Production Scheduling
•Inventory Control
•Capital Budgeting
•Transportation
•Plant location
•Human Resource Management
•Advertising and sales research
•Maintenance and Repair
•Accounting procedures
•Packaging
•Natural Resource Management
•Research and Development
•Health Care
•Quality Control
•Equipment Replacement, etc.
11
There are so many application areas of operations research; to mention some of the
most widely known areas:

12. Significance of Operations Research
• Provides a tool for scientific analysis
• Provides solution for various business problems
• Enables proper deployment of resources
• Helps in minimizing waiting and servicing costs
• Enables the management to decide when to buy and how much to buy?
• Assists in choosing an optimum strategy
• Renders great help in optimum resource allocation
• Facilitates the process of decision making
• Helps a lot in the preparation of future managers
•Optimizing plant revenues
•Improving the efficiency of a production line
12

13. The commonly used techniques include
1. Allocation models :
•Linear programming
•Non-linear programming
•Transportation models
•Assignment models
•Integer programming
•Goal programming
•Dynamic programming
2. Inventory models
3. Replacement models
4. Network models
5. Waiting-line models(Queuing theory)
6. Simulation
7. Sequencing models
8. Decision theory
9. Game theory
10. Markov models
11. Regression and correlation
13
Techniques of OR

14. Quantitative Analysis & the Decision Making Process
•Inordertounderstandtheroleofquantitativeanalysisinmanagerialtypeof
problems,itisbettertohavealookatthedecisionmakingprocess.
•DecisionMaking:istheprocessofselectingafeasiblecourseofactionfromaset
ofalternative,soastosolveproblems.
•Thedecisionmakingprocessisinitiatedbyaproblem.
•Theintentionofthemanager,whenmakingadecision,istosolvethatproblem.
•Indoingso,themanagerfirstmakesananalysisofthealternatives.
•Therearetwoformsofanalysis—qualitativeandquantitative.
14

15. Managerial
Problem
Quantitative analysis based
upon mathematical
techniques
Summary &
evaluation
Decision
Qualitative analysis
based upon managerial
experience and judgment
Figure1.1TheDecisionMakingProcess
15
Decision Making Process

16. Steps of decision making
1. Identify and define the problem;
2. Determine the set of alternative solutions;
3. Determine the criteria to evaluate alternatives;
4.Analyzethealternatives;
5.Selectthebestalternative/makethedecision;
6.Implementingthesolution;
7.Establishingacontrol,followupandevaluationsystem;
16

17. Cont…
•Inqualitativeanalysis,intuitionandthemanager’ssubjectivejudgmentand
experienceareused.
•Thistypeofproblemsolvingismoreanartthanascience.
Thequalitativeapproachisusuallyusedwhen:
•Theproblemissimple
•Theproblemisfamiliar
•Thecostsinvolvedarenotsogreat
•Immediatedecisionsareneeded
17

18. Cont…
Thequantitativeapproachisusedwhen:
•Theproblemiscomplex
•Theproblemisnotfamiliar
•Thecostsinvolvedaresubstantial
•Enoughtimeisavailabletoanalyzetheproblem
18

19. Cont….
Boththequantitativeandqualitativeanalysesofaproblemprovide
importantinformationforthedecisionmaker.
quantitativeanalysistendtobemoreobjectivethanthosebasedon
apurelyqualitativeanalysis.
ForthisreasonORmakesuseofquantitativemodels.
19

20. Problem Definition
Model Construction
Analysis (Model
Solution)
Implementation &
Follow-up
Themanagementscienceapproachtoanalyzeandsolvetheprobleminvolves:
Figure 1.2 The management science approach
20

21. Models and model building
•Modelisatheoreticalabstraction(approximation)ofareal-lifeproblem.
•InOR,theproblemisexpressedintheformofamodel.
•Amanagementsciencemodelisanabstractrepresentationofan
existingproblemsituation.
•Itcanbeintheformofagraphorchart,butmostfrequentlya
managementsciencemodelconsistsofasetofmathematical
relationships.
21

22. Cont…..
Therearecertainsignificantadvantagesgainedwhenusingamodel.
Problemsunderconsiderationbecomecontrollablethroughamodel
Itprovidesalogicalandsystematicapproachtotheproblem
Itprovidesthelimitationsandscopeofanactivity
Ithelpstoeliminateduplications
Ithelpsinfindingsolutionsforresearchandimprovementsinasystem.
22

23. Classification of Models
•The classification of models is a subjective problem. They may be
distinguished as follows:
Models by function
Models by degree of abstraction
Models by structure
Models by nature of an environment
Models by the extent of generality
23

24. 1. Models based on Function/purpose:
A.DescriptiveModels:Thesemodelsusesurveys,questionnaireresults,inferenceof
observationstodescribethesituation.Ex.PlantLayoutdiagram.Blockdiagramofan
algorithm.
B.PredictiveModels:Thesemodelsaretheresultsofquery:“Whatwillfollowif
thisoccursordoesnotoccur?”.Ex.PreventiveMaintenanceTroubleShootingchartor
procedures.
C.NormativeorOptimizationModels:Thesemodelsaredesignedtoprovideoptimal
solutiontotheproblemsubjecttoacertainlimitationsorconstraintsonuseof
resources.Ex.LPProblem
24

25. 2. Models based on Structure and Abstraction :
A.IconicorPhysicalModels(ItisalsocalledStaticModel):arepictorialrepresentationsofrealsystems
Thesemodelsareeasytoobserveanddescribebutaredifficulttomanipulate.
E.g.thestructureofanatom,layoutdrawingoffactory,modelofanairplaneetc.
B.AnalogModels:
Theyaremoreabstractthaniconicmodels.
Thesemodelsarelessspecific,lessconcretebuteasiertomanipulatethaniconicmodels.
Abstractmodelsmostlyshowinginterandintrarelationshipsbetweentwoormoreparameters.
ForexampleItmayshowtherelationshipbetweenaninputwiththatofanoutput.
Forinstance;histogram,frequencytable,cause-effectdiagram,flowcharts,Ganttchartsetc.
25

26. Cont…..
C.MathematicalorSymbolicModels:
•Theyaremostabstractinnature.
•Here,asetofrelationsisrepresentedintheformofmathematicalequations
•Itsfunctionismoreexplanatorythandescriptive.
Example:
1.(x+y)
2
=x
2
+2xy+y
2
2.Max.Z=3000x
1+2500x
2
Subjectto:2x
1+x
2<40
x
1+3x
2<45 x
1andx
2aredecisionvariables.
x
1<12
x
1,x
2>0
26

27. 3. Models based on certainty/ Nature of an Environment :
(1)DeterministicModels:alltheparametersofdecisionvariablesareconstants
andtheirfunctionalrelationshipareknownwithcertainty.
Eg.LP,Integerprogrammingetc.
(2)ProbabilisticorStochasticModels:Thisisthemodelinwhichatleastone
ofthedecisionvariableorparameterisrandominnature.
Eg.Queuingtheory,decisionanalysisetc.
27

28. 4. Models by Extent of Generality
•Thesemodelscanbecategorizedinto:
A.SpecificModels:whenamodelpresentsasystematsomespecifictime
B.GeneralModels:aremodelsapplicabletoallsituationswithouttime
bound.SimulationandHeuristicmodelsfallunderthiscategory.
28

29. Limitations of OR
• The inherent limitations concerning mathematical expressions
• High costs are involved in the use of OR techniques
• OR does not take into consideration the intangible factors
• OR is only a tool of analysis and not the complete decision-making process
• Other limitations
–Bias
–Internal resistance
–Competence
29

30. Thank you for you
Attention!!!!!!!!!!!!
?
30